Q4 2021 Linamar Corp Earnings Call
Yes.
[music].
Good day.
Welcome to the Newmont before 10-Q, one earnings call.
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I would now like to turn the conference over to <unk> Executive Chairman and Chief Executive Officer, Linda have in France.
Thanks, very much good afternoon, everyone.
This call joining me. This afternoon are members of my executive team, Jim Jarrell, Chris merger Youre stepping in for our CFO Schneider this quarter.
Roger Fulton Mark product as well as members of our corporate.
Marketing finance and legal team.
Before we begin I will draw your attention to the disclaimer currently being broadcast.
Yeah.
So I won't return expanding easy start to the year for us here at landmark quite aside from the business challenges. We're all facing recourse has to deal with the loss of our founder great coffee fast.
My father was a mentor and teacher of France with so many of US here at <unk> and many outside our company is well I can only give you comfort in the fact that he spent so much time teaching us how to save money to take the new docs on a treat our key customers in product technology and innovation and traffic staff that these last.
Okay very firmly embedded within each of that he has reiterated these things over and over and every one of US is why he was successful in FY <unk>.
Our successful and that's how we will continue to be successful now I know that for anything we have to pay for by the word or by the minute. He would want me to be very brief so I'll leave it at that for the moment.
I'll start off with a review of sales earnings and content.
Sales for the quarter were $1 3 billion down from last year I'll talk to light vehicle market and continued supply chain constraints.
Our industrial segment had a tough quarter, thanks to supply chain constraints impacting <unk> ability to ship product.
Yes, absolutely.
Up over prior year, but not enough to offset that decline and a less than favorable exchange rate.
The auto sector and also had a tough quarter, we think the supply chain issues, notably.
Sure.
In semiconductor chip, which has triggered the continued shutdown for our customers.
Light vehicle market.
We're down 24% and North America down 14% in the quarter.
Change rate changes versus last year has also not been in our favor to just 11% over prior year, even after considering the less favorable exchange rate.
Normalized net earnings are down thank you.
Both segments lower government.
The subsidy level and.
As noted a less favorable exchange rates than last year.
We saw double digit growth in our core North American and European regions on content per vehicle, which is great to see launches are a big part of that as our vehicles, we have high content R&D politically prioritize Brazil's by are accurate.
We finished 2021 with a record level of annual content per vehicle in each region, which is also great to see.
Commercial and industrial sales were down six 5% in the quarter due to supply chain constraints no debt.
Matt on offsetting wells at Skyjack fast efficacy excellent market share gains in all three core products in North America and market share growth in business globally.
Okay.
Which coupled with our market.
Double digit is translating into some solid sales bookings.
<unk> is seeing strong market share growth as well as supply chain constraints are impacting their ability to sell into that robust market.
The good news is they should be able to receive those sales in subsequent quarters as supply chain issues ease.
Capex is down from 2020, but also in the first three quarters of the year, both in dollars and as a percent of sales as we start to anticipate more margins and volume growth 2022 will also be up from 2021 and back into our normal range as a percent of sales.
We have continued our track record of generating free cash flow was $145 million generated this quarter despite higher capex.
For a full year at 673 million and free cash flow. This marks our 15th consecutive quarter of positive free cash flow, which I think is excellent we.
Expect to see continued positive free cash flow for 2022.
We have $1 $9 billion of liquidity available to US, which is also outstanding our balance sheet and liquidity needs. We have the ability to take on takeover work or acquisitions as they arise in an opportunistic market and drive even more growth.
The solid cash flows allowed us to further reduce net debt levels. We are still in a net positive cash position now of 137 million, meaning we have brought net debt down by more than $2 3 billion since our peak in early 2018.
We have an active and CIB program and anticipate being active in the program just as soon as our blackout and we.
We thought it would be good idea.
Talk a little more than that around so much.
Headwinds that we're facing at the moment around the supply chain issues energy costs logistics costs and labor.
Of course top of mind is is we're asking what you're seeing in eastern Europe with Russia unprovoked attack on Ukraine, we've watched announced unfold with deep sorrow concern and apprehension, so they've Ukrainian people and we got rid of our globally standby and your support at the Ukrainians Freedom fighters.
First and foremost this is a humanitarian crisis, a significant proportion of our global team is working to support the freedom fighters in the refugees as best we can.
We are offering accommodations jobs and money in one in one country, we operating globally to the people of Ukraine.
Fundraising efforts within our company have been very successful already and we are not seeing anything right at the corporate level.
We are also actively rolling out fundraising efforts in additional countries as we speak we have seen the first refugee families arrived recovery to take off.
Combinations that we're offering there.
And we are working with various domestic box truck rack EPS into our country into job opportunity.
Turning to the business impact top of mind is supply chain impact to ourselves and our customers for pricing by from Ukraine or Russia.
Re sourcing activities are well underway.
Supply chain mapping to identify risks continue.
This will take some time, but many of these issues will be solved in the next one to three months in our estimation somehow.
Some products will take longer to resource and will impact volumes a lot of airports.
We feel the supply chain impact will be largely a Q1 and Q2 issue.
These there are logistics challenges in terms of European companies, bringing product from China to Europe by rail Russia issue again in the next one to two matching our explanation.
Of course, one of the bigger business impact.
Gas prices are five times.
This will create added pressure.
So such time as additional supply can be.
Brought on board.
This will take some months, possibly years he gave as.
As well.
Sales to Russia, we will of course the impact.
So it really is offset by that will be our appetite.
Cultural business, whose level of sales to Russia.
Not significant.
Finally, the impact on consumer sentiment is unclear.
It will be distributed by the length of time.
We're keeping a close eye on the demand.
Part of this equation.
In short we believe many of the business impact of the war are largely solvable and the near term and our customers and ourselves are accurate.
<unk> plans to resource and re route as quickly as possible.
Here's a great example of that resource we have Barry that one of our plants in Germany with purchasing from a supplier in Ukraine. The team rapidly mobilize to find alternate supply and fast track approval for that with our customer all within 10 days.
This bundle this area too.
Okay.
Turning to an update on other areas of construction, we're seeing improvements in several areas for instance, chip shortage shutdowns are becoming.
I mean less frequent <unk>.
<unk> costs are starting to moderate and some commodity prices are also starting to moderate and even decline.
I will note.
Others are.
Continuing to climb.
Labor availability continues to be a challenge primarily in North America.
You can see here the impact of semiconductor chip shortages total impact to 2021 ended up being $9 6 million units of production with the biggest impact to planned production itself in the third quarter of last year.
Since then the impact of planned production has declined it has not been eliminated.
Can see a forecast for Q1 of 830000 units lot down from the 2 million loss in Q4, but still significant.
This situation will not resolve until additional capacity for chip just put in place this starting to happen in the back half of the impact regionally is relatively balanced between Europe , and North America with Asia, taking the biggest hit this makes sense given the Asia is by far the largest market.
In terms of Oems Ford and GM took the biggest hit as a percent of planned production in 2021 at around 22, or 23% followed by 12 wagon in Atlanta, who saw 15% of production loss and finally, the Asian producers at 10% to 12% of plant production.
Commodity prices are taking divergent trends, depending on the commodity that you're looking at steel products for instance, a leveling off and even declining but aluminum and oil Jeff keep climbing in part due to the warranty claim.
Of course on the mobility side, the majority of cost that do allow for a path to a metal price changes based on a predetermined metal market index. Although I will note that there is a lag effect and there is not a 100% coverage.
Normally this theres not much of an issue but of course, even though very small exposure on an increasingly big number.
On the industrial side, there is no mechanism for making itself.
For commodity cost movements.
These changes are more challenging.
To try to mitigate some level.
All of these commodity cost increases.
We are also seeing a lag in the ability of suppliers to meet demand, notably on the industrial side, which impacts not just cost, but our ability to meet production needs for rebounded market.
It is also very constructive on the productivity side, which is part of what is driving labor costs up.
These challenges are continuing at both Skyjack and marks on them, but I will say are more pronounced on the markdown side.
It is their explanation that shortfall to shipments being felt in the fourth quarter of last year and that they expect to see.
In the first quarter. This year will be caught up in the second quarter, but of course as Missouri spire dependent.
Ocean freight cost facility challenge, but we're seeing cross, allowing off in Europe , and possibly trending down in Asia, Although we did see a jump back up early in the year this year.
We continue to believe that these costs will continue to normalize as we get farther into the year. Although it is possible that some of the logistics constraints mentioned regarding shifting across Russia made but then either crusher on ocean freight to take its place.
I mentioned gas prices earlier in the context of the war in Ukraine natural gas prices in Europe , and now up nearly tenfold over last year. So they were up five times. When we last spoke in November then that's 10 times, where they were a year ago at this point and we are certainly feeling the impact of that in our European plants.
I do expect energy costs to be an ongoing issue we were already seeing pressure on energy prices given reduced supply thanks to declines in investment in fossil fuel energy and it's insufficient offsetting increase in investments in alternative energy and coupled with that increased demand.
With additional supply constraints now thanks to prudent we are feeling more and more pressure on energy costs.
On the positive side energy contracts are typically only 1% to 2% of sales in most of our facilities higher of course in a foundry.
So not a massive waiting in our cost structure, but even something small can have a big impact as the changes substantial which is exactly what we're seeing.
We're at the same time actively engaging our plants and energy conservation and off grid energy products to reduce projects to reduce our dependence on call.
Finally, we have clearly seen bill.
A real shortage and the ability of people largely.
Higher than normal turnover broadly, although we have seen that level off in our own facilities in recent months.
While this is a north American issue not a global one and definitely work in the U S and Canada.
This puts pressure on cost of course, both in terms of wage inflation, but also in terms of higher recruiting and retraining costs.
Unfortunately wage inflation, that's not something that will be considered transitory, but we are hopeful as more people come back to the labor market now that batteries are wrapped up in a more normal cadence is reasonable.
I mean with schools and childcare.
These costs will taper off.
So to summarize on the challenges side, where related supply challenges should be largely solved in the next few months higher labor and energy costs likelihood. This date.
Stripping costs and some commodities are ready tapering back, but others, notably aluminum still rising and better supply of semiconductor chip expecting in the back half of the year and early next year.
I'll turn now to our market outlook.
At the moment, which is great news.
Unfortunately supply chain issues.
Or that demand, notably on the index.
That's real fast, but with strong underlying demand we will be looking at at this stage.
There's of course potential firm tariff system.
Action lasers with wine, Ukraine, or the actual effect.
After the COVID-19 global pandemic.
We can provide the latest.
That's around market levels, but you should receive.
So that was the knowledge that the forecast Gannett are changing.
Turning to the specific figure that industry.
So first are currently predicting growing light vehicle volumes globally. This theater to $15 2 million to $18 7 million and $45 1 million vehicles in North America, Europe and Asia, respectively.
This represents double.
Double digit growth in North America, and Europe , and single digit growth in Asia.
Semiconductor chip supply and other market pressures continued to create volatility in customer schedules today predicted volumes of it.
Industry experts are predicting on highway medium and heavy truck volumes to be sold will be up again in North America. This year with more moderate growth in Europe , and a decline in Asia.
Industry experts are predicting double digit growth in the access market or for you. This year in all three regions North America, Europe , and Asia, our backlog at Skyjack is up meaningfully from prior year at seven times, what we were last year, thanks to robust market demand.
Delivery of 400 is being impacted by supply chain challenges. However, as we work through these issues. We feel confident we can tell skyjack is double digits. This year based on our exceptionally strong backlog and the strong market conditions.
Lastly, the agricultural industry is predicting solid growth in the combined Draper header market. This year in double digits in North America.
Europe and rest of World will also grow at a more moderate 5%.
Also seeing solid pick up in the winter market. This year Eileen more confident with persistently strong commodity prices leading demand. It's also a challenge for Mac, Don regarding supply chain and logistics and appears to be the limiting factor to growth of close to demand that.
Our current forecast is for double digit growth this year for Mac on the back of it.
I'll pass the call continued market share soils and a strong backlog.
Looking at this in a little more detail on the auto side, you can see inventory levels in North America continued their trend downward with average days of inventory at only 24 days overall.
What this means is because of the consumer demand. We're in for a sustained period of strong production level jobs to replenish inventory once supply chain issues are resolved the industry is predicting at least two years just to rebuild the pipeline regardless of finance.
And looking at production levels compared to what was forecast at our last conference call you can see a stronger Q4 driving mainly in Asia.
'twenty two is forecast at a little higher than we expected last quarter, but you should expect that to come down due to short term production declines in Europe full year 2020 was also expected.
It could be better than forecast in October .
Sure Alan.
As discussed on our last call and up 9% from 2021.
All the pick up is coming from Asia. This forecast would not consider any loss production due to the Ukrainian war, which will primarily impact Q1, and Q2, hopefully we can offset any pick up in the back half again.
Again, the situation here looking at the access market in more detail so.
You can see first that all three months.
Right here in the fourth quarter as well as for the full year 2021, but double or triple digits.
Increases across the board.
Equipment utilization levels continue to look positive as we utilize the utilization level.
What we saw in 2019.
And then the utilization levels, we saw in 2020 market growth and a strong backlog already noted should give should drive double digit sales growth for skyjack. This year.
In the agricultural business Q4, combined retails in North America were up 34% from prior year for full year up 24%.
Okay. Thank you.
It was up 17% in 2021 and the rest of the World was up 25% all markets are projected to grow again in 2022 <unk>.
<unk> continued to build market share globally and are we're.
We're seeing solid growth in our window business globally in part due to the profit growth developing as the market shifts to wind growing from strength.
And reaction to regulatory changes, notably in Europe .
Markets are up substantially and market share growth ex validating our own sales growth.
We also saw market share growth in 2021 for greater hunters in pockets of Europe , where we had been targeting to grow market share growth has been hampered by our inability to develop products to the supply chain issues, which is frustrating.
Order intake remained strong supporting double digit sales growth for <unk> this year as well.
Turning to an update on growth and you will be pleased to know that we had an excellent quarter.
New business wins.
The second highest in all of our design wins in our history in fact, taking 2021 tour package here.
I will highlight a couple of our most strategic wins in a moment.
I'd like to just add vehicles continue to provide great opportunities for us almost 20% of business wins last year were for electrified vehicles, which ones makes up.
A substantial share of the book of business currently being pursued.
The dollar value of annualized sales in one last year was 50% higher than the dollar values.
In 2020, which is excellent progress.
You can see here, a steady build and our global content per vehicle for battery electric vehicles as a result of these wins.
We have also been building our business wins in other areas of the vehicle agnostic propulsion type. So I can offer less breadth and more growth opportunities and the transition to electrified vehicles. We now have more than 41% of booked business by 2026 and parts and systems not related to.
Vehicle powertrain.
We will continue to build that book of business for the future.
Our electronic solutions group launched was very well received in the marketplace and is a big part of driving those business plans for the future. He ran is focused on developing electrified products in four key areas power generation energy storage propulsion systems are structural and chassis systems for all the blend of our businesses globally as well.
Developing strategy and winning new business.
Even if there isn't an important aspect of supporting all of our existing group of plants, and we utilize and leverage resources and our existing R&D organization globally.
Our addressable market across a range of vehicle propulsion types continues to look excellent with a total addressable market for us today around $80 billion growing to more than three hundreds or in the future an increase of one three times.
Can see our addressable market potential for electrified vehicles is really growing particularly as we get out into late 'twenty, which is exciting our potential content for battery electric hybrid electric and fuel cell electric vehicles is equivalent to our content potential for internal combustion engine vehicles at roughly 30 to $200 per vehicle.
With an untapped exports to continue to grow content potential for the electrified vehicles.
With respect to monitoring we're seeing ramping volumes on launching transmission engine and driveline and body platforms, which are predicted to reach 45% to 55% of mature levels. This year generating incremental sales of $600 million to $700 million.
These programs will peak at nearly $4 1 billion in sales, we saw a shift of more than $965 million of programs moving from launch to production last quarter.
More than offset by very strong business wins in the playoffs.
As usual, we're summarizing all of these expectations on our outlook five which is now being displayed.
Despite the challenges we're facing we are still expecting to see double digit growth our top line and in earnings per share in 2022.
Let's try to sort of double digit growth at both back on back on this year, coupled with launches in a growing market and then looked at 35.
Net margins will stay fairly stable. So what we saw in 2020 was close to being back into a normal range material energy freight and labor costs are still weighing on results.
So improving in some areas and a worsening of others.
We will also see continued positive free cash flow this year, leaving us in an excellent position from which to drive further growth.
Specifically at Q1, you should expect chip and where will they be constrained to negatively impact the vehicle build leverage levels in Q1, which will be lower than Q1 2021.
This will weigh on sales and the mobility type of what you should expect to be down meaningfully from Q1 last year, but up somewhat from seasonal lows and higher levels of chip impact in Q4.
Higher costs were weighing heavily on margins in the first quarter. As you May expect you should expect margins well below our normal range in Q1, and then improving in subsequent quarters.
And again that says, we'll see sales offsetting seasonal lows in Q4 and flat to up over prior year on a more robust demand, but continued constrained from supply chain challenges.
A couple of possible way out sales as cost well way.
And we will heavily weigh on margins, which will be well below our normal range of while improving in subsequent quarters.
That means you should expect a decline in OLED for Q1 in comparison to Q1 last year based on those three key factors really continued significant energy supply chain logistics and labor challenges the sales decline and no subsidies.
I expect below normal on that earnings margins in Q1, improving in subsequent quarters.
And Roger would like me to again remind you that the situation is very dynamic and impact not fully determinable in terms of their impact at this point.
I'll highlight a few of our more interesting new business lines. This quarter first we want to major driveline system product for a year.
European OEM in the quarter, which will be produced in one of our German facilities volume is substantial and nearly 1 million units per year at peak volume generating significant revenues.
Second we saw another meaningful quarter of wins for a variety of battery electric vehicles are combination of SaaS gears and differential assemblies, which in aggregate are nearly $40 million in annual sales.
Third we saw some significant deals for a next generation hybrid transmission program was again quite meaningful volumes of 600000 per year, we will start production in 2024, and our plant in France for that program.
Next we had an exciting quarter and wins for our commercial vehicle program and a whole variety of components one of them.
$130 million a year in sales in Africa, we've seen a real pickup in business opportunities on the commercial vehicle side after a quite a few years.
Finally, we saw a few more wins the balance shaft programs in the quarter 21 for an Asian based OEM customer new to Lindmark photo shots are a key component for smaller engines and key to more fuel efficient and hybrid vehicles importantly, and have been a key target for us in terms of when given their reliance on trauma cases.
<unk>, Gary shaft manufacturing, which is right up our alley.
Forget value of the wins are over $80 million a year in sales.
Turning to an innovation review and if I could highlight some of the work we've been doing in our lightweight aluminum is happening process development.
As I just noted in the quarter, we secured new business wins for components used in battery electric vehicles, including some cast aluminum structural and choppy component.
Our technical teams within our light metal group has been successful in expanding our engineering, our process development capabilities to pursue and win new products in the market low pressure and gravity guided tax assets that were used in the past. So as components are being adapted to produce because lightweight vehicle structural component.
Slight tradeoff crop numbers and those consistent with our <unk> products okay.
This along with our high pressure die cast strategy and increasing our portfolio offering a contract potential for all vehicles, but particularly for electric vehicles.
Wait cast aluminum structural solutions are particularly important to offset the enormous weight of the battery pack.
Finally, we continue to execute on our global Digitization journey with more and more connected machines data connections and robots being commission and our global plant every day.
With that I'm going to turn it over to our global VP of finance, Chris merchant to lead us through a more in depth financial review over to you Chris.
Thank you and good afternoon, everyone.
Q4 will be a tough quarter for sales and earnings.
Good evening.
Semiconductor supplier.
We create another cost of quality issues.
Alright.
Despite these challenges before was another great quarter.
And we generated 144.
Free cash flow.
Additionally, we were able to grow from a strong level of liquidity one important $90 billion.
For the quarter sales were one point of time doing dot $117 worth doing.
Moving from Q4 2020.
Women are normalized for any FX gains or losses.
We reached new balance sheet.
Other items have improved.
In the quarter provisions were normalized for FMC, which related to the revaluation of the balance sheet.
For sure.
Yes.
Earnings were normalized for provisioning for Canadian cities.
Thank you.
Legislation.
With potentially some misinterpretation.
It should be performed.
Yes.
The charter.
To ensure that we're creating.
Christine.
This provision for potential adjacent to ours.
As we turn to Q4 and kudos for for instance for sure.
Normalized operating earnings record $81 one.
This compares to $176 4 million in Q4 2014.
The decrease of $95 3 million 64%.
Normalized net earnings decreased 74.
With 54, 2% recorded in the quarter $2 59.
Normalized earnings per share decreased $4.
Sure.
The stores.
Yes.
Included in earnings for the quarterly foreign exchange data.
Which resulted from solid points between gains related to revaluation of our three operating donkey.
$100000, even give you the revaluation of financing.
As I mentioned.
Europe's been parked.
This quarter's EPS.
Yes.
From a business segment perspective, the Q4 of executing the one 6 million relating to the revaluation of the operator.
Which results for Q4.
Moving to own loss of industrial and $10 million due to the mobility.
Furthermore, here for segments industrial sales decreased by seven 2% from $22 for Q.
$292 million in Q4.
The sales increase for the quarter was due to lower agricultural sales due to foreign cost issues.
Our ability to produce the future program.
The negative impact.
Holes from the changes in FX rates since last year.
Which were partially offset by higher equipment sales driven by market share gains in North America for pull through.
Normalized industrial operating earnings in Q4 decreased 44.
475% over last year to launch it.
Primary drivers battery industry losses, with the ongoing supply issues impacting raw materials labor and freight costs.
Option number in agricultural schools produce submarine support related to COVID-19.
The recovery in market conditions.
And immediately to changes in FX rates.
Which were partially offset by increased contribution from strong exports of crude volumes and reduction.
With Q4 for you.
Turning to <unk> decreased by 147.
Q4 last year Q1 2 billion.
Sales decreased from the fourth quarter was driven by the marketing part.
Conductor chips.
Bruce.
In fact, the bigger changes in FX rates since last year, which was partially offset by increasing volumes of launching programs and certain programs, which were required to you Barry.
And the increased material pass through pricing.
Q4 normalized operating earnings will be lower.
$51 2 million or seven 5% over last year.
Quarter, while deliveries were impacted by warranty inventory.
You've got your issues with your customers your experience.
Im wondering support issues with regards to energy raw materials costs.
The negative impact of changes in FX rates since last year due to government support utilization related to COVID-19, which were partially offset by increased borrowings the luxury nature mature programs as ordinary their compensation turning to your questions.
Yeah.
Turning to the overall many of our results the company's gross margin was 160 <unk>.
The decrease of $112 6 million compared last year to the same factors that drove the segment results.
Cost of goods sold amortization expense for the fourth quarter was $110 $1 million cost due to revisions procedures bills can be swapped seven 2%.
Okay.
Selling general and administration costs improved in the quarter to $96 one from.
$106 million last year.
The decrease was primarily a result.
Moving to liquidity.
<unk> over Q4 2020.
We're management compensation tied to <unk>.
Which were partially offset by increased sales and marketing costs to support future growth and a reduction.
Finance expenses increased by <unk> 3 million last year.
Lower interest burden declining long term receivable balances, which were partially offset by lower interest as a result of significantly lower debt levels since Q4 2020.
Sure.
The effective tax rate for the fourth quarter decreased to $19 30 last year.
The decrease in R&D vegetables.
Which were partially offset by.
Okay.
As a result.
So youre not sure that we'd like to.
At the midpoint of our expected range of 24% to 36% 2021.
We're expecting the 2022 full year.
If I could touch release will also be moving through 2043 six.
Okay.
Consistent with for 2021.
Numerous cash position.
For the quarter generated 230.
$2 million.
Cash from operating earnings.
Okay.
Can you maybe we can perform its efforts.
This also resulted in free cash flow generation of 144 cities.
Quarter.
As a result net debt to EBITDA decreased from four two times in the quarter from four five times, a year ago and from.
The bigger tier one times at the end of Q3.
Q4 'twenty one.
In the second.
At quarter end it over to the company.
Sure.
Based on our estimates you're expecting in 2022 net cash EBITDA.
To improve over the 2021 months.
Developers are available credit on our critical solutions.
Yes.
57, 5 million at the end of the quarter.
Our available liquidity.
<unk> ended the quarter.
It remains strong and grew to $1 9 billion our.
Our view of the results here.
We are currently believe arena.
Liquidity becomes part of the perpetual foundations during 2022.
To recap sales and earnings for the quarter with the surety of supply cost issues.
Semiconductor shortages continued to hamper OEM production from us.
Different OEM products and mobility to earnings.
While the supply issues, such as commodity prices logistics energy a member issues also will continue to impact some statements.
<unk>.
Great.
Cash generation quarter, as we generated 144.
Brian .
Our strong liquidity one.
This concludes my commentary and our children.
Proportions.
As a reminder to ask a question as.
Thus far one on your telephone.
And that is far one delayed Johnny's question Beth.
Yes.
Your first question comes from the line of Mike Matson with Scotia Bank.
Hey, good evening.
But I guess I, just wanted to understand or clarify the comments on <unk>.
Sounds good.
The conflict in Ukraine.
On the business.
I'm just wondering what you said again just to sort of paraphrase my words direct exposure.
Sort of minimal.
Answering your property specific sourcing.
The primary impact will be energy costs, and I guess, the broader impacts regionally globally on wherever the follow up maybe what is that.
Summarizing our remarks, Brian .
You're correct direct exposure is minimal.
Hi.
The impact.
Impact will come from lost vehicle sales, because our customers of ours, who are buying product and Ukraine. So that will have an impact on us right because we'll definitely see lower vehicle build this month in March right.
It will impact Q1.
And over the next month or two so that will affect Q2, so we certainly expect to see.
Lower vehicle builds because our customers are going to have to resource products that they're currently buying in Ukraine. Some will be easier to resource like that bearing example that we were buying in Ukraine that we quickly a resource somewhere else. So that'll have a product like that and then some will.
Take a little bit longer so they may see like.
<unk> impact on that vehicle builds beyond that so to me that's the big impact on the energy side I mean, we were already feeling the pinch on higher energy costs and I do expect that that's going to continue.
For some time in part due to Ukraine, but in part due to some of those are going to achieve that as well right.
Alright.
I guess just a follow up.
I guess it does sound like you're already sort of seeing some trading.
Just to production schedules.
Europe is all right.
Yes.
Okay.
Yeah, sorry, I guess just broadly.
Do you have a rough number sort of your European sales exposure.
By Division is consolidated.
Sorry, do you want to say that the impact of.
No production schedule changes.
No no no no I, just I guess for a real high level roughly how much of one of our sales are coming from broader Europe is at 25, 30% of your yourselves.
Yes, I mean, we didn't move geographically segment, our sales like you that reference.
You can't even see what total.
European sales are.
So again for us for 2021 in total now that's a combination of the automotive and.
As well as the industrial was about $1 8 billion.
Okay. Okay.
I just wasn't sure Bryan industrial okay.
In terms of the energy.
You mentioned some numbers earlier.
I just missed this on for one or 2% of sales or you mentioned some numbers just from your own results.
Yeah energy costs in our machining and assembly plants are typically 1% to 2% of sales depending on what they are doing so again a pretty small.
Element of our cost structure by the problematic when something goes up tenfold, even if it's small.
The dollar value start to start to get a little bit bigger so it's something that as conservative and for sure a bigger concern for our foundries right where the percent of.
<unk> cost for energy is higher.
Thanks, Andrew.
Yeah, Yeah, absolutely I mean, thats, where the energy costs are up.
Right.
On the supply chain impact in the quarter.
And if somebody was much more acute.
I guess I'm just curious what why was it so why would it be so much worse.
The other parts of the business.
Yes, I wouldn't say that there's just a lot more supply chain components and things that are.
Thank you Sophie.
The risk level of the numbers are just greater there right.
Okay.
Good day to day basis Mark.
From.
Trumping issue or an example, just recently the border points.
Person in Manitoba.
Constraints and or it moves to a diner.
They are in or something like that so.
The amount of components that we are dealing with.
And we are building, Brian So we are building the product.
And then what we do is we put it.
We can take you through a rework process one that brings the parts and so as Linda said the efficiency level of thought.
Got that.
So it really is.
Positive numbers.
What are some of the supply chain.
Okay.
If I could ask just one more question is there isn't adjustments or provisions taken this quarter for Susan.
I'm just curious what that was is it something you might think repayments or what exactly is that number.
Yes.
The <unk> program.
Sure.
'twenty one.
Finalizing our submission of the final things for 'twenty one.
Hum.
Within six months, we will be able to claim period.
Given that the program is we wanted to ensure that.
Susan parts for crude within 'twenty one.
After further review.
So you should we notice, but what appears to be such a discrepancy between the information numbers, whose web site.
The wording of legislation.
Theres over currently assessing potential description to ensure the X Peterborough.
Given the level of detail.
<unk>.
We will take a few months to recalculate it's.
To be confident with their accuracy.
We thought it would be prudent to record the provision we took analysis can be completed.
Thanks.
The potential.
Okay, Okay. So a program.
Just wanted to know.
Well Mark.
The accrual represents like less than 9% of the total claim so it's not massive in terms of the claim and it's like I don't know $2 million.
Quarter, if you spread it out over the full claims here again, so when you.
When you spread it out it's not doesn't look like that much bad when you put it all in one quarter. It does.
Yeah, it's not a big number but it's just the provision.
Provision for potential repayment.
Yes.
Okay Alright.
Thanks.
Your next question comes from Christopher <unk> of CIBC.
Hi, Thanks for taking my question.
So more of a industry question, what's the reduction in auto production in Europe , given the supply chain issues.
Exacerbated right now about the geopolitical situation.
Paul.
Chip will move from Europe to North America.
Where they where we have less production and supply chain issues and we could see heightened.
Can production versus Joe.
I am not sure.
You can see she's wondering because production it can be constrained in Europe because of that.
The specific issues there as opposed to North America, maybe chips get sense in North America.
I mean, yes, I think theres a building chips.
People will take some questions.
There is no question that they are not.
We used to.
Okay.
Sure.
So you need to keep.
Mike.
Pretty much all of the.
The Oems are global.
So they'll be managing that internally. So obviously, we hope for.
<unk> thanks for hanging in there.
Toyota Honda or whatever they're going to allocate and they've been doing that already.
Chip's globally.
They can put the vehicles, where the needs are.
Tier ones as well.
Tomorrow, there's a lot of tier ones that go into the system for an OEM.
Play off different regions as well.
Okay.
Okay, great that makes sense.
Yes.
Just what are you hearing on the.
Thank you for that.
Industry, obviously crop prices are higher which bode well for the farmers.
We're seeing input prices.
Prices for inputs right.
Just quickly too.
Just wondering what you're hearing there in terms of farmer net income for this year.
Yes, I mean I think.
The increase in commodity prices is pretty significant and thats always at that.
Well for the farmer, so our general General fast says that the outlook is pretty positive in terms that farmer income continent, and therefore supporting the continued growth in the aggregate to trade on the demand side that says that we're seeing.
And maybe just to add.
Thanks all.
All of the indicators that we're seeing.
Either very very very positive with regards to dealer field inventory being sort of at an all time low.
David Vernon.
Cash receipts crops.
<unk> is up.
Thats the whole package.
Apply in Shanghai, that's really that's.
Whats.
Keeping everybody from fulfilling that.
Alright, and then I guess, maybe just a broader question members obviously an issue.
Transient costs.
Do you think we could see it.
Button structurally lower margin.
However, you want to quantify it maybe 50 bps margin structurally over the next couple of years because of higher labor costs.
I mean, I wouldn't say that I wouldn't go that far.
I mean, certainly available late late labor is an issue.
Solving that is going to be a combination of immigration to bring more people and getting more people back to work or not engaging in the workforce for whatever reason at the moment.
And of course automation, which is.
The path that we've been going down for quite a few years of automating more.
On the shop floor so.
So in terms of changes that structurally changes neither labor as a percent of sales in any case, because you're shifting it into.
Robotics that are flexible and we can shift around.
And in the programs as well so I don't think I think that the labor issue.
A challenge.
That's how we'll approach solving it over the next few years.
Great. Thanks, that's all right that's it for me.
Thank you.
Your next question comes from Brian Morrison of TD Securities.
Your line is now open.
Great. So thanks very much a couple of follow up questions to start can.
Can you actually provide us with what youre seeing with respect to European schedule adjustments. I know you were you alluded to that in Mikes question.
Yes, I mean.
They're they're coming faster Gary it sounds like that the early death.
Why should I answer, Brian , but I mean, as I was suggesting in my note in my formal comments.
The analysis is still underway. So are our customers are still on covering areas of raskin and taking into the subjects with D.
There's areas of risks. So we're really only just starting to get some of the notifications that theyre going to need to be down so and nobody has been able to kind of add that up yet so.
The impact is but I can't quantify it for you right now I mean, we're definitely seeing shutdowns.
And I will as I was suggesting I think we will continue to see that over the next month to two months as as these issues starting to percolate up and then get solved.
Got it.
Thank you Dave.
The daily note that come through on that Youll see on a day that.
That customer.
25% this week on our part and then.
<unk>.
<unk> got a supplier issue that.
Can sustain under the energy cost.
Customers three.
Sort of like that going on on a day to day basis, and really I think as Linda started to incur discussion earlier as the customers are now just trying to figure out the different tiered levels.
And then how do you resolve that.
Would you go to resolve it so to me I look at that as also as an opportunistic time as well that as things can be sourced they'll come to companies like a little more than half.
Ability to ramp up quickly.
That example of a bearing right so.
Very good Brian .
But it almost Brian .
As of today right now.
BMW and Volkswagen our reported combined about 100000 vehicles are going to be lost due to the shutdown alright, thanks to come.
Okay.
I appreciate that the situation is fluid.
Can I just ask a question with respect to industrial and the performance in Q4 in terms of the operating margin outlook is it fair to say that Sky Skyjack.
Is it near normal or and this is all Mcdonald's skyjack well below normal operating margin as well.
I don't know if skyjack is below below normal margin as well.
They are dealing with these cost increases right.
And then as elevated smack on traveling with just getting product in and out so that they can actually build products and get it out the door.
Higher costs as well so.
Not impacting.
On the top line, but they're not.
They're not telling what it.
What we think they should be selling or what they thought the orders to sell and then they are both being impacted on the bottom line.
The operating margin is there a big gap between the two.
Well I mean, there's always been a gap between the two to be honest. There are there are different businesses are in different market spending a different cost structure. So theyre not theyre not at all.
Alright, I'm just talking about the performance today, though.
Okay.
Yes, I mean, Dan.
Impact is.
Higher at knockdown right now than they've got access to that Jeff is there any impact as well.
Okay can I just might be a question for Jim just in terms of the annual contractual reset we've talked about this before with Skyjack Mcdonough.
I probably need update can you just talk to me like what is the ability here I think you price. These price for the year now, but what is your ability to to reset with the conflict and commodity price increases and pass those through.
To do that.
Yes.
Just talk about little more wide and then we can get into the sectors, but first of all I mean.
Without saying that are we pride ourselves on sort of the best product best price right.
But the cost.
Increases I mean, the first thing we do a pushback right that we're trying to lean things out through our comp process and all of that but I can tell you in every sector mobility.
It is true we are.
The base with customers now reassessing all of the all in costs and pricing.
Teresa.
There's customers now that are not on the industrial side, but the mobility side really looking at indexes.
Related to energy.
Explosion over in Europe , so they're sitting.
Indices around that and logistics dealing with.
Our charges.
Metal market prices differently of mobility. So we have a very solid going on with each of our customers and we are on the.
Infrastructure in the AG side, certainly we are assessing what we put in place some sort of fourth quarter to come in.
Sit down with customers again.
Please.
It really opportunistically as well because.
I think we can weather the storm and a lot of areas better than some other.
Buyers, so sort of longer term do too.
Got it got it.
Consideration.
Our growth as well.
Okay I don't want it last question very quick Linda last quarter, you had a headline.
And active with your buyback I haven't seen any participation here your share prices obviously.
Balance sheet is in a fantastic position, what's your approach to the buyback now.
Yes.
100%.
Good question when we completed the NCI process late last year, what what's happening with our share prices already appreciating. So maybe it's a little reluctant to get into the market at that time and Unfortunately. It was just as we entered a blackout in January that the share price started to deteriorate.
Thailand Couldnt purchase shares. So we have made a decision not to Andrew Bell I'd and <unk> like to have a little more control over that.
The decision to appoint him to buy so we have been extremely frustrating because it had the ability and the cash debt.
Well, we think we're in blackout, we can't get its also just as soon as we're out of blackout I can't actually.
We're going to be out buying in the market.
Thank you very much.
Your next question comes from Peter Sklar of BMO capital markets.
Linda why don't you out of the blackout.
Sure.
Yes.
Good morning.
Barclays.
He is Wednesday Thursday.
I think it slipped up.
Correct.
Okay.
Can you.
Preview like in your mobility business.
The major.
Hi, Steve.
Steel casting.
Iron castings, but.
What.
Are the majors.
Sure.
Material inputs for mobility and.
Which casting materials you have contractual.
Arrangements for price movement.
The underlying commodity moves around.
Let's exposed to our aluminum.
STL, that's her belt, the mobility and the industrial businesses.
It would be the quantity.
We would be most impacted for we are.
We are buying steel forgings or buying.
Straight up steel for fabrication in the industrial side.
Sure.
<unk>.
The mobility side, we're also buying iron casting, which also kind of drive us as steel prices. So on the mobility side, we do have metal market adjustment program with most customers that cover.
Most of the exposure and normally there is almost nothing in the way of noise around that it's a little bit up a little bit down, but it's not at all a noticeable.
Problem is of course that the costs have increased so much for instance on the aluminum side that side, even tiny level of exposure on the database number just to kind of a more meaningful number. So that's kind of what we've got going on right now.
Okay.
Okay.
On the.
The issues you are having like dawn.
Getting the product out the door just from.
Like reading the press release it sounds like in addition to supply chain, you're having labor issues like it sounds like the labor issues are more.
Cute.
Dawn than they are at Skyjack.
That's true I'm just wondering like is.
The labor situation different any winnipeg than it does in Guelph.
I wouldn't say that.
Labor issues.
Mad dog.
Same level.
The numbers of supply issues that are out there.
With Mac dawn or more than what they are Scott Jackson theres more suppliers, so the risk level of that supply base.
Higher rate.
I mean again.
What's happening.
The parents are coming in.
So you go build one unit as you put it.
It's not fully built waiting for parts to come and you got to go out and rework.
Really awkward system, that's set up right now so there's just more to be.
Factoring around that assembly versus Skyjack.
Which has created.
A bigger gap.
And I would just add that it's far and away the supply chain issues that are impacting our ability to bill Lennie.
Labor as a piece of it.
It's a smaller piece were less pronounced and electrification because of what Jim just described building something not quite complete having to Brendan Sandjak library again with the <unk> spin this is by far.
The bigger issue is supply chain and availability of products.
Okay.
Sure.
Maybe just go back and just kind of a comment.
Surcharges and things like that so.
The surcharge is limited.
Pretty straightforward calculation.
But keep in mind too.
Base metal pricing that is changing to leaving based prices.
Suppliers are now being shipped with increases in labor logistics and things like that so it's not just the metal markets.
Base metal prices.
So going up.
Awesome.
I'd, rather be a little bit on the bank.
Casting suppliers.
And so how do you do.
Are your mechanisms to take that into account as well in terms of recovery.
Yes, absolutely.
Commercial discussions with our customers.
Exactly what we are now.
Sitting down.
It's just not capital for us.
Middle person holding all of that.
We are now sitting down.
Being opportunistic.
Curious what the total cost is so high.
Recovery, but also unwilling to.
Paul.
What else opportunity wise.
From that to grow.
It's just not.
Just wanted to make sure you understood.
I'm sorry.
Yes, and I think what Jim saying when he says the base prices he is talking about.
So hard to make it not we're not talking about metal right, Brian I mean labor costs higher labor costs and other costs are going up so that increasing how much a path for them to make the part and then addition to that there's the metal piece that suggesting as well. So that's what we're trying to address with commercials.
Sessions with our customers.
Alright, sorry, Im a little confused like are you talking about tier twos or are you talking about your other costs.
<unk>.
Yes, okay.
Okay and so.
I think you've answered this question so <unk> does not have.
Like you don't have a forecast on how much you think.
How.
Western European vehicle production is going to be impacted like you don't have the number for <unk>.
For Q2 was like 500000 units or 100.
Hey, Bob.
Yes, Peter.
It's working.
Work in progress right now as to what the impact is going to be and I will say that the general sentiment is going to be made out right. So we lose some vehicle built in.
<unk> trend and in the next month, and a half or so or two lines than the general sense is it's going to be made up.
So within the year.
Okay.
And then just lastly, sorry.
Ignorance like this claim you're talking about like which government program is that.
Let's see.
This government subsidy in the federal subsidy program.
EW App.
Okay.
And is that the 20 a share negative that was mentioned in the financial part of the presentation.
Yes.
And Thats, an after tax so 'twenty expense after tax.
Oh, yes, yes.
Yes, okay.
That's all I have thanks.
Okay.
There are no further questions at this time I will now turn the call back to Mr. Hudson for closing remarks.
Thank you very much I want to conclude this evening I'd like to leave you with three key messages first we had an outstanding record year of new business wins key to future growth with the easy wins, notably 50% higher in dollars than we saw in 2020, secondly, we added yet another quarter of strong cash flow, meaning we are sitting on a workshop.
Our cash and we are putting it to work for shareholders. This year and thirdly. Despite continued challenges we did deliver double digit top and bottom line as well in year two of the COVID-19 pandemic as promised and we are poised for solid growth again. This year, thanks, very much and have a great evening.
<unk>.
Thank you today's conference call you may now disconnect.
Okay.
[music].
No.
Okay.
Okay.