Q2 2023 Adient PLC Earnings Call
Welcome to the audience second quarter financial results Conference call. Your lines have been placed on a listen only mode until the question answer session at that time, if you would like to ask a question you May Press Star. One today's conference is being recorded if you have any objections you may disconnect at this time.
I will turn the call over to Mark Oswald Sir you may begin.
Thank you Shirley good morning, and thank you for joining us as we review <unk> results for the second quarter of fiscal 2023.
Our press release and presentation slides for our call today have been posted to the investors section of our website at adient Dot com.
I'm joined by Doug del Grosso, Adient, President and Chief Executive Officer, and Jerome <unk>, Our executive Vice President and Chief Financial Officer.
On today's call Doug will provide an update on the business followed by Jerome who will review, our Q2 financial results and outlook for the remainder of our fiscal year.
After our prepared remarks, we will open the call to your questions before I turn the call over to Doug and Jerome there are a few items I'd like to cover <unk>.
First today's conference call will include forward looking statements. These statements are based on the environment as we see it today and therefore involve risks and uncertainties I would caution you that our actual results could differ materially from these forward looking statements made on the call. Please refer to slide two of the presentation part.
Complete safe Harbor statements.
In addition to the financial results presented on a GAAP basis, we will be discussing non-GAAP information that we believe is useful in evaluating the company's operating performance reconciliations for these non-GAAP measures to the closest GAAP equivalent can be found in the appendix of our full earnings release. This concludes my comments I'll now turn the call over to Doug.
Doug.
Great. Thanks, Mark.
And thank you to our investors prospective investors and analysts joining the call. This morning, as we review our second quarter financial results for fiscal 2023.
Turning to slide four let me begin with a few comments related to the quarter first and foremost adience operational execution positive commercial momentum.
In an extreme focus on containing costs continued to drive the business forward.
Second quarter results, which provide very positive proof points of these actions can be characterized as very solid.
Building on the positive momentum established earlier this year.
The company's key financial metrics for the quarter can be seen on the right hand side of the slide <unk>.
Revenue for the quarter, which totaled $3 $9 billion was up $406 million compared to last year's second quarter adjusted.
Adjusted EBITDA for the quarter totaled $215 million up $56 million.
In addition, Andy it ended the quarter with a strong cash balance and total liquidity of $826 million and $1 $8 billion respectively.
Speaking of cash.
The strong cash balance reflects the impact of certain opportunistic strategic transactions executed during the.
Quarter.
Namely.
The use of $30 million to repurchase just under 760000 shares of the company's common stock kicking.
Our previously announced enhanced capital allocation plan.
And the use of a $100 million combined with proceeds from 1 billion New U S. Senior note issuances to pay down.
$750 million of Euro notes due 2020 for MP pay $350 million of adient and term loan b.
Jerome will review the additional commentary on these actions during his financial review.
This is no doubt a very good start to the year as we reach the halfway point.
We're closely monitoring certain external headwinds such as a soft auto demand in China and increased steel prices in the Americas.
We expect the positive momentum to continue into the second half of 2023 based on the current environment.
I will talk about the environment as we see it in greater detail in just a minute.
In addition to Q2 fiscal year 'twenty, three solid and improved fiscal.
Nir financial results Adient continues to execute actions within its control and position the company for sustained success. These actions include but are not limited to team's intense focus on launch execution cost and operational improvement and customer profitability.
Management.
Winning new business across various regions customers and platforms are expected over time to strengthen our leading market position not to mention.
To support improved margins and earnings.
The team is also executing actions to provide value add to adient stakeholders every day.
That's our customers suppliers or employees.
These efforts have been validated repeatedly with numerous industry and customer recognition recognition awards, including most recently GM supplier of the year, where no Korea motors supplier of the year and seven J D Power awards for seat satisfaction for Adient, China among other customer recognition.
Finally, adient continues to make progress at advancing its commitment to build a sustainable future. We recently highlighted our sustainable product offerings as part of our goals to drive environmental social and economic change.
Jerome I had the opportunity to meet with several of investors to share with them.
Certain of adient sustainable seat solutions.
We've highlighted a few on slide five.
On the slide Youll see product offerings that are currently in the marketplace are being developed for future discussions with our customers.
It is important to point out that adient innovative solutions span across our portfolio and touch each of the company's core components, such as foam products, which not only drive comfort, but also take urethane is out of the vehicle eliminating volatile organic compounds.
The innovative Sop seatback panel, which helps lightweight the vehicle and frees up room for the occupancy.
<unk> ultra thin technology, when combined with the soft back panel delivers occupancy room plus room for.
Under side of the vehicle.
This allows for more packs gene of batteries on average this award winning technology frees up 40% to 60 millimeters.
Packaging space for batteries, enabling our customers' flexibility to increase battery size up to 10%, thus, allowing for more bad for range.
On the structure side of the business Adient has partnered with each to Green steel in fact, we're in the launch phase with one of our customers to incorporate this low carbon steel.
And finally leather alternatives is virtually all Oems.
Working to reduce or eliminate leather content to improve sustainability increase quality and reduce cost solutions include plant based and recycled alternatives to name a few.
The solutions and benefits just mentioned go beyond sustainability mass reduction light weighting offer Oems greater range and Babs.
Cost savings by eliminating certain leather materials in favor of less expensive alternatives.
N V a cost optimized solutions, which bring sustainability and cost efficiency together.
Bottom line.
Adient sustainable product solutions provide a significant environmental benefit with cost efficiency in mind.
Turning to slide six and seven now, let's take a look at our business wins in large performance as you can see in the slide.
Six highlights a few of adient and recent wins adient continues to successfully navigate and balance of the current operating environment and related commercial discussions why winning new and replacement business.
The programs highlighted represent a good mix of wins across the EV powertrain and ice powertrains.
And our diversified across a number of segments, including Suvs luxury and mass market and contain a high level of vertical integration across complete seats foam trim and metals.
On the right hand side of the slide illustrate a few observations from recent trip to Shanghai.
The negative headlines associated with the China market today. The visit was a good reminder, that the long term outlook remains bright.
Without reading each of the points a few that stood out to me include China remains the world's largest auto market I don't see that changing.
China Oems are expanding their share significantly across all price segments.
In addition exports out of China are growing.
With that growth expected to continue.
Adience, leading capabilities and strong market presence underpin our current and future success.
We're seeing that today, especially when looking at our wins.
Which we're on track to achieve our fiscal year 'twenty, three sourcing target of more than $1 billion across.
China, <unk> startups, and global manufacturers, including significant amount of Ltvs.
This is expected to strengthen our leading position as we continue to grow in the market.
Flipping to slide seven.
As we typically do we've highlighted several critical launches that are complete in process or scheduled to be given in the near term.
To report that the launch is currently underway are progressing in line with our expectations.
The launches and platform show not only impact adience jet facilities, but span across our network into our foam trim and metal facilities.
The team continues to focus on process discipline around launch readiness.
Has it driven a very high level of performance, especially considering the launch load and complexity of launches that are planned for the year.
And we have no intention of letting up.
Before handing the call over to Jerome <unk>, turning to slide eight let me conclude with few comments related to the current environment.
And what we expect heading into the second half of our fiscal year.
To begin as expected heading into 2023, the overall operating environment through Q2 has improved versus last year.
Characterize the improvement to be fairly modest driven by small quarter on quarter tailwind is concentrated in a few areas such as softening in freight costs or better operating patterns at our customers.
Driven by easing supply chain constraints as opposed to across the board improvements.
Production and the rest of the world.
Energy freight and labor economics.
Are presently forecasted to run fairly in line with the levels experienced to date in 2023.
Continued commercials settlements to help offset rising input costs with our customers.
And finally adience balance in balance out is also expected to be generally consistent with H one results as our prior your business wins.
Launch fairly consistently across the year.
Lastly at the bottom of the slide.
You can see rising steel costs in North America, and concerns over consumer demand, especially in China or the biggest worry beads heading in the back half of the year.
The team remains focus and is executing actions to manage through these obstacles.
On the right hand side of the slide just a few comments and what we're seeing.
Expecting from our three key markets for the Americas.
Via the market is fairly stable improving customer run rates are modestly higher production driven by continued inventory build is expected to provide a slight tailwind.
As we progress through 2023 as you would expect will continue to monitor Prudential softening of consumer demand, primarily driven by rising interest rates, which ultimately impacts affordability.
That said our customers have not singled through their production forecast to us that this is the case and.
In China auto demand remains soft despite unprecedented price cuts the soft demand combined with rising inventory heightened concern for downward revisions to production schedules in the coming months.
Given this environment. The team is aggressively flexing, our variable cost reducing fixed cost cutting non essential travel and expenditures and driving further efficiencies into the business.
Or Europe , despite Q2 production modestly outperforming expectations heading into the quarter the outlook for the region remains bleak.
Lacking positive catalyst for near term and longer term.
In fact as in P. As forecasting a significant reduction in Europe's production and adient second half of 2023.
Given these low expectations.
And as we mentioned Nonetheless earnings call. The team the adient team continues to develop and execute actions designed to improve the company's profitability in the region.
Flipping the slides nine and 10, which I will not comment on in great detail. The slides are fairly straightforward.
We've illustrated why additional restructuring is necessary and just as important Adience response.
Two key takeaways on the slide.
A number of external factors, including lower expectations for vehicle production in Europe combined with the industry specific trends such as a trend towards digital design validation are reshaping the auto sector.
It's imperative that current and future business practices are aligned with these changes.
Although restructuring can be expensive at N as committed to be good stewards of the cap of capital when developing and executing necessary action.
In fact slide 10 is a recent example of how the company implemented effective cost efficient restructuring of our board facility in the Czech Republic.
With that I'll turn the call over to Jerome to take us through Adient second quarter of 2023 financial performance and provide our thoughts on what to expect for the remainder of fiscal twenty-three.
Thanks, Doug, let's jump into the financials on slide 12 adhering to our typical format. The pages formatted with her reported results on the left and are adjusted results on the right side, we will focus our commentary on the adjusted results, which excludes special items that we view as either as either one time in nature or otherwise.
Skew important trends in underlying performance.
For the quarter the biggest drivers of the difference between a reported and adjusted results relate to restructuring and impairment cost.
Purchasing accounting amortization and costs associated with their recent debt refinancing.
Tales of all adjustments for the quarter or in the appendix of the presentation.
High level for the quarter sales were approximately $3.9 billion up 12% compared to our second quarter results last year.
Improving vehicle production in the Americas, Europe , and Asia, Excluding China, where the primary driver of the year over year increase.
Adjusted EBITDA for the quarter was 215 million up 56 million year on year. The increase is primarily attributed to the benefits associated with higher volume and mix improve business performance and commercial recoveries.
These benefits were partially offset by the impact of increased business operating costs and the negative impact of currency movements between the two periods I'll expand on these key drivers in a minute <unk>.
Finally at the bottom line, adding reported and adjusted net income of $3 million or 32 cents per share.
Let's breakdown, our second quarter results in more detail all cover the next few slides rather quickly as the detail for the results are included on the slides and this third ensure we have an adequate amount of time set aside for the Q and a portion of the call star.
Starting with revenue on Slide 13, we reported consolidated sales of approximately $3.9 billion, an increase of $406 million compared with Q2 F Y 22.
The primary driver of the year over year increase was higher volume in pricing call at $519 million.
The negative impact of FX movements between the two periods impacted the quarter by $113 million.
Focusing on the table on the right hand side of the slide Adience consolidated sales for each of Adience major regions was generally in line with production, except in Asia, where the company strongly outperformed.
America's enemy performed in line with the broader market as customer production schedules and production volumes continued to make modest improvements through the quarter.
And China, Adient strong customer mix underpinned significant outperformance versus the industry production in the region.
G a C Daimler and hand, I led the charge.
This outperformance is consistent with our Q1 results and expectations heading into the year as the benefit from new program launches are taking hold.
And Asia outside of China, Adient benefited from programs that launched last year and are now running at rate and the launch of recently won conquest business in Japan.
With regards to Adience unconsolidated seating revenue year over year results were down about 5% adjusted for a fax in China, where a large majority of Adience unconsolidated sales are derived the year over year decline is attributed to lower production at the company's unconsidered hated joint ventures.
Partially offset by improved volume in sales at our unconsolidated joint ventures in the Americas and EMEA.
Moving to slide 14, we've provided a bridge of adjusted EBITDA to show the performance of our segments between periods.
The bucket labeled corporate represents central costs that are not allocated back to the operation such as executive Office Communications corporate finance and legal.
Big picture adjusted EBITDA was $215 million in the current quarter versus $159 million reported a year ago. The.
The primary drivers of the year on year comparison are detailed on the page and are consistent with what we expected heading into the quarter.
Positive influences include $84 million associated with increased volume and mix.
Improve business performance also benefited the quarter by $29 million.
Looking deeper within that bucket. The biggest positive driver was improved net material margin of $56 million.
In addition, lower freight cross provided a 5 million dollar benefit.
[noise] partial offsets within business performance, where utility and wage inflation, which negatively impacted the quarter by $29 million, an increase launch cost driven by the quarters heavy launched slowed way down the comparison by $3 million.
It is important to note that certain of the inflationary pressures such as elevated labor and utility costs are being partially offset by the improved net material margin, resulting from commercial discussions with our customers.
Other factors that weight on the quarter included a net 39 million dollar headwind from commodities driven primarily by the timing of recoveries in a non reoccurring favorable inventory revaluation in FY twenty-two due to higher commodity costs.
<unk> wait on the quarter by 5 million.
SG&A performance, which was adversely impacted by the Nonrecurrence a certain compensation related austerity measures taken in FY 2002, as well as the timing of engineering spend the support the quarters launched load.
At $9 million.
And finally $4 million of lower equity income.
Important to note Adience Q2 fiscal 2023, EBITDA contain non reoccurring net benefits totally in about $8 million that should be removed from our ongoing run right.
The benefit was largely associated with an insurance settlement a similar size settlement was included in last year's results, which is why the year over year comparison is not impacted stir.
Stripping out the non reoccurring insurance benefits colon I'll add in second quarter was very much in line with our internal expectations.
Similar to pass quarters, we provided a detailed segment performance slides in the appendix of the presentation.
High level for the Americas several positive factors drove the year on year increase and included.
Improved volume and mix.
Improved business performance driven by increased net material margin, which was aided by commercial recoveries and to a lesser extent the restructured pricing agreement at our paper joint venture other.
Other positives within business business performance included improve freight costs.
Although the team made progress on labor and overhead efficiencies. This was more than offset by the negative impact of increased labor costs.
Also partially offsetting the benefits and the quarter was the non reoccurrence of certain compensated certain compensation related austerity measures.
Last year <unk>.
Launch costs were also elevated driven by the timing of launches.
Outside of volume and business performance F X in commodities were slight benefit, whereas SG&A costs way down the quarter.
And a man of the year over year comparison was influenced by several factors such as improved volume and mix.
Improve business performance driven by increased net material margin, which was aided by commercial recoveries improved launch an ops waste.
Partial offsets within business performance.
Where the negative impact of increased labor and utility cost and increase freight costs.
Outside of volume in business performance of the year over year comparison was adversely impacted by commodities, primarily by the timing of recoveries and non reoccurring favorable inventory valuation and F Y 22, due to higher commodity costs.
And Asia the year over year improvement was driven by the benefit of higher volumes and mix primarily related to the improved production in the region outside of China.
Improve business performance with improved material and that margin and lower freight costs, leading the way. These benefits were partially offset by.
Lower equity, resulting from lower volumes that are uncontaminated J V as in China in a restructured shareholder agreement impacting archive for joint venture.
A fax and a temporary increase in SG&A costs to support our growth initiatives.
Let me know shift to our cash liquidity and capital structure on slides 15 and 16.
Starting with cash on slide 15, I'll focus on year to date results as the longer timeframe helps smooth some of the volatility in working capital movements.
Free cash flow is defined by operating cashflow less capex was $53 million. This compares to an outflow of $102 million for the same period last year.
Key drivers impacting the comparison include the higher level of consolidated earnings driven by improve volumes and a modestly better operating environment.
Timing of commercials settlements.
Lower interest paid driven by the reduced level of debt between the two periods and.
And a lower level of accrued compensation.
These benefits were partially offset by typical month to month working capital movements.
The timing of tooling recoveries N V a T deferrals and payments.
One last point to call out on the slide any and continues to utilize various factory programs as a low cost source of liquidity.
At March 31st 2023, we had $206 million a factor receivables.
Versus $181 million at the end of Q1, FY 2003, and 269 million at September 30th 2022.
Flipping the slide 16.
As noted on the right hand side of the slide we ended the quarter with about $1.8 billion total liquidity comprised of cash on hand of $826 million and $973 million of undrawn capacity under Adience revolving line of credit or.
Very good outcome and even more impressive when you consider the quarter any cash balance reflects the impact of a few strategic actions recently executed.
Specifically the execution of our enhanced capital allocation plan, which resulted in the company using about $30 million of cash to repurchase just under 760000 shares of adient common stock.
Of that I know approximately 48000 shares with a cash outlay of just under $2 million settled in early April after the quarter close.
That's why the cash statement will show 28 million related to repurchases and not the full $30 million.
And second $100 million of the cash used in conjunction with the proceeds from a $500 million secured note issuance and $500 million of unsecured note issuance to refinance a large portion of the companies three and a half per cent Euro notes that were set to go current in August of this year and prepay 350 million.
Of our term loan B, which had a cost at the time of eight plus percent.
Speaking of that <unk> net debt position totaled about $2.5 billion and $1.7 billion, respectively at March 31st 2023.
The refinancing extended the average tenor of Adience that portfolio to approximately five years versus three and a half years prior to the actions.
The actions implemented during the quarter demonstrate adience commitment to maintaining a strong balance sheet well.
While executing actions to enhance our capital allocation plan.
With that let's flip to slide 17, and review our outlook for the remainder of fiscal 2023.
Slide 17.
As Doug mentioned through the first two quarters of 2023 at Ian is off to a solid start on track to achieve its 2023 plan.
That said, we're not sitting idle the second half of 2023 will no doubt have it's share of obstacles that need to be navigated.
Such a soft demand in China, and elevated steel prices in North America, which we've discussed earlier.
On the plus side.
We continue to expect the overall operating environment to continue to progress in a positive direction, albeit at a modest pace.
With that as the backdrop based on Adience results through March in current market conditions.
Including revised production forecast in excess FX assumptions for the year. We currently forecast the following Adience consolidated sales to land at about 15 billion, which is equal to our previous guide.
For adjusted EBITDA, we continue to forecast approximately $850 million, including equity income of about $70 million.
That implied, albeit modest improvement in Adience second half results first H one excluding the non-recurring insurance settlement is driven by a few key influences.
First benefits associated with an improving operating environment and production in North America.
Second the timing of commercial recoveries in H two relative to H. One lastly continued execution of certain continuous improvement actions that realized full benefit and the latter half of the fiscal year.
And <unk>. Unfortunately, these benefits are almost fully offset by lower H two production in Europe and China.
And an increase in certain input costs, including elevated raw material costs in North America.
Impacting predominantly the company's fourth quarter, our current forecasts for these headwinds is between 10 and $20 million.
One more item to note before moving on giving.
Giving the timing of commercial recoveries in the Americas, which is more tilted.
Towards each one and the lower production forecast for European Q3.
Versus the quarter, we just completed we expect adient Q3, EBITDA to settle at or about the same level as the quarter just completed around the 200 million mark excluding the benefits associated with the insurance recovery.
Moving on interest expense given the recent debt refinancing as well as interest rate expectations is now forecast and $180 million cash interest, which is also called out is forecast at $145 million in.
The lower level of cash interest is primarily driven by the timing of the first interest payment on the new bonds, which is set for October 15th 2000 twenty-three after the close of Adience of 2023 fiscal year.
Cash taxes are now expected at $95 million versus the previous guide of $90 million.
Modest uptick as a result of the opportunity the company has to dividend certain moneys out of Asia.
Specs largely based on customer launch schedules is forecast at $300 million no change from the February guide.
Now expected, we forecast free cash flow of approximately $215 million for the year up from the previous guide of $200 million.
With that let's move on to the Q&A portion of the call operator can we have our first question.
Thank you we will now begin the question and answer session. If you would like to ask a question. Please I'd meet your line press Star one I'd be quite your name clearly to withdraw. Your question you May <unk> again press star one to ask a question and one moment. Please for our first question.
My first question comes from Emanuel Rosner What'd Deutsche Bank, you're 90. So can you may ask your question.
Oh. Thank you. So much first question is on.
China and I think your Oh.
She you know raising a potential risk of.
Downward revisions to production schedule there based on you know how to mend there's been plenty got it and inventories are you seeing any any any risk in terms of some of your launches. There you know either being pushed out or downwards revisions I think ish years.
Strong growth of a market that's concentrated in your outlook has a lot to do with the new loan shows and I'm wondering if their current environment is pushing some auto makers to revise some of these projections down.
[noise] yeah. Thanks.
Thanks manual appreciate the question.
Material significance on the launch status.
Jerome and I were both over in China recently, we had pretty in depth launch reviews with the team.
And right now everything is is for the most part on schedule.
What we're seeing more of is that products that have been in the market for awhile, where where.
Seeing.
Changes in production schedules kind of consistent worse you know.
Pete for cash.
And as we commented on it feels like the markets.
Waiting to return and with all the price cut activity with you always have to pause.
Pause the consumer to.
Wait for that to settle out and and reenter the market.
On those tapes and then there's as a follow up just.
Hoping to just.
Clarify what is embedded in your 2023, he be the outlook for.
Net commodities and.
Inflation net of performance.
In terms of.
I guess Ah Mandy I'm, just trying to get a bit more clarity on just study and they'll walk 20 twenty-two through twenty-three how much will.
Commodities B of you know headwind hotel in and and how much are you expecting inflation than a performance to be honest with your basis.
Yeah, I mean on the four year so.
Yeah, I mean annual it's it's it's Mark would what we've indicated in the past right. We didn't give specific markets I met bridge, but what we did say is you know when I looked at 2022 for example, those results were impacted by call. It you.
You know 100 million of when I called transitory class right those were the inefficiencies of production schedules.
We're seeing that actually lesson as we expected as we entered the year. So you pick a number do we think that that's going to be half probably a pretty good number there. So maybe 50 million versus the 100 and.
The inflationary costs, we just labeled that a sticky right. So that was another hundred million last year that impacted us.
Did indicate that because of labor costs. This year that was increasing versus last year. However, we are getting commercial recoveries for that so you're probably net net right with the transitory cos and sticky costs again.
You're probably a couple of hundred million dollars would I'd say impacting the year on year impact, but again, we're we're getting those commercial recoveries from the customers. So it's it's really more focused on how are we going to exit this year and how is the setup for 2024 going to shape based on what commodity prices are expected next year based on the commercial.
Recoveries to date et cetera, so hopefully that helps.
Okay.
Thank you. Our next question comes from John Murphy with Bank of America.
So can you may I ask you a question.
Good morning, guys.
I just wanted to ask on makes maybe sort of short term and long term I mean, if you look at your slide 14, you guys are highlighting positive 84 million from Vimin mix and a quarter I'm. Just curious if you can give us a breakdown between what is volume and what is mix, but more broadly how much have you benefited.
From what has been very strong mix in the industry and is there a significant risk as we step forward later this year into the coming years, when when makes maybe deteriorate to some degree at least from an automaker level and then second kind of along the lines of that you know on slide five you you highlight all this great product sort of the ESG, but.
On weight teams real stuff not just even marketing stuff real really improvements in your product are you able to get paid more for those those seats that have less weight and them or or you know or more ESG friendly or or is that just part of the game and part of the product improvement over time, it's needed.
Yeah. So thanks for the question John with respect to the the first one on volume and mix I mean, when we when we think of volume and mix for us what really matters and we said this in the past is the volume piece of it so the mix.
Doesn't we're not really sensitive to if it's a you know an F 150 base or an F 150.
Fully loaded King ranch.
And so as your customer demand chefs and if we see you know more entry.
The level of vehicles versus higher end vehicles.
We're not as sensitive to that aspect of it for us what really matters is the volume piece of it and so when we talk about the pure volume that's what we really care about is the volume.
So is the industry returns and as we see volume coming in that's what we really need is the volume piece, it's not as sensitive to what is the mix within a platform whether it's high end or low end, it's really about the volume piece of it that's what really matters to us.
And I think we've been pretty transparent on that in the past it it's volume that matters to us does that help to answer your first question, Yes Yep.
Yeah, that's what I would say is go ahead, what does matter of us as regional Mexico hover it was going to so.
So for you know as we look at where that volume comes from from a region standpoint, though we are sensitive to that and so if you look at an hour different regions print. It certainly is is Asia comes back.
And when we get more Asia volume that is positive regional mix for us and so that's why we look at the back half of our year and why we basically said holding the guide as we look at China, and we look at Asia and some of the caution that's out there and we said okay looking at that looking at what could be there.
We basically said okay <unk>.
Reason Ah hold the guy based on that based on maybe a regional mixed component of it not necessarily in platform mixed but more regional mix aspect to it.
What if I.
Move to your second question with regard to sustainable products.
You almost have to look at each one individually.
Whether they represent a cost reduction or a cost at our focus essentially is to provide.
Provide.
Product solutions to our customers.
That net.
Are neutral to the current cost structure.
That they have on their below material today, so we tend to package them.
And.
Look at it from a vehicle perspective of what the neck benefit is and it could be a net benefit for them.
And that's why you know with ultra thin, we talked about increasing interior.
I'll say volume within.
The vehicle that allows it to display set volume with you know additional batteries, if that's what the customer ultimately wants.
But really when we look at our sustainable solution.
We really walk from a current cost today will add in a variety of products.
And our attempt always as is.
Been that neutral and then it it really is kind of a buffet style that they can our customers can add and delete what they think brings value to the way that they are trying to market position or overall vehicle. So you really have to take it individually.
But collectively it's intended to be neutral.
If I could sneak one other one in here on slides nine and 10.
I mean, I mean, it seems like you're signaling that restructuring is really more an ongoing part of the business. I mean, you have some catch up to get your your margins after snough and into targets, but it's also it seems like there's a signal that you know there's a more.
Just an ongoing restructuring effort he needs to go on what do you think we should think about for expanse in cash outlays for the more ongoing you know part of this because it just seems like it's going to be part of the industry, you're part of the business for you know forever.
Yeah, I think historically, we've always had you know roughly 100 million of restructuring in you know.
We're not trying to signal anything beyond that and and go forward.
But we're taking actions.
You know as we see appropriate we just recently announced an action on the CNA front to reduce the amount of.
Validation center capacity, we had in Europe for example, because we can do more of it digitally then we've historically had to do physically.
And we tried to you know really use our footprint to our advantage.
You know to to to move work around too.
Not all Luis to the necessary to the lowest cost region, sometimes but sometimes we'll move work in to offset having to take a happy restructuring load because we think we've got productivity in that facility that makes it competitive and then we look at logistics.
Cost associated with that so we're constantly rebalancing, but the quick answer is.
Right now, we're not signaling anything different than the historic way our business is operated.
Thank you next question comes from Rod Lash with Golf Research. Your line is hoping you may ask your question.
Good morning, everybody.
Mark I kind of lost you on the 20 twenty-three bridge cause I think you might have misspoken on the inflation, but maybe just to simplify things if we take a step back I think at the start of the year you guys expected. It a 200 million dollar headwind from material economics and lay.
<unk> and do other things and you you had.
Something like $250 million of <unk>.
Expectations for operational performance recoveries in lower inefficiencies. So it looked like a little bit of a of a tailwind at night.
And I'm I'm just.
Hoping you can maybe just give us a sense of excluding volume.
Are the positives and negatives now more neutral.
Because of the steel issue and and Jerome.
On the steel if I recall correctly, you had kind of a similar issue maybe a year ago and you wound up mitigating that with recoveries is there any reason why that would change.
Yeah, and I'll take you can take both of them. If you want me to run so I think I'm the first Sharon.
Yeah in March March strategies. The next make you know I mean marks numbers were correct. So I mean, we look at if you look at that total bucket between material econ.
Or what we call our sticky cos and the commercial recoveries I mean it'll be.
Net net this year about call. It 100 million dollar headwind for us when you look at everything all in offsetting with commercial recoveries.
So that that I don't think that's really changed.
From anything we've said previously uhm, what's new in that equation now is I think some of the steel that's coming in which goes to the second part of your question. The steel that we've seen recently in North America in particular, where.
It's gone from and we talked to.
In particular talked about this a month ago Mountain New York You know, it's gone from 650, a ton up to 1200 a ton.
And just when it accelerates at that pace and the lag in our indices.
You know, we eventually get it back it just takes time for it to cycle back through our system.
So do your question will.
Will we be able to overcome that this year.
Yeah, I don't I don't see how we can overcome.
Overcome that 10 to 20 minutes.
It's I mean, I won't say anything is impossible, but we went to work really heavily and 21 to restructure those customer agreements to get to you know what.
It was a lot of what I would call naked exposure on our customer agreements, we had very significant legs. We brought those in from a year or two something more than the six month range. We went from 50% exposure to 80% coverage and you know I think we are where we are now it's just now we're going to have to let those.
Contracts work themselves through the system and that's going to that is going to drag into 24, I think the only thing that would really help us to mitigate that is if we see the indices now take a rapid correction between now and when we have to strike some of our updated steal contracts.
Okay, and and just secondly on on the European comments made and I.
I I think peripherally, China, what's the typical payback on European restructuring that you typically see and when when you think about to the extent that some of the production commentary is driven by exports from China do you see yourselves as sufficiently hedged.
With enough exposure within China to the Exporters' or do you.
Do you still have to Ah kind of take into account some some negatives there.
Yeah with regard to feedback typically the payback on European restructuring is is a two year timeframe.
That's an average now certainly the example, we incur.
Included in the dark was.
We can be.
Bit smarter about how we handle that that's a far better pay back when when we can.
Spring.
Business back into the organization to refill a plant that otherwise was scheduled to go dormant.
With regard to.
China exports into the European market, what that ultimately means to us.
I think it's a little bit more complex than you know.
Just the direct math, if if those imports increase.
Certainly we hope we can benefit from that.
In our in our Asia business with that revenue in the returns on the revenue even if it's.
Consequential to Europe , but I think what we're seeing in Europe .
Is we're able to.
You know to.
To balance our manufacturing footprint to mitigate a lot of the costs associated with it where.
And Ah where it's.
It's a direct impact to us as if we ever Judd jet facility and our customer close as one of their assembly plants.
You know that that's.
So.
So it.
I think you know, we're essentially saying we have to wait and see how that plays out over time.
We.
We're putting together certainly strategies to address best case worst case scenarios.
The historically the market's run at 17 million, it's 14 ish million now.
If that doesn't recover what does that ultimately mean to us, but I think you know at this stage, it's too early to quantify.
And and you know bake into our extended your outlook.
Thank you next question comes from common linking with Wells Fargo. Your line is helping you me ask you a question.
Oh, Thanks for taking my question.
Just to follow up on that this is the second quarter U.
How should we think about this or are you going to be taking small steps that would be incremental that's sorta aren't going to be highlighted or.
Or you're kind of contemplating a larger or sort of scale.
Plan that we should be kind of looking out for over the next year or two.
Yeah, you should think about it in small steps in incremental not not a large scale restructuring of our business. There we took a lot of steps.
I would say.
Even pre COVID-19, but certainly during COVID-19 to bring down our breakeven.
Close to.
At right now.
So you know we think we're pretty well positioned now if there's you know something.
That is currently not forecasted that impacts of the region.
That's a different story, but right now think about it incremental.
And not a large scale restructuring yeah and just just.
Just as up to support that <unk> you know an example is we just announced.
Our Tech center in Kaiserslautern.
That's now public it was you know it's.
Date, it's like an incremental step is Doug talked about we go to virtual validation that make some of that redundant and we had to take an action there and it's.
It's those type of incremental steps as we move along the path in Europe .
Large scale activity.
Okay, Alright got it and.
And then that's a circle back on steel again, but but you did highlight is fairly small numbers, but cough syrup 10 to 20 million unlikely to kind of get help the sheer guide.
Guidance as Hell. So what is the sort of you know I guess, it's like positive offset the Hulk guidance, if if the commodity costs are up a bit.
Yeah, I mean, I think there's some.
Some volume I mean, you saw the queue to volume versus what we had previously seen Uhm also Q2 EBITDA vs, where we had previously thought of coming in at.
Volume, we expect to flow through also some underlying performance within the business as well helping to offset at the team continues to you know obviously pedal extremely hard as some of the underlying activities that are there helping to offset that uhm that action or that headwind I would say and back to the mix disc.
Russian certainly volume in Asia.
Is is welcome volume from a mixed perspective that we think you know.
Might be able to.
Steele issue.
And if Steele hold the current levels in North America, any sense of how big of a headwind that is for 2024.
No. It sounds like I think you mentioned, 80% ours or index, alright, I guess without even.
Yeah, a big issue at all.
How should we think about that right I mean in the city I mean in the long run. It's it's not it's really the timing associated with when it would flow through right. So it's.
If you think about when it would hold I you know I haven't run the models counts I don't Wanna speculated yes.
Certainly in the back half of our 24 fiscal year. It it wouldn't be a significant issue there'd be some carryover into our queue, one and we'd start to see the recovery is kicking in in that.
Three and four Uhm is how I would think about.
The one thing I would add to it is.
We.
It's a little bit of the nature of the seating business.
You can't always look at these issues in isolation, because within our commercial agreements with our customers <unk> got their expectations.
On productivity, we've got our internal expectations from our supply based on productivity.
Since a very transaction oriented business so there.
There's always opportunities for us to engage.
And I'll say offset.
<unk> anything that is.
I'll say outside of the scope of.
Our normal commercial agreements that when we see.
No real significance spikes and.
Inflationary pressures on commodities, we fully expect over time, we recover that it may hit us and a quarter, but it's.
It's probably a quarter.
Until the recovery slip place.
Thank you next question kept some James <unk> with BNP pair of Huh.
Then you May I ask you a question.
Hi, guys.
Just just to clarify a clarification question to start off what was the sequential guidance commentary on.
The third quarter EBITDA fiscal third quarter Everytime.
Oh, yeah, you're you're referring to Q3.
Yep.
Yeah, so around $200 million.
Okay EBITDA standpoint.
Right.
And just from the you know if I look at APEC region. You do are you expecting sequential improvement in industry volumes or is that a question mark and conservatism embedded within that back to you.
Okay Sweet essentially follow IHS. So if you look at what IHS sets for Asia, China, I mean, it has <unk>.
Volumes actually sequentially going down in Q3, <unk>, what would R Q3, and four fiscal year <unk>.
And within China.
I would say sequentially better Q3, Q for but not versus the first quarter, So really back half and China in particular is lower versus first half.
Our fiscal year first have versus our fiscal year second have.
Using IHS volume, so really sequentially.
Actually lower second half first first half and that's again coming back to the 850 guide.
Why we've said looking at.
That along with Europe volumes sequentially lower first half for second half why we've guided to that 850 number.
Yeah, but on a consolidated basis now.
China is almost half of of the APEC region right in terms of just regional mix.
Yeah.
Roughly.
Alright.
Place.
You want to follow up with either.
No no no. It was just reinforcing the point China's sequentially first half per second half.
Following IHS down on volume and our fiscal year, because they really re timed.
That volume into Q for calendar year, which falls into our Q1 2024 fiscal year.
Yeah, Okay yeah.
For the quarter, though IHS has.
Almost 800000 improvement 800000, you an improvement for China, but I I could follow up with Martin.
Could tell me.
Yeah that I'm confused [laughter].
More higher level question on thermal comfort.
And and Adience positioning and how you view the competitive landscape within this particular vertical you know who you are aligned with from a supply chain perspective is it or could it be an advantage as a tier one supplier to have more of this contact vertically integrated in house.
Just curious if you could share a perspective, just given the latest M&A efforts you know by your primary competitor.
Sure.
You know at a very high level I would say.
Having that capability.
Is is an advantage.
It's a question in my mind, how you define the capability and the confidence that we think we are capable and competent.
Although we don't necessarily need to be completely vertically integrated on it.
From M&A perspective.
You know I'm not sure to you know.
Just give me your opinion I don't know that permit M&A perspective, it's necessarily the way to go because he bring in a lot of integration risk associated with it.
What we're finding is in some cases ah customers directing it.
That.
That limits.
The growth I would say because there's independents that are out there and our customers tend to balance that too.
Two I would say the independence.
We've got.
Pretty good engagement with them and how we can partner and develop products collectively.
And bring dose two automakers, who want an integrated solution. So we think we're competitive from that perspective.
And then what we.
What we're.
We're doing in China, specifically is our own.
Organic development, sometimes in partnership with small Chinese suppliers, but you know sometimes independently on our own.
Which is not going down the M&A.
Say route to bring that.
So to me I always look at it.
Like.
A lot of aspects of our business you don't need to be vertically integrated too much vertical integration, sometimes has a negative effect.
Do we have the confidence C and we know how to work with partners and bring a solution together for a customer and I feel pretty good about where we are out there.
Yeah, we certainly understand what the other guys are doing.
We understand the motivation associated with it.
Oh, we're fine with our approach that we're taking on it.
Great and surely it looks like we're at the bottom of the hour. So this will conclude the call today. If there is any follow up questions. Please do not hesitate to reach out to myself for Eric This afternoon, and we'll be happy to assist thank you.
Thank you and this does conclude today's conference. We thank you for your participation at this time you may disconnect your lines.