Q4 2024 Adient PLC Earnings Call
Welcome to Adient sports quarter 2024 earnings call parties will be in a listen only mode until the question and answer session of today's call I'd like to inform all participants that today's call is being recorded if you have any objections. You may disconnect. At this time I would now like to turn the call over to Mike Heisler. Thank you you may begin.
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Mike Heisler: Thank you Amanda good morning, everyone and thank you for joining us.
Mike Heisler: This release and presentation slides for our call today.
Mike Heisler: Mr to the investors section of our website.
Mike Heisler: Dot com.
Speaker Change: This morning, I'm joined by the room door locks ambience, President and Chief Executive Officer and.
Speaker Change: Mark Oswald, our executive Vice President and Chief Financial Officer.
On today's call Jerome will provide an update on the business base.
Speaker Change: Based on feedback from our investors, we have spotlighted, our efforts in the EMEA and APAC regions as well as how we are driving overall future positive performance.
Mark will then review, our Q4 financial results and outlook for fiscal 2025.
After our prepared remarks, we will open the call to your questions.
Speaker Change: Before I turn the call over to Jerome and Mark there are a few items I'd like to cover.
Speaker Change: 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 and we caution you that our actual results could differ materially from these forward looking statements made on the call.
Speaker Change: Please refer to slide two of the presentation for our complete Safe Harbor statement.
Speaker Change: 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.
Speaker Change: Conciliations for these non-GAAP measures to the closest GAAP equivalent can be found in the appendix of our full earnings release.
Speaker Change: And with that it is my pleasure to turn the call over to Jerome.
Jerome: Thanks, Mike Good morning, everyone.
Jerome: Thank you for joining us to review, our fourth quarter and full year results.
Jerome: We will also discuss our fiscal year.
Jerome: 25 outlets and share additional information on actions, we're taking in the EMEA region to set us up for long term success provides more details and perspective on our leading and growing business in China and talk about recent developments in our use of automation and artificial intelligence to drive efficiencies.
Jerome: Turning to slide four which summarizes the fourth quarter.
Jerome: And full year results.
Jerome: That is Q4 results were solid against a difficult macro environment. The adient team drove strong business performance that offset customer volume headwinds.
Jerome: As a result, we were able to expand margins 30 basis points, despite a 4% year over year decline in revenue.
Jerome: We held adjusted EBIT was flat at $235 million and generated over $190 million.
Jerome: Free cash flow.
Jerome: We also continue to allocate capital in a disciplined manner and bought back another $50 million in stock in Q4, bringing total share repurchases this fiscal year $24 million to $275 million.
Jerome: Which allowed us to repurchase of approximately 10% of our outstanding share count at the start of compared to the start of the year.
Jerome: To put that into context.
Jerome: Of the 100% as adient 24 of free cash flow was returned to shareholders.
Jerome: With a strong fourth quarter, we finished the year slightly ahead of our revised guidance.
Moving to slide five.
Jerome: At the beginning of fiscal 'twenty four we in the industry, we're expecting volumes to be a modest tailwind for the full year.
We were also forecasting strong business performance items that we can influence of a positive $100 million.
Jerome: In fact, what occurred was much weaker than expected customer volumes.
Jerome: It's one of the 200 dollar million, which was a 200 million impact to the adjusted EBITDA compared to our initial guidance a year ago.
Jerome: The adient team was able to mitigate this contribution margin headwind with nearly $70 million of additional business performance.
Jerome: We're not satisfied with our 6% total company EBITDA margins I believe we are demonstrating the resilience of the adient business model and our ability to find offsets in the face of industry headwinds.
Speaker Change: Turning to the next slide Mark will get into the details shortly.
Speaker Change: The key takeaway for fiscal year 'twenty five outlook does that we expect continued strong company performance.
Lower industry volumes.
Speaker Change: Our outlook calls for roughly flat earnings in fiscal year, 'twenty, five with solid free cash flow conversion.
Speaker Change: Our company performance are as follows.
Speaker Change: And it continues to win new business with China domestic Oems underpinning solid growth in the Asia Pacific region.
Speaker Change: And this growth is accretive to overall company margins as we've discussed in previous calls.
Speaker Change: We're also driving significant cost savings through automation and modularity I will expand on this in the next few slides.
Speaker Change: [laughter].
Speaker Change: The team is focused on executing restructuring in Europe.
Speaker Change: And finally additional efficiencies in the region.
Speaker Change: We have already announced actions and we continue to develop our plans around improving our business in that region.
And 25, we expect the Americas to continue to expand margins.
We'll start to see the benefit in the Americas favorable balancing and balance out.
Speaker Change: This is expected to become a meaningful contributor to EMEA as regional performance as well as fiscal year 2006.
Speaker Change: On slide seven we frame the current conditions in the European market, which is exhibiting intensifying cyclical and secular headwinds.
Speaker Change: Key takeaways here are that S&P industry forecast calls for an additional 5% contraction.
Speaker Change: Light vehicle production in fiscal 'twenty five.
Speaker Change: As we look out over the next few years European volumes are not expected to return to pre COVID-19 levels due to lower exports.
Speaker Change: Throw it shine growing China imports as well as reduced total addressable market proceeding systems as certain customers selectively and source.
Speaker Change: Our eyes are wide open to the challenging and changing realities in Europe, and we have been aggressively taken action and will continue to do so.
Speaker Change: Turning to slide eight let's walk through the margin progression path for our EMEA business.
Speaker Change: In fiscal year 'twenty four we took restructuring actions focused on right sizing engineering and SG&A expenses.
Speaker Change: As well as improving plant efficiencies.
Speaker Change: During the year, we booked total charges of approximately $145 million in EMEA was expected net savings benefits of approximately $60 million.
Speaker Change: Annually by the end of 2027.
As the situation in Europe continues to evolve future restructuring will be aligned with customer production plans.
Speaker Change: Well, we have no specific additional restructuring you've announced today.
Speaker Change: We do believe there's the potential for additional restructuring of a similar magnitude to what we booked in fiscal year 'twenty four in total over the next few years.
Speaker Change: We are undertaking other near term efficiency actions in Europe, including continuous improvement activities on the manufacturing floor.
One was negotiating commercial margin improvements with customers and suppliers.
Speaker Change: We have also been conducting a strategic review of our portfolio.
Speaker Change: Including Terry of non strategic businesses and focusing on reduced capital expenditures in the region.
Speaker Change: He will be consequential with both capital deployment in the region.
Speaker Change: In the areas of noncore assets.
Speaker Change: Lastly, we are leveraging our presence and customer relationships in China.
Speaker Change: Target Roes with Chinese Oems as they localized into the EMEA region.
Speaker Change: Looking out to 'twenty five 'twenty six.
Speaker Change: The weak market conditions persist teams.
Speaker Change: And in fiscal year 'twenty, five we expect lower profitability in EMEA from volume and mix headwinds to only be partially offset by positive business performance from restructuring and other actions.
Speaker Change: The first half of fiscal year 'twenty five is likely to be the low point of our margin recovery plan within the region.
Speaker Change: We expect the picture in Europe strengthen in fiscal year 2006, as we incur positive balance and that balance out.
Providing margin tailwind as large.
Speaker Change: Underperformance carbon seat programs roll off and we achieve additional positive business performance, including greater restructuring benefits.
Speaker Change: For additional perspective and to help your modeling, we expect our self help and 26 from balanced and balance out and restructuring to be a tailwind all else equal a 50 to 100 basis points.
Speaker Change: Bottom line. The company continues to execute actions designed to improve profitability within the EMEA theater.
Speaker Change: Turning to our China business on slide nine.
Speaker Change: We received a lot of interest from investors in better understanding our China business.
Speaker Change: We view, our China business as the growth engine for the company.
Speaker Change: It is a center of excellence for innovation.
Speaker Change: We are developing cutting edge high features seating systems, which we are cross selling to customers in other regions and a competitive advantage in terms of future growth outside of China, given our strong relationships with China based Oems as a localized into other regions.
Speaker Change: Given our highly vertically integrated and operationally efficient business in China growth in China will provide a natural tailwind for adient overall.
Speaker Change: When looking at Adient as China business. It is important to understand that we have taken several key transformational growth actions in recent years to position the business for success for success and ongoing growth.
Speaker Change: We divested our remaining interiors business to Yank Bang in 2020 and.
Speaker Change: And resolved a significant JV and reconfigure other business ventures with Yates Bank in 2021.
Speaker Change: These transactions unlocked one 7 billion in cash proceeds, which allowed us to delever our balance sheet.
Speaker Change: Importantly, they enabled us to shift course in China to focus on seeding growth with local Oems, which we believe we would gain share.
Speaker Change: Since these transactions occurred.
Speaker Change: We've seen meaningful growth cumulatively, 30%.
Speaker Change: We received significant dividends from our unconsolidated JV as of just under $200 million in total and generated strong free cash flow.
Speaker Change: Turning to slide 10, we show our unmatched footprint in China, including 37 plants and three state of the art technical centers.
Speaker Change: We've expanded our footprint in recent years to address growth opportunity.
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Speaker Change: And she and G.
Speaker Change: We're growing the gili.
Speaker Change: Ill leave motor BYD and many others.
Speaker Change: [laughter].
Speaker Change: As outlined on slide 11, we've won business from six new customers in fiscal year 'twenty four.
Speaker Change: We expect approximately double digit annual growth between fiscal year 'twenty four.
Speaker Change: Fiscal year 2007.
Speaker Change: Last year, China generated $4 2 billion of consolidated and unconsolidated revenue.
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Turning to slide 12.
Speaker Change: We are prioritizing winning the right business and executing successful launches.
Thank you.
Speaker Change: Our business awards this quarter demonstrate further market share growth in China and enhancement to our global customer relationships.
Speaker Change: I would like to point out the win with Xiaomi, which resulted in part from our innovative capabilities to drive an outstanding consumer experience while also maintaining a competitive business case.
Speaker Change: As you can see on the chart, these WINS are vertically integrated to include complete seat systems that include JIT, trim, foam, and in some cases, metals, where it's accretive to the business case. This is a key enabler to improving margins.
Speaker Change: We've also won a complete seat program excluding metals in the U.S. with the U.S.-based electric SUV and pickup truck manufacturer. We've also won the new Chevrolet Bolt complete seat system that represents a conquest win.
Speaker Change: In EMEA, we won the popular Volvo EX30 complete seat system as it's localized in the region.
Speaker Change: Underpinning our new business wins was our high level of execution on multiple launches.
Speaker Change: We continue to perform on safety, quality, and on-time delivery metrics for our customers.
Turning now to slide 13.
In keeping with our core principles of operational excellence,
Customer Portfolio Management
and Accelerating Automation to Improve Business Performance.
Speaker Change: First, Etienne has launched an AI welding inspection tool with MindTrace aimed at significantly improving efficiencies.
And he has plans to expand these efforts globally.
Speaker Change: As part of our collaboration with MindTrace, Etienne made an investment with them in October.
Speaker Change: Add-In has also executed a joint development agreement with Tasland to develop automated sewing cells with advanced technology to reduce labor and increase accuracy of joining patterns specifically focused on 3D.
Speaker Change: We are creating an automated assembly process as well for our new portfolio of non-traditional bonding of cup patterns.
Speaker Change: Automation continues to transform our operations by reducing costs where we see an opportunity in both direct and indirect labor savings.
Speaker Change: improving quality and accuracy, enhancing safety and ergonomics, increasing speed of operation,
and achieving repeatable and reproducible results.
Wrapping up now on slide 14.
Speaker Change: Well, we are not satisfied with our total company margin result.
Speaker Change: And our goal remains to achieve 8% even of margins. The Adian team delivered strong execution in fiscal year 24 from an operational and commercial performance standpoint against a challenging volume and macro backdrop.
Speaker Change: In fiscal year 24, we prudently balanced debt reduction and share buybacks via a disciplined capital allocation plan.
Speaker Change: Looking into fiscal year 25, we expect continued positive business performance and strong earnings in a lower customer production environment aided by restructuring, balance in, balance out.
Modularity and Automation
Speaker Change: We continue to expect growth in APAC and China, and more focus on partnering with strategic customers.
Speaker Change: We have a strong free cash flow conversion business model featuring efficient capital expenditures and ongoing low cash taxes. We expect to generate significant free cash flow in fiscal year 25.
Speaker Change: And finally, we are committed to being good stewards of capital and executing a balanced capital allocation plan with a focus on return of capital to our shareholders.
Speaker Change: With that, I'd now like to turn it over to Mark to walk through our Fiscal Year 25 Outlook and our financials for Fiscal Year 24.
Mark Oswald: Thanks, Jerome. Let's jump in with financials on slide 16. Adhering to our typical format, the page shows our reported results on the left side and our adjusted results on the right side.
Mark Oswald: Details of all adjustments for the quarter are in the appendix of the presentation.
Mark Oswald: High level for the quarter, adjusted EBITDA was $235 million, flat year-on-year. This is a solid performance as we ensured $167 million decrease in revenue from a year ago.
Mark Oswald: which speaks to the resilience and ability to drive business performance to mitigate external pressures.
Speaker Change: Edding reported adjusted net income of $59 million or $0.68 per share. Next, our full year results are highlighted on slide 17.
Speaker Change: As Jerome noted earlier, Fiscal Year 24 was characterized by a challenging customer volume environment where we took steps to mitigate lower than expected volume and mix contribution dollars with incremental cost savings in commercial recoveries.
Speaker Change: Full year sales were approximately $14.7 billion, down about 5%. Lower customer volumes and negative effects drove the year-over-year sales decline.
Speaker Change: Adjusted EBITDA was $880 million, down 6% from full year 2020-3.
Speaker Change: Importantly, we were able to manage our decremental margins and loss volume to 8% compared to our typical high team conversion percentage through positive business performance.
Speaker Change: I'll cover the next few slides rather quickly since details for the results are included on the slides. This should ensure we have adequate time for Q&A.
Speaker Change: Starting with revenue on slide 18, we reported consolidated sales of approximately $3.6 billion, a decrease of $167 million compared with Q4 fiscal year 23.
Speaker Change: The primary driver of the year-on-year decrease was lower volumes and pricing of $177 million, resulting from lower customer production. FX was a slight tailwind of $10 million in the quarter.
Speaker Change: Focusing on the right-hand side of the slide, betting's consolidated sales were lower in Americas and EMEA, while sales in Asia grew by 2%, driven by an approximate 5% year-on-year growth in China.
Speaker Change: Well, we have seen improvement in volumes from our year-to-date customer launches. This was offset by a few of Adian's high-volume programs, such as RAM and Jeep Wrangler, which experienced significant downtime as our customer managed inventory levels.
Speaker Change: In Europe, we were negatively impacted by overall weaker market demand.
Sales were generally in line with the market.
Speaker Change: In our APAC region, China continues to be the company's growth engine with sales outpacing industry production from new program launches, achieving full year production rates.
Speaker Change: In Asia, outside of China, our sales also outperform the industry from new program launches and commercial recoveries.
Speaker Change: Regarding Adian's unconsolidated seeding revenue, year-on-year results declined about 9% adjusted for FX. Results were impacted by end of production of certain programs in Europe and APAC.
Speaker Change: Moving to slide 19, we provided a bridge of adjusted EBITDA to show the performance of our segments between the periods.
Adjusted EBITDA was flat at $235,000,000.
Speaker Change: The primary drivers of the year-on-year comparison are detailed on the page. The Addie and team drove improved business performance of $72 million, primarily resulting from better net material margin and reduced operating costs, including freight, engineering, and admin costs.
Speaker Change: We incurred a net commodity headwind of approximately $24 million in Q4, primarily resulting from the timing of recoveries.
Speaker Change: The team has done a commendable job throughout the year at managing business performance in a tough market.
Speaker Change: The improvements in the Americas and APEC partially offset the lower volumes in business performance headwinds in EMEA. The result in Q4 is a 30 basis point margin expansion in a challenging macro environment.
Thank you.
Speaker Change: As in past quarters, we provided our detailed segment performance slides in the appendix of the presentation.
Speaker Change: At a high level for the Americas, improved business performance of $52 million in Q4 was primarily a result of net material margin performance driven by customer recoveries, reduced input costs, and improved launch performance.
Speaker Change: Volume and mix was a headwind of $15 million impacted by lower customer production including inventory management downtime with certain customers.
Speaker Change: Commodities and FX combined were a 21 million headwind driven by the timing of contractual pass-throughs and transactional impacts from the Mexican peso.
Speaker Change: In EMEA, year-on-year results were influenced by weak volume and mix, which negatively impacted the quarter by $16 million from lower customer production.
Speaker Change: However, business performance for full year fiscal year 24 was negative as we incurred inefficiencies and weaker net material margin.
Speaker Change: As Jerome indicated, we are not satisfied with the MIA segment performance and we are taking steps to address the situation.
Speaker Change: Before leaving EMEA, I'll mention that our team conducted normal course assessment of recoverability of long-lived assets, including goodwill, as part of our year-end closing process.
Speaker Change: No impairment was recorded. That said, due to the recent trend in EMEA's results, EMEA is under a heightened risk of impairment, and thus we are including impairment warning language in the 2020 Form 10-K.
Speaker Change: As Jerome discussed earlier, we are taking steps to adjust our costs in Europe. We continue to assess additional efficiency actions in the region.
Speaker Change: We expect cash restructuring costs to increase to approximately $100 million in fiscal year 2025, primarily related to European restructuring charges taken in 2024.
Speaker Change: Moving on in Asia, we generated positive business performance of $12 million from improved net material margins.
Volume mix was negatively impacted the quarter by 15 million.
Speaker Change: In addition to the Kew Fort regional bridges, we have also included a full-year bridge. In summary, the company continues to drive improved business performance in the Americas and Asia.
which we expect to continue into 2025.
Speaker Change: In EMEA, as previously mentioned, we are focusing on driving additional operating efficiencies, restructuring, and executing on our plan, which includes the roll-off of lower-performing metals business,
Speaker Change: in the start of production of Better Margin New Business, which we believe will positively have an inflection point in 2026.
Speaker Change: Let me now shift to our cash, liquidity, and capital structures on slide 20 and 21.
Speaker Change: Starting with Cash on slide 20, on the right hand side of the slide highlights the full year results which smooths out quarterly differences.
Speaker Change: For the quarter, free cash flow, defined as operating cash flow less capex, was $191 million. For the full year, the company generated $277 million of free cash flow.
Speaker Change: The primary drivers of the year-on-year results for full year are listed on the right-hand side of the slide. We continue to expect strong free cash conversion in fiscal 2025.
Speaker Change: One last point, and called out on the right-hand side of the slide, Eddy continues to utilize various factoring programs as a low-cost source of liquidity.
Speaker Change: At September 30, 2024, we had $170 million of factored receivables versus $171 million at fiscal year-end 2023.
Flipping the slide 21
Speaker Change: As noted on the right hand side of the slide, the company returned $275 million to shareholders in fiscal 2024 through share repurchases. This represents approximately 10% of our shares that were outstanding at the beginning of the period.
Speaker Change: We also retired approximately $130 million of debt in the quarter.
Speaker Change: These moves demonstrate Adian's commitment to being good stewards of capital while maintaining a strong balance sheet, ensuring efficient allocation of resources and flexibility.
Speaker Change: Turning to our balance sheet, Eddian's debt and net debt position totaled about $2.4 billion and $1.5 billion respectively at September 30, 2024.
Speaker Change: The company's net leverage at September 30th was just under 1.7 times within the targeted range of 1.5 to 2 times.
Speaker Change: Total liquidity for the company was $1.7 billion, comprised of $945 million of cash on hand and $779 million of undrawn capacity under Adian's revolving line of credit.
Speaker Change: Moving to slide 23, let's review some underlying key assumptions to our fiscal 25 outlooks.
Thank you.
Speaker Change: For the full year, we expect sales to be approximately 3% lower on an FX-adjusted basis.
Speaker Change: Important to note, we are seeing these dynamics play out in Q1 as our customers are reducing inventory levels to close out the 2024 calendar year.
Speaker Change: We expect Q1 to be the low point for sales and earnings in fiscal year 2025. Our volume plan incorporates the latest S&P October estimates
Speaker Change: Customer Production Schedules and our internal estimates on a program level. In China for the upcoming year, we expect our new business will enable us to outperform the market.
Speaker Change: We expect to offset top line pressures through additional business performance next year through incremental efficiencies, leveraging automation, modularity, and maintaining net material margins.
Speaker Change: From an adjusted EBITDA perspective, we expect to be flat year-over-year at the midpoint of our guidance, which encompasses a negative 2-4% range for year-over-year adjacent program volumes.
Speaker Change: Regarding currencies, we have posted assumed exchange rates on the Euro, RMB, and Mexican Peso.
Speaker Change: As a reminder, we hedge our Mexican peso transactional exposure 18 months forward. Consequently, it will take several quarters for the recent weakening in the peso to fully flow through our results.
Speaker Change: Moving to slide 24, sales are expected to be in the $14.1 to $14.4 billion range driven by lower expected production volumes.
Speaker Change: Obviously, there are always ins and outs that impact volumes year-to-year. I would note a few items affecting volumes in FY 25. In the Americas, our business on the Dodge Ram Classic is sunsetting this quarter.
Speaker Change: The remaining Dodge Ram program has been split into two. We retained the ICE and our competitor has picked up the JIT portion and the BEV variance.
Speaker Change: These developments are expected to be a 300 million headwind versus fiscal year 24.
Speaker Change: Additionally, our exit of the BMW business in Europe is expected to be a hundred million headwinds. We expect to offset these headwinds with growth in the Americas on key programs such as the GM large three-row crossovers in the Toyota Tacoma.
Speaker Change: Our adjusted EBITDA outlook is $850 to $900 million. Equity income is expected at $80 million, down slightly year-on-year due to changes in the operating agreement between the partners at our Kuiper joint venture.
Speaker Change: Interest expense is expected to be $185 million, generally in line with fiscal year 2024.
Speaker Change: CapEx is forecast at $285 million, which reflects alignment with our customer launch plans in our focus on efficiencies and reuse.
Speaker Change: And finally, our free cash flow is expected at $200 million, down year-on-year, driven by higher restructuring, approximately $100 million in fiscal year 25 versus $55 million last year, modestly higher cap-backs, and cash taxes.
Speaker Change: With respect to capital returns, we have $260 million remaining on our share repurchase authorization.
Speaker Change: In terms of cadence, we expect to more closely match returns of capital to cash generation. Our typical seasonal pattern for earnings and cash flow is second half weighted due to production schedules and working capital flows.
Speaker Change: Lastly, turning to slide 25, we have provided a high-level bridge from our fiscal year 24 results to our fiscal year 25 outlook midpoint. We expect positive business performance of $100 million to offset lower volume and mix of $80 million.
Speaker Change: Equity income will be somewhat lower year-on-year, primarily due to restructuring of the Kuiper agreement. Effects in net commodities are expected to be a modest headwind of approximately $15 million.
Speaker Change: To sum it up, our message is consistent. We are focused on managing business controllables, such as delivering excellent results for our customers, lowering costs, and generating strong free cash flow for the owners of our business while maintaining flexibility with a strong balance sheet.
Speaker Change: With that, let's move to the question and answer portion of the call. Operator, can we have our first question, please?
Speaker Change: Thank you. We will now begin our question and answer session. If you would like to ask a question, please press star one and star two if you would like to withdraw your question. Our first question comes from John Murphy with Bank of America. Your line is open.
Speaker Change: Good morning, guys. A few questions, I'll try to be quick here. You know, first, Jerome, as you think about the operating environment and these volume forecasts, obviously they're
Speaker Change: a bit more of a guessing game than they have been, you know, historically.
Speaker Change: The industry were to come in lighter on volumes and your program specifically what kind of actions do you think you can take?
Speaker Change: Here in the in the short run on a micro basis and also, maybe if you could talk about sort of the context of recoveries and commercial settlements with with your customers if there would be anything you might be able to get
Speaker Change: on that side, and how that is actually working right now, because that seems to be a reasonably more collaborative discussion than it has been historically.
Speaker Change: Yes, maybe just a couple of comments on that. Thanks for the question. I think if you, if you look at our track record and what we're able to demonstrate in fiscal year 24,
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running at a volume environment that was significantly more
Speaker Change: difficult than what we anticipated going into the year. I mean we managed to an 8% decremental versus maybe a more typical 17-18% decremental in what we would see in the business and I think
Speaker Change: That demonstrates our ability to really, you know, get into the business.
Speaker Change: and take things, you know, austerity measures that we can see in the short term.
Speaker Change: you know, offsetting VAVEs. We've talked a lot in the past with you.
Speaker Change: about what we call the Add-In ES3 program where we really get into the trenches with our customers and work to find
Speaker Change: Often that saves money for us, can save money for them. There's a share associated with that.
Speaker Change: And so that was some of the things we were really able to go after in 24. A lot of that waste is still in the system. So if we see these volumes and as they decline.
Speaker Change: You know, our customers realize they have to protect their margin.
They come to us, it really opens up the field.
Speaker Change: to be able to accelerate some of the savings that maybe when you're in a
Speaker Change: you know, a 91 build environment, the customers aren't as willing to engage. But when you get down into, you know, in the Americas, a 16, a 15.5 into Europe where we're at today and a 15.4 build.
Speaker Change: You know, they're more hungry because they have to protect their margins and they're really looking for
Speaker Change: suppliers that can deliver that value and deliver these types of win-win solutions to them. So it's not always just a battering ram type of discussion, you know, straight contract renegotiation. It's really looking for how can you deliver
Speaker Change: a creative value to them, but also a creative value to us. And that's how you get to maybe a, you know, an 8% decremental margin level.
Speaker Change: So while the, you know, while the discussions are tough, I think we've demonstrated ways to deliver value for both of us in those types of discussions through our ES3 process.
This is your first question on...
Speaker Change: To your first question, just on scheduling, I mean, I would say particularly
Speaker Change: Given our set of customers, and I think you know what our customer breakdown is, it has been certainly in the last two quarters a much more dynamic scheduling process.
Speaker Change: You know, with some of the inventory burndown announcements of our customer group in particular, it has been a very, very dynamic scheduling process.
in the Americas.
Speaker Change: and in particular in Europe with a particular customer set out there.
Speaker Change: You've seen some recent, you know, news reports in terms of certain, you know, shifts going on with the system, etc. So, again, very dynamic that we'll continue to adjust to.
Speaker Change: Dynamic is a polite way of saying what's going on right now. Just on on the on the on the underperforming contracts, you know, it just seems like it's kind of like time ticking into the future. These keep coming coming up. I'm just curious, particularly in Europe, Jerome, where you're saying that, you know, that starts to turn in FY26.
Speaker Change: You know, what comfort level you have there that these underperforming contracts roll off and more normal, you know, economic contracts roll on. And this could be kind of a persistent issue, sort of over time, it's maybe something you think is a 26 event, but it just keeps slipping.
James Picariello, John Murphy, Dan Levy,
Speaker Change: What I would say is we, I mean, we have clear.
Sunsetting now on
You know, I'd say probably two-thirds of those contracts.
Where we we have clear end of production days
Customers have
Speaker Change: Either you know engine programs that die or there's you know, there's other plant closure dates There's there's actual hard stops that are out there on the other third of those contracts
We have Windows where we've been able to
Speaker Change: So if there is extension, you know, extensions or delays in some of the sun setting, I think we have the ability to
Go out there and reprice some of them
Speaker Change: You know, is there a risk on that first two-thirds that they do extend and there's always going to be some
Risk associated with it?
Speaker Change: But I think we have more visibility more clarity as 26 comes and there's still roll off in 27 I think we said the first wave of real sun setting it starts to occur in 26 That's when we see the first tailwind. I think we have much more confidence sitting here today Than we did when we sat here with you last year
Speaker Change: Just given the visibility into that European production, production scheduling now.
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Speaker Change: I've got a bunch more, but I'll get back in the queue. Thank you very much, guys.
Thank you. Thanks, John.
Speaker Change: Thank you. Our next question comes from Colin Langland with Wells Fargo. Your line is open.
Oh, great. Thanks for taking my questions.
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Speaker Change: I mean, Q4 is actually particularly strong. If I annualized your adjusted EBIT, it's better than the 2025 guide, and sales actually annualizes in line with the 2025 guide.
Speaker Change: What's so strong in this quarter and why should it kind of soften from here? Is that all just sort of Europe headwinds? Or how should we think about Q4? Is there something abnormally strong here?
is keeping its head up at our annual
That's right.
Speaker Change: Yeah, Colin, I'll start there. I'd say that, you know, it generally played out as we expected to roll off this year, right? Just in terms of timing of certain commercial recoveries, right? That could be kind of variable as you go through the course of the year. So the commercial recoveries were strong in the quarter.
Speaker Change: You know we did a good job at the business performance just in terms of what we were able to do from a
Speaker Change: I think the problem with trying to annualize that or spread that out into 2025, obviously volume's going to be another, what I'd say, a slug down for us.
Speaker Change: We're going to be able to offset, you know, a lot of that with business performance.
Speaker Change: But again, if it's going to be timing or commercial recoveries that come in, there's going to be FX. We've got, you know, a little bit of that equity income.
that comes down, so it's a combination of those, but.
Speaker Change: Overall message is business performance continues to improve as I go into 2025. It's again that volume story as I look across the various regions.
Speaker Change: Why the delay in taking more actions? I mean, are you waiting for certain programs to roll off? Are you waiting for customers to make certain decisions? And how competitive is your footprint today? I mean, do you have facilities in higher cost parts of Europe that you'd want to sort of relocate?
Yes, I think in terms of
You know, why not more faster?
Speaker Change: You know, to your question, there is a number of programs that we see rolling off 26, 27 and they begin to then balance back in with more profitable business. You know, I'm sorry.
In that 20, 26, 27, 28 timeframe.
Speaker Change: And that's one of the reasons why we're trying to be and we will be good stewards of capital. And so versus going out and putting, you know, immediately another, call it 160, 200 million of restructuring, and there's a measured approach to this, when we can see the additional
Speaker Change: flowing into those sites, the additional profitability coming into the region and being measured in the approach there.
Speaker Change: So that's why when we look at it and we look at it in the long term, we can see how the region starts to transform itself.
Speaker Change: And those programs come on and the additional customer business with the profitable customers comes into play. And that's where we're being very measured in how we look at it while at the same time looking at non-core assets, looking at non-core customers.
and working through the disposal of those.
Speaker Change: And there'll be more to come on that front as we work through that.
Speaker Change: And that's really what we spent the back half of the last year.
Speaker Change: Doing is saying which assets are we going to pair back not necessarily through restructuring? But through a disposal of those and there'll be more to come as we work through this year
Speaker Change: What I would say on the footprint that we have within the region, our footprint is, I'd say, in line with that of our peers, in terms of when we look at our JIT footprint, when we look at our component footprint, you know, where we're located, where we need to be located.
Speaker Change: When we think about the future restructuring, what we have talked about today in terms of the potential of it to be,
Speaker Change: Over the next few years, in line with what we've previously announced, it's really tied to, as we look at the overall capacity in the region and what will be taken out, the potential for additional site closures, not necessarily due to competitiveness, but just as overall capacity in the region comes down.
Speaker Change: Sorry, our footprint itself isn't vastly different or vastly uncompetitive versus our peer set. It's just the region itself used to be a 20 million unit.
JIT Consumption Region.
Speaker Change: If you look out over the next three to five years, it's down to 15 million units of seeding consumption.
Speaker Change: So there's just massive overcapacity in the region that needs to be pared back, and it needs to be pared back in line with our customers and their footprint. So it's not a competitiveness of the footprint, it's an overcapacity action that needs to be taken.
Unknown Speaker ... ... ... ... ... ... ... ...
Got it. All right. Thanks for all the calling.
Unknown Executive, Eric Deighton, Jerome Dorlack, Michael Heifler
Speaker Change: Thank you. Our next question comes from Joe Speck with UBS. Your line is open.
Thanks, everyone. Maybe just to follow up there on Europe.
Speaker Change: I just want to confirm, I think I heard you mention cash restructuring of
Speaker Change: a hundred million this year, but that's related to what you take from 24. And I think in the opening comments, you said you're going to book another.
145 this year.
Speaker Change: Should the savings be of a similar magnitude as well? So I think if originally you were saying 60 million from the first one by 27, then this is another 60 million by 28. So we're talking about like 120 million lower run rate, 28 versus 24. Is that roughly how we should think about it?
Speaker Change: And just for clarity, if we look at customer production schedules, Joe, that's what we're saying, there's a potential out there, so we're not announcing today another $140 million in terms of a restructuring charge or anything. What we're saying is, if we look out there, going back to my comments on
Speaker Change: The region used to be 20 million a JIT capacity, it's now 15 million a JIT capacity. If we look at the total European theater, we see that potential out there.
Speaker Change: We're not taking a charge today of $140 million or $145 million. We're more just saying this is what the potential is out there. In terms of a net savings, it's too early to declare any kind of net savings or anything associated with it.
Speaker Change: Again, because a lot of that is just going to be taking capacity out.
So it's a lot of it, unfortunately, is just.
Keeping par with
overall cost structure in the region and not necessarily
Speaker Change: You should be looked at as a net savings as much as it is just a run rate with capacity management in the region in order to hold from that standpoint, you know, it will go to margin improvement because we're going to take fixed cost out, but not from a necessarily a net savings calc standpoint when you think about modeling.
Speaker Change: Okay, thank you. On slide 11, I appreciate all the color on your China operations, I guess.
You know if I'd like
specifically at some of your unconsolidated ventures there.
Speaker Change: I think probably many many of us on this call would argue that some of the customers you support through those are
Speaker Change: are still going to be challenged in that region over the coming years. So what's the plan for the facilities and the JVs? And then I know you mentioned you want to leverage China and those relationships as they localize. When that does occur, is that going to be through some of the
Speaker Change: existing JV structures, you have localized with them or would that become more wholly owned?
Thank you.
Speaker Change: Yes, I think, um, I think as we look into our growth,
Speaker Change: In China, and we forecast and we said on today's call again, we really view China growing kind of double digits from our fiscal year 24 to our fiscal year 27. We believe that to largely come from our consolidated
Speaker Change: activities within the region and a lot of that comes from, as you rightly highlighted, the customer mix there. We have what we believe to be a more favorable customer mix driven from our wholly owned and consolidated activities.
Speaker Change: And that's one of the reasons why, turning to the actions we took in 2020 and 2021,
Speaker Change: We took the action to divest ourselves of the Yang Feng joint venture because we firmly believed we could go out on our own and really attack the local Chinese domestic OEMs, and that's what you see in that customer mix and that customer breakdown there.
And that's why we did that.
Speaker Change: And then in terms of when we go out and we leverage, you know, in Europe.
Speaker Change: When the people, you know, when these customers go into the region, it will be through our wholly owned and our consolidated joint ventures. It won't be through necessarily the JV partners just given
Speaker Change: who's breaking out into the region, into Europe, into Malaysia, into Thailand, and into those other regions. It really will be through our wholly owned and our consolidated activities from that standpoint. And to your first question, you know, what is the plan with our unconsolidated?
Speaker Change: We continue to view our unconsolidated as a strong partner, they continue to spit off
Unknown Executive, Eric Deighton, Jerome Dorlack, Michael Heifler
Speaker Change: We leverage, we partner with them and we see that as a uniquely adiant asset that we continue to drive value from.
Speaker Change: I mean especially Kuiper from that standpoint and that's 40-45 million in equity income every year that we get a very unique window into BYD from where BYD is a significant customer to them.
Thank you.
Thank you.
Speaker Change: Thank you. Our next question comes from Emanuel Rosner with Wolf Research. Your line is open.
Emanuel Rosner: Thank you so much. My first question is on the customer mixed headwinds for fiscal year 2025 and the growth on the markets.
Emanuel Rosner: in the Americas and in Europe. Do you see these mixed headwinds as
a timing issue, the destocking, for example, or...
Speaker Change: Is there also a secular component? I'm trying to think to what extent...
Speaker Change: Some of the actions you're taking are essentially adjusting to the current level of demand, but essentially, if there is a time down the line where, you know, your growth will be more in line with the overall industry production.
Speaker Change: Yeah, I think Emmanuel and I'll start and Jerome if you want to add on, but I think it's a mix, Emmanuel, right? So if I look at, you know, Americas, for example, right? I do think the inventory destocking is timing, right? And once they get the inventories aligned, they'll be running.
Speaker Change: I think, you know, we call that a couple of examples like with RAM, right, where the classic RAM is sunsetting.
Speaker Change: You know, that's a program that's going away. So that's, you know, an adding specific.
Speaker Change: I'd say the offset to that is, you know, if you look at GM's, you know, three large, you know, crossovers, right? They're going to be running at rates this year where they didn't run at rate last year, right? So it's a combination and then I look into the future
Speaker Change: and Jerome alluded to, you know, a new business that we won with an electric, you know, manufacturer here in New York.
Unknown Executive, Eric Deighton, Jerome Dorlack, Michael Heifler
You know what I'd say, a more
Speaker Change: We're really a mix there, but over the long term we still see continued business performance for the region going.
Speaker Change: You know, irrespective of where the volumes are going, and I think what you saw.
Speaker Change: In 24 was a good example of that where volumes came down, but business performance continued to improve. And again, we're expecting that again in 25 for the region.
Speaker Change: And the other thing I would say for the Americas, and then we'll touch on Europe a little bit, for the Americas, we've been very transparent, Emmanuel, is that we will continue to wind down third-party metals.
Speaker Change: And so this year, you know, there's the there's the wind off of.
The large metals program in the Americas associated with
a contract there that was supposed to sunset last year.
It will finally sunset this year.
Speaker Change: Call it 2028 or so, there's about call it 300 to 400 million of third party metals.
Speaker Change: that will wind off in the Americas, that is, you know, in that sales line that is purposely being wound off that, you know, actually will be incremental in terms of margin profile for the region. We've always been very transparent about that and we expect that to happen and that will be a good thing for the Americas region.
with respect to Europe and Europe's underperformance versus
Speaker Change: You know the broader S&P some of that is secular in nature. It's given there's some launches within the region as
Speaker Change: One of our customers in particular is winding off their small vehicle architecture. There's a lull that they then wind on the next vehicle.
in Germany and in Hungary.
Speaker Change: Some of that is also, you know, we talked about divestitures of non-core assets. There's the planning of some of those divestitures baked into that number this year as we're winding some of those off that lead to the underperformance that's shown there.
Speaker Change: So it's a mix. I mean we would expect Europe as Mark said to also return to kind of in the line
Speaker Change: And from that standpoint, as we look out into the longer term, so some of that within Europe is one driven from a large launch this year, where there's a lull in the program and the BNC segment, but then also some of the divestiture within the region that we're we're planning for one of the sites.
Speaker Change: Yeah, that's a lot of great power. Thank you. And then as a follow up, as I look at your
for next year.
Speaker Change: $100 million. Would you be able to give some rough breakdown of what buckets would be part of it? Specifically you just mentioned again the roll-off of some metals business. What portion of this this accounts for?
Speaker Change: Yeah, I think, you know, when I look at that overall, obviously, when I look at all of business performance, there's a lot of things that go in that bucket, Emanuel. Obviously, there's freight, there's continuous improvement, you know, there's what we're doing on the launch and tooling aspect, right, ops waste. Those are all the positive, what I would say, what we control.
Speaker Change: In addition to that, you will have an impact of, let's just say, the lower performing metals business in America is rolling off this year, which helps.
Thank you.
Thank you.
Speaker Change: Thank you. Our next question comes from James Piccarello with BNP Paribas. Your line is open.
Speaker Change: Hi, everybody. Just on the EMEA margins for the year representing CHROF, can you just help to mention the magnitude on this, and particularly for the first half, which sounds to be the most challenged on a year-over-year basis, just be thinking about the margin degradation. Thanks.
Speaker Change: Yeah, so James, you know, obviously volume is going to be another impact for EMEA as we as we look out into 2025, we did indicate and we do expect to have positive business performance in the region. So again, the team's working hard just in terms of, you know, launch what we're doing continuous improvement, you know.
of what I'd say the customer-driven costs that impact
Speaker Change: As customers didn't run it right, as they stopped production right, we had trapped labor.
Speaker Change: You know, those improve as we get into 25, so I think that becomes a tailwind in 25. But again, the impact from the lower volumes over there, and we call that out, you know, call it about a 5% reduction in overall production. Clearly, the volume impact on the EBITDA is going to be the biggest driver.
Thank you.
Okay, and on your China, Asia-Pacific sales outlook...
It looks like you're calling for six points of outgrowth.
Speaker Change: I believe AsiaPAC was supposed to outperform the market by mid-single digits thereabout, which didn't necessarily play out. I think we all can appreciate the severe industry volatility over the last 12 months.
Speaker Change: No question about that. But can you just speak to what the downside surprises were last year for Asia growth, if you agree with that assessment, and what's set up to be different this time around? Thanks.
Speaker Change: Yeah, I mean, I think what would play it out differently.
you know when last year a lot of the growth
Speaker Change: that occurred in the region or say a lot of the production because there wasn't much growth a lot of the production in the region
Speaker Change: Sorry, came from exports versus, you know, pure domestic production. We weren't very strong on some of the export vehicle lines, especially from BYD, who is exporting significantly. We get that through our equity income partners, as I mentioned earlier.
and some of the GLEAP platforms.
Speaker Change: You know, this year when we look at that 7% outgrowth, we're 100% booked in the region. We've already considered
Speaker Change: What we saw last year, that mix between domestic versus exports, a lot of that's now baked into both the S&P forecast and our own market intelligence that we have in there. So I think we're smarter going into this year when we've looked at that mix between
Speaker Change: domestic versus internal consumption within the region, the mix of customers.
Speaker Change: So I think we just have more market intelligence going into this year than we did last year.
and the natural mix that we expect to see.
Speaker Change: That's not to say we can't be surprised. There may be another dynamic that comes up. I think it's everyone is aware China's pushing through a Stimulus package. We haven't seen exactly what that will be and you know, they released one about two months ago
Speaker Change: didn't necessarily have a significant effect. They're readying another one. You know, that may have a impact on what that mix could be or will be.
Speaker Change: So, there could be some changes around the edges, but based on the latest intelligence we have, considering the dynamics that took place last year, I think we have a good deal of confidence in that 6% outgrowth of market.
Thank you.
Appreciate it. Thanks.
Thank you.
Speaker Change: Operator, we are going to end the call now. I know there's a couple people still in queue. Please feel free to reach out to me and we will follow up after the call. I want to thank everybody for their participation on this call.
Speaker Change: Jerome, any closing remarks you want to add? No, I mean, first of all, for the adding team that's on the call, I want to thank everyone for a very hard-fought fiscal year 24.
Speaker Change: It wasn't easy in the face of all the volume challenges. To all of our shareholders, thank you very much for your confidence and participation with the Addian team and the Addian shares.
Speaker Change: And then to all the analysts, thank you for all the questions today and, you know, as Mike said, please feel free to reach out to Mike or...
Speaker Change: or Mark. And if you have any follow on questions, certainly feel free to set time and we're always glad to walk you through, add in to articulate what makes us special. Thank you very much.
Thanks, everyone.
Speaker Change: That concludes today's conference. Thank you for participating. You may disconnect at this time.