Good morning, I'm Kris Doyle. Director of Investor Relations for Visteon. Welcome to our Earnings Call for the Fourth Quarter and Full Year of 2019. Please note this call is being recorded and all lines have been placed on listen-only mode to prevent background noise.

Before we begin this morning's call, I'd like to remind you, this presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Forward-looking statements are not guarantees of future results and conditions but rather are subject to various factors, risks and uncertainties that could cause our actual results to differ materially from those expressed in these statements. Please refer to the page entitled, Forward-Looking Information for additional details.

Presentation materials for today's call were posted on the Investors section of Visteon's website this morning, please visit investors that visteon.com to download the material if you have not already done so.

Joining us today are Sachin Lawande, President and Chief Executive Officer; Bill Robertson, Interim Chief Financial Officer and Jerome Rouquet, Senior Vice President, Finance. We have scheduled the call for one hour and we'll open the line for your questions after Sachin's, Bill's and Jerome's remarks.

Please limit your questions to one question and one follow-up. Again, thank you for joining us. Now I'll turn the call over to Sachin..

Thank you, Chris and good morning everyone. I will start by providing an overview of our fourth quarter and 2019 full-year results.

On subsequent pages, I will discuss our operational performance and key achievements for the quarter and full year and provide more color on the performance of our digital cockpit products as well as new business wins for the year. I will also discuss our outlook for vehicle production for 2020 and beyond and discuss our updated business plan.

I will then hand it over to Bill Robertson and Jerome Rouquet, who will discuss the financial results before we open the line for questions. I would like to welcome Jerome to Visteon as Senior Vice President, Finance. And will discuss more about his role at the company going forward as I conclude my remarks.

Moving to the presentation on Page 2, our fourth quarter sales increased 2% to $744 million despite the 4% reduction in global vehicle production representing 7 percentage points growth over market when excluding the impact of currency.

This is the second consecutive quarter of year-over-year growth and growth over market reflecting the strength of our digital cockpit solutions. Full year sales totaled $2.945 billion up 5 percentage points over market.

Adjusted EBITDA was $85 million or 11.4% of sales for the fourth quarter and $234 million or 7.9% of sales for the full year in line with our expectations. Adjusted free cash flow was $35 million for the quarter and $56 million for the full year.

Full year, new business wins exceeded $6 billion despite declining industry volumes mainly on the strength of our digital cluster and display products. We added two new customers in Europe to our portfolio and expanded our share of business in digital clusters with global OEMs. Turning to Page 3.

On this page, I will share some highlights of our operational performance for the quarter. The fourth quarter was a third successive quarter of growth over market sales performance despite the headwinds we faced in the quarter.

Excluding JV consolidation and currency impacts sales were up 3% year-over-year and 7 percentage points over market in the fourth quarter, mainly driven by new product launches throughout the year. In the fourth quarter, we had 9 new product launches across multiple auto makers in China and Europe.

Vehicle production for Visteon's top customers in the fourth quarter came in lower than expected despite the year-end push by some car manufacturers, especially in China.

Vehicle production at Visteon's top 10 customers including Ford, Mazda, GM and Reno Nissan was lower than the industry and was down 7% year-over-year compared to a 4% reduction for the industry. In China, we faced lower than expected volume with GM, which was partially offset by higher volumes with VW and other customers in the region.

We will discuss our China performance in more detail later in the presentation. The previously discussed phase out of Infotainment business with Mazda, the vehicle launch delays at Ford and the strike at GM for additional headwinds in the quarter.

Despite the weak vehicle production environment our new digital solutions performed very well in the quarter with sales of digital clusters growing double-digits followed by display audio systems and large displays. I will discuss the performance of our core products in more detail later in the presentation.

As we had discussed previously, engineering recoveries in 2019 were more back-end loaded and we were able to achieve our target for the fourth quarter and full year. We also won $1.5 billion in new business in the quarter, which is similar to the performance in the prior year.

In summary, despite several headwinds and generally weak market conditions, our product and technology portfolio for digital cockpit solutions delivered another strong quarter in sales as well as new business wins. Moving on to Page 4, Page 4 summarizes our key accomplishments for the full year of 2019, which I will go through quickly.

We delivered above market performance in sales for the full year despite a slow start in the first quarter. Excluding the impact of currency and the JV consolidation in China, sales were up 5 percentage points above market for the full year.

We added two new customers to our portfolio both in Europe and expanded our business with large global OEMs including GM, VW and Hyundai.

We strengthened our position as a technology leader in the industry for new cockpit solutions with the introduction of new innovations such as the microZone display, Android-based display audio system and an upgraded SmartCore system based on the new Qualcomm silicon and integrated with Tencent Cloud services and apps for China.

These new technologies were demonstrated at CES in Las Vegas in January and the feedback from customers has been very good. Visteon has been pioneering the use of technology platforms to deliver cockpit electronics products unlike the custom bespoke product development approach of the industry.

In 2019, we were able to increase the number of customer programs under development, while investing in new technology initiatives with only a modest increase in engineering costs.

Our focus on delivering innovative solutions at competitive cost and quality, has earned Visteon recognition from several car makers in 2019, We were very pleased to win Supplier Excellence Awards from GM, Honda, Jaguar Land Rover and Mahindra over the course of the year. Continuing to Page 5.

Visteon's digital cluster and display products grew significantly year-over-year in 2019 despite the reduction in global vehicle production. Instrument Clusters which are a core strength of the company grew 9% year-over-year. Digital Clusters sales were even stronger, nearly doubling from last year and accounting for a fourth of all cluster sales.

Our share of digital clusters business with the global automakers continues to grow and in 2019 we won $2.9 billion in total cluster business, approximately 30% of the market across a diverse group of OEMs including Ford, GM and Hyundai.

The shift towards all digital clusters continues to be beneficial to Visteon as many of the traditional suppliers of clusters are not able to meet the new requirements in software and display technologies required for digital clusters.

Digital clusters are expected to continue to grow rapidly in the future as new features such as ADAS and driver monitoring become more common across all segments of vehicles. Our new display products also did very well in 2019, growing over 25% year-over-year and helping offset the roll off of small legacy displays.

At CES last month, Nissan introduced a new electric SUV, the Ariya that featured a 2 x 12.3-inch display system from Visteon. The trend towards multi display systems is growing in the industry and in 2019, we won over $800 million of Displays business adding three new customers for multi-display systems.

Displays is an active area of innovation, particularly in the area of haptics and optical performance and we are well positioned to take advantage of the opportunities emerging in the segment. Turning to Page 6. Our Infotainment sales grew 13% year-over-year excluding the Mazda business that's being phased out.

Our new display audio and SmartCore systems use Android as the operating system to enable the hosting of native apps. Since our introduction of Android-based systems in early 2018, we now have programs under development with five different OEMs. The first systems with these technologies will launch in 2020.

Our Android-based infotainment solution is unique in that, they are able to run standard Android apps natively in the in-car infotainment system without requiring any changes to the apps to make them automotive grade. This opens up the possibility of more apps for infotainment than ever before.

The addition of new capabilities such as voice smart assistant and surround vision which are currently in the final stages of development will make our infotainment solution even more differentiated and competitive in the industry.

Our SmartCore technology for integrated digital cockpit systems gained further traction in 2019 with two customer launches the Harrier SUV with Tata Motors and the Actros trucks with Daimler. There are two additional launches planned in 2020 as well with GAC Motors in China and Mahindra in India.

We also added two customers in Europe and China for the upgraded SmartCore solution based on the new silicon from Qualcomm, the Snapdragon Generation 3 and Infotainment based on Android.

SmartCore, will be the first cockpit domain controller solution to use this new Qualcomm chip and with the integration of new features such as driver monitoring, surround view and voice smart assistant, we are confident that it will remain the most advanced technology in the industry for the integrated cockpit. Turning to Page 7.

We achieved another successful year of new business wins with $6.1 billion. This is comparable to our performance in the past couple of years as the reduction in vehicle volume forecast results in lower lifetime value of this wins compared to prior years.

As I mentioned previously, we did very well with digital clusters with another year of more than $2 billion of new business wins. Digital clusters are starting to expand into mass market vehicles including light trucks and the majority of our $2.9 billion of cluster wins were for digital clusters.

Our Android-based infotainment solution gained traction in 2019 and we added several customers for display audio and SmartCore based on Android.

Android is still relatively new for the automotive industry and with the multiple customer engagements Visteon is quickly developing valuable expertise and scale in this new area of technology for the industry.

Our capabilities in design and manufacturing of Displays is one of the best in the industry, especially with the investments we have made in the past two years. In 2019, we won a record level of new Displays business with over $800 million of lifetime value.

The higher content of this new Display systems has increased the average selling price significantly over legacy displays. I'm pleased that despite the slowdown in the industry, Visteon has been able to achieve greater than $6 billion in new business wins, making it our third year in a row of high level of new business wins.

This speaks to the strength of our product and technology portfolio as well as operational excellence. Turning to Page 8, China was the bright spot for Visteon in 2019 with full year sales growing 30% year-over-year despite production volume being down 8%.

This growth was driven mainly by three factors; new product launches, Hi-take rates due to sales promotion activities by OEMs and the consolidation of a previously unconsolidated joint venture.

In the fourth quarter, Visteon's China Domestic sales were up 25% year-over-year despite the steep decline in vehicle production at GM in China which offset the increase in production at other customers. New product launches and high take rates of digital products with multiple OEMs, helped drive the sales growth in the fourth quarter.

Going forward, we expect the take rates to moderate to awarded levels as OEMs and the sales promotion activities. We launched 23 new products in China during the year including four products launched in the fourth quarter. VW is the largest auto OEM in China with joint ventures in North as well as in South China.

In 2019, we strengthened our partnership with this customer by opening a new plant in Changchun to better serve the demand of FAW-VW, the VW JV in North China. We won $1.2 billion of new business in China in 2019, driven mostly by digital cluster and SmartCore business wins.

Despite the slowdown, China remains a very attractive market from a scale and technology adoption point of view and I'm optimistic about our long-term prospects in the region. Moving to Page 9.

On this page, I would like to discuss our outlook for vehicle volume production from 2020 through 2023 which is updated from the prior outlook communicated in January of 2019. Due to the rising uncertainty in the global automotive market, we feel it is prudent at this time to not extend the outlook beyond the previously communicated years.

It should also be noted that the outlook does not reflect the impact of the coronavirus as the situation is still very dynamic and uncertain. From a regional perspective, we expect 2020 vehicle production in North America to remain flat over last year due to the relatively stable macroeconomic environment.

We expect Europe to be down again in 2020 due to the impact of emissions regulations, Brexit and the general slowdown in the eurozone economies. Prior to the coronavirus was expected to have lower production in 2020 due to weak consumer demand, which will only get further stressed now with the outbreak of the virus.

And the rest of Asia is expected to be down as well with lower production mainly in Japan and India. Our outlook for global vehicle production in 2020 as a result is 3% lower than in 2019 to approximately 86 million units as shown on the chart on the left.

The latest IHS forecast for vehicle production volume shows growth of about 3% for each of 2021, 2022 and 2023. In our outlook for 2021 through 2023, we have assumed a similar 3% growth on the upper end but off of a lower 2020 base and flat or no growth on the lower end of the range.

At this rate, the global vehicle production in 2023 is expected to reach just under 94 million units on the upper end almost 10% lower than in our prior forecast and lower than the 95 million units achieved in 2017. Moving on to Page 10.

This page shows the updated sales forecast for the period from 2020 through 2023 which reflects the lower vehicle production environment discussed on the previous page.

For 2020, we are now anticipating that sales will be between $3.0 billion and $3.1 billion at the midpoint, this represents a 4% growth on a year-over-year basis and an approximate 7 percentage points growth over market. This range includes the following; global production volumes reducing by about 3%, potential delay of vehicle launches at Ford.

The reduction of Infotainment take rates at a particular OEM in China and the roll off of Infotainment programs with Mazda. Offsetting these factors is the cumulative benefit from new product launches over the last several quarters.

The mid-point of our sales guidance does not assume a full-year impact from the coronavirus which I'll discuss separately. After three straight years of production declines including our forecast for 2020, we're assuming the stabilization of production volumes starting in 2021.

This assumption is consistent with previous downturns, which typically last two to three years. The lower end of our sales forecast for 2021 to 2023 assumes production volumes remain depressed at about 86 million units, while the upper end of our sales forecast assumes production volumes increase at approximately 3% annually.

Given the current market environment, we're expecting $6 billion in new business wins in 2020, as the market rebounds we would expect to return to higher levels in future years which would have more of an impact on 2024 and beyond.

Our sales targets have been adjusted lower than what our current backlog would indicate to reflect unforeseen OEM product revisions. Over the past few years, we have experienced short cycling of older products which has negatively impacted our sales results.

Although we expect the impact of decline over time, we have included this assumption to also account for the uncertainty associated with program lives during the industry transition to electric vehicles. As a result of the lower sales expectations, our 2023 adjusted EBITDA margin target is around 12%.

This is a result of the lower sales expectations and reduced associated fixed cost leverage. As we progress through 2020, we are excited about our growth trajectory which we expect will include absolute sales growth sustained growth over market and adjusted EBITDA expansion. Moving to Page 11.

I would like to give you an update on the impact that the coronavirus is having on our business. As I'm sure you can appreciate the situation is very fluid and the full extent of the impact is difficult to accurately forecast at this time.

Following the annual Lunar break holiday all industry production facilities in China were ordered to remain closed until the second week of February. Our top priority is to ensure that our employees and partners are safe.

Fortunately, no Visteon employee has been infected by the virus at this time and we have implemented various procedures to ensure the safety of our team in China and throughout the world.

As a result of these procedures as well as actions implemented by the government, only about 80% of Visteon employees in China have been able to return to work with approximately 50% of those employees working from home. Customer facilities in China have remained closed while some are just reopening this week.

To illustrate the complexity we have highlighted our top 8 customers, which combined have nearly 30 different assembly plants in multiple provinces around China.

We are in constant communication with our customers and are currently anticipating that they will slowly increase production throughout the month of March barring any additional disruptions posed by the virus. Visteon also partners with over 700 suppliers that have manufacturing facilities in China.

Most of the suppliers are currently at about 50% capacity and are expected to return to full production by April. This will likely impact the global automotive supply chain through the first quarter and potentially into the second quarter making it difficult to estimate the full-year impact to Visteons 2020 forecast.

I would like to provide some context as to the potential Q1 2020 impact based on our current assumptions. We would anticipate the sales would be reduced from our original expectations by approximately $60 million including the impact to our operations in China as well as the rest of the world.

We also anticipate the detrimental margins on the reduced levels of sales could be around 35% due to stranded manufacturing costs and increased logistical costs. It is difficult to estimate the full year impact of the coronavirus as it will depend on the timing of recovery at customers and suppliers and consumer demand.

It's not clear as yet if car manufacturers will try to recover some portion of the lost production later in the year. And to what extent we would be able to recover the extra costs incurred on account of this crisis.

As a result of the complexity and fluidity of the situation and our desire to provide transparency on our base business we've elected to exclude the potential full-year impact from our guidance that Jerome will provide in subsequent slides. Moving to Page 12.

In summary for the quarter, Visteon delivered $744 million in sales, up 2% year-over-year with $85 million of adjusted EBITDA. Despite the weak market environment, we delivered excellent sales numbers that outperformed the market both for the fourth quarter and full year.

The growth in sales was driven mainly by the performance of our new digital products which grew significantly year-over-year. Our new business wins was strong at $6.1 billion in lifetime value mainly driven by the continued success of digital cluster solutions.

We also made significant progress with displays winning over $800 million of business with multiple car manufacturers. And we delivered strong growth in China despite an 8% drop in vehicle production. Looking ahead to 2020, we anticipate that global vehicle production will decline again by about 3%.

However, we expect to deliver another year of strong performance with year-over-year growth and we expect to continue to grow over market over the planned period of 2020 through 2023.

We're closely monitoring impact of the coronavirus which remains dynamic and uncertain, we estimate the impact on the first quarter sales could be approximately $60 million. However, the full-year impact is difficult to estimate at this point.

In summary, the company executed well in 2019, particularly in the second half of the year and we expect to carry this momentum forward into 2020. This concludes my overview comments. Before I hand it over, I would again like to take this opportunity to welcome Jerome Rouquet to Visteon.

Jerome joined our senior leadership team as Senior Vice President, Finance and as of tomorrow, our Chief Financial Officer. Jerome possesses a wealth of experience having held financial leadership positions in a variety of roles including Chief Accounting Officer and Controller and Chief Financial Officer at Federal-Mogul.

Jerome will be taking over responsibilities from acting CFO, Bill Robertson and I would like to thank Bill for the job he has done as the interim lead during this period of transition. Now I will turn the presentation over to Bill and Jerome to review the financial results..

Thank you, Sachin, and good morning everyone. On Page 14, we present our key financial results for the fourth quarter of 2019 versus the previous year. Despite a volatile market environment all three financial metrics were within our previously communicated guidance range.

Sales of $744 million in the fourth quarter increased $13 million or 2% compared to last year due to new program launches and product changes partially offset by lower vehicle production volumes, program roll-offs and the impact from currency and annual price downs.

This revenue increase represents the second quarter in a row of absolute sales growth despite a challenging automotive vehicle production environment and illustrates Visteons' ability to continue to outgrow the underlying vehicle production market.

The sales out growth in the second half of 2019 represents the direct result of winning record levels of new business over the last few years. Adjusted EBITDA for the quarter was $85 million representing an $11 million increase from 2018.

Adjusted EBITDA benefited from lower product development costs and other cost savings partially offset by lower vehicle production volumes in annual price downs. Adjusted free cash flow was positive 35 million contributing to a full year adjusted free cash flow of positive 56 million. I will provide more detail on the following pages.

On Page 15 we provide sales and adjusted EBITDA for the fourth quarter 2019 versus 2018. In the quarter, industry production volumes declined by 4% compared to last year.

In addition, the company's sales were impacted by launch delays at Ford, the impact of the strike at GM roll off of an Infotainment business with Mazda, and the impact of customer pricing and currency. Despite these headwinds, Visteon sales increased $13 million primarily as a result of net new business.

Pricing, reduced sales by $19 million representing 2.6% of last year's sales which continues to be near the midpoint of our historical range. Adjusted EBITDA was $85 million with an adjusted EBITDA margin of 11.4%. The impact from volume, mix, efficiencies and design changes more than offset the impact from annual price reductions.

Net engineering decreased year-over-year, $6 million as we continue to realize savings from a restructuring program announced in the second half of 2018. Full year cost increased 5% year-over-year in line with our expectations.

The increase in costs represents a higher level of program activity partially offset by cost savings in the realization of our technology platform strategy. Fourth quarter engineering recoveries were $59 million representing a $27 million increased sequentially but in line with the recoveries in the fourth quarter of 2018.

This seasonality is similar to recoveries recognized in prior years. And is expected to look similar in 2020 as well. Page 16 provides our cash flow, fourth quarter adjusted free cash flow was positive $35 million contributing to a full year adjusted free cash flow of positive $56 million near the high end of our previously communicated guidance.

Fourth quarter adjusted free cash flow benefited from the favorable inflow in working capital compared to our original expectations. Cash at the end of the quarter was $469 million and debt was $385 million which continues to put us in a net cash position.

We continue to have a strong capital structure, which enables us to compete effectively in a challenging market while investing in differentiating technologies. In summary, our fourth quarter results were strong despite the continued volatility in vehicle production volumes. I will now hand the call over to Jerome to discuss our financial outlook..

Thank you, Bill and good morning everyone. On Page 17, we present our full-year 2020 guidance, which excludes any potential impact from the coronavirus. As mentioned by Sachin, we are anticipating that global industry production volumes will decline again this year.

Despite this challenging market environment, we are projecting sales, adjusted EBITDA and adjusted EBITDA margin to increase on a year-over-year basis. Our guidance for sales is between $3 billion and $3.1 billion.

This assumes a decrease in global industrial production volumes of approximately 3% more than offset by 7% growth over market at the midpoint of the range.

Adjusted EBITDA is forecasted to be between $250 million and $270 million representing an adjusted EBITDA margin of 8.5% at the midpoint of the range or an expansion of 60 basis points versus 2019. Adjusted free cash flow is forecasted to be between $40 million and $60 million.

This range accounts for the non-recurrence of the favorable inflow in working capital that benefited 2019 as referenced by Bill and assumes capital spending in line with 2019 levels. Turning to Page 18, we provide an adjusted EBITDA bridge from our 2019 actual results to our forecast for 2020.

We're expecting adjusted EBITDA to increase in 2020 to a level of $250 to $270 million, representing an adjusted EBITDA margin of approximately 8.5% at the midpoint of guidance. Let me provide some color on the main drivers for 2020.

Adjusted EBITDA will benefit from the non-recurrence of the operational challenges experienced in '19 which include inefficiencies from the planned transfer in Mexico and the launch challenges with the industry's first curved display.

More than offsetting these benefit is a reduction of EBITDA on our base business as a result of lower industry production volumes similar to what we experienced in previous years. Driving the year-over-year improvement is a combination of net roll-ons as well as operational efficiencies, net of pricing.

As we begin to demonstrate growth we are expecting to start, leveraging our fixed cost base. In particular, we expect to decrease our net engineering expense as a percentage of sales despite an increasing number of products under development.

This decrease will be driven by our continued efforts to optimize our engineering footprint and the utilization of our technology platform strategy. In addition, we are also expecting to generate additional operational savings through sourcing and manufacturing efficiencies.

In summary, we are incorporating our updated industry production assumptions, which will have negative margin impact on Visteon's base business. However, we are anticipating that increased scale and additional efficiencies with more than offset pricing as well as the mix impact related to launching new programs, similar to previous communications.

Before moving on, I would like to provide some additional color on the coronavirus and the potential financial impact to our guidance. As Sachin mentioned, we have elected not to include the full-year financial impact from the coronavirus into our full year guidance due to the complexity and the fluidity of the situation.

Based on our current assumptions, we anticipate Q1 sales to be impacted negatively by approximately $60 million. The detrimental margin impact could be around 35% given the strength costs at our manufacturing facilities and the increased cost to ship products.

The situation continues to evolve and it is uncertain if there will be additional plant or supply chain disruptions in the first quarter and beyond. In addition, it is still unclear if and when production will be recovered or if additional strength cost can be recovered through our customer, our supply base.

We will continue to update you as the situation evolves. As we progress through 2020, we do not intend to provide quarterly guidance. However, given the complexity associated with the coronavirus, let me provide some factors that will impact our first quarter financial results.

First, we anticipate that excluding the coronavirus global industry product and volumes will be down on a year-over-year basis, second results will benefit from the non-recurrence of operational challenges that occurred in the first quarter of 2019.

And third, sales and adjusted EBITDA will be negatively impacted by the coronavirus as previously described. As a result, we anticipate both sales and adjusted EBITDA to be down on a year-over-year basis.

Turning to Page 19, I would like to highlight our key corporate strategy as we build the foundation for the future, as the incoming Visteon CFO my top three priorities include supporting Visteon's revenue growth while at the same time placing a significant emphasis on margin expansion and increasing free cash flow generation.

Through my first 30 days at Visteon, I have visited several of our locations, including multiple manufacturing plants and engineering centers as I build a deeper understanding of the Visteon business. I am excited about the opportunity to work with Sachin and the rest of the team at Visteon.

And I'm confident about our ability to expand margins and generate higher levels of free cash flow. We will update you as we continue to make progress on this journey. Now I would like to open it up for questions..

[Operator Instructions] Our first question comes from the line of Joseph Spak of RBC Capital Markets..

Just to start, and thanks for the color on the guidance bridge on Slide 18. But in I just want to understand, in that volume bucket. Is that just sort of industry volumes, does that also sort of consider some of your legacy business rolling off like.

And can you talk about maybe the detrimental margins on sort of the down business versus sort of the incremental margins on the business rolling on?.

So to answer your first question about the volumes in our guidance. It's clearly and only the industry volumes, which have decreased in our plan period from when we talked about this in the beginning of 2019 by about 10%. So that's what's reflected in our guidance.

It's not the impact of some of the legacy products that are rolling off, we do have those and offset by some of the new products that are launching, but the impact in this new forecast that is indicated as volume is the impact of the production environment that has deteriorated since the beginning of last year.

With respect to the question regarding the incremental margins, this has also not changed when we talked about our plan in January of 2019.

We had indicated that our incremental margins would be between 20% to 25% with the margins being low on the lower end of the range in the initial years including 2020 on account of the lower launch margins with the products that are launched.

Now for 2020 in our new guidance, we are still assuming a 20% incremental margin and now with respect to the decrementals are normal decrementals are between 25% to 30%.

Now in events like the coronavirus, it's going to be a little bit higher because we are not able to take actions especially with respect to some of the variable cost so that might be more around 35% but otherwise decrementals would be between 25% to 30%..

I guess and just to build on top of that the impact of the reduced take rates in China that you mentioned like is that - does that show up in the volumes or is that netted against the roll-ons and can you quantify the impact....

Yes, sure. So in 2019, as we have discussed I think several times, we benefited from the increase take rates in China, specifically with one OEM with Infotainment product and that's about a $60 million positive impact in 2019.

Now this customer has since indicated to us that they are not going to run the sales promotion in 2020 and we have taken that into consideration in our guidance. Now that is largely a volume impact for us and some portion of that is also offsetting the roll-offs..

Your next question comes from the line of Dan Galves of Wolfe Research. And his line has disconnected. Your next question comes from the line of David Leiker of Baird..

This is Erin Welcenbach on from David. So I just wanted to follow up with a question more in the out years trying to understand, are you seeing any of your legacy contracts fall off more quickly in terms of take rates or the timing of them being discontinued..

No, in fact, our legacy business, or it was a stuff that we talked about that is rolling off, that continues to roll off as we had expected, but this, the contracts that we have won in the last 2 to 3 years, they are continuing ahead as planned. We are not seeing any impact in terms of short cycling, other than the volume impact.

This is clearly the impact of the production environment going down that is there and we have quantified that and we have acknowledged that in our new forecast of the only significant sort of product roll off that we still have of which is the Mazda infotainment system.

We have had an impact of about $100 million of the roll-off of that business in 2019. There is some ongoing impact of that in 2020 and 2021.

For 2020, we assume an impact of the less than that about $75 million and as we go forward with Mazda our other business clusters and displays, which is growing will offset the decline of the remaining Infotainment business, so the decline will be moderated a bit.

But in general, our new products that we have been launching in the last 2 to 3 years are actually seeing increased sort of take rates and it's not seeing it decline in the business..

And then my second question is just related to the R&D piece of things. I was wondering if you can outline you obviously started implementing some restructuring on the R&D front in the second half, just kind of the expectation for continued savings there.

If there is opportunities still in the back half of the year to continue to optimize that R&D footprint ?.

Yes. So we have been continuing to align our footprint to the needs of the industry as we see it going forward. It's a combination of making sure that we have the right resources, but also the right resources in the right cost locations.

And so we have been rightsizing our footprint, mainly in Europe, which is where we have the bulk of the higher cost resources and so we have been taking actions prudently so that we do not impact ongoing business with customers or our ability to launch new products. So this has been going on. We have executed, some of the restructuring in 2019.

And we are continuing to implement some more in 2020 as well. At the end of 2020, you expect to be done with the bulk of the restructuring up beyond that it's going to be some minor ongoing adjustments we have assumed a cost of somewhere between, I think $18 million to $24 million for the engineering restructuring that we will be executing in 2020.

Given that most of our activities have been focused in Europe. It does take longer, both to execute, but also to see the payback on that investment. But even with that, our return on that investment is typically of within - the payback is within a year and a half..

Your next question comes from the line of Dan Galves of Wolfe Research..

And so, sorry about that before. Just wanted to ask about margins. In 2019, I'm sorry, in 2020 if we reverse kind of the non-recurrence of the curved display, you kind of get to the low end of your guidance. And so if you get to get to the midpoint, it's like 10 million of kind of incremental EBITDA on a 100 million of revenue growth.

So the incremental margin is lower than you've talked about in the past and then if I look at kind of the out-year 2023, your new outlook is 12%, which is a couple of hundred basis points versus a year ago and again, it's not really explained by the fully by the revenue decline.

So I guess my question is really has there anything changed about the margin profile that you're expecting on your new business going forward?.

Daniel. Good morning. It's Jerome. So in a nutshell, the most of the changes that you're seeing here are volume-related. So, not only for 2020, but as well in the out years. Essentially the margins that we were anticipating when we talked about the long-term plan back in January 2019.

We're in the 2025% range, and they were largely coming if not essentially coming from the net new business combined with pricing and efficiencies. At the time we had no volume decline, we were assuming that volume would be stable, it's likely, if not slightly growing.

So what has changed really in 2020 is the fact that we don't have that volume growth. In fact we have volume going down on the industry side, and that's really what's impacting 2020. Similar story for 2023, where the volumes are much lower than what we had anticipated to the tune of about 10% as mentioned by Sachin earlier on.

So that's really what's bringing down our margin to 12%. But I would like to highlight the fact that we're still going to grow our EBITDA margin by about 400 basis points between now and 2023, which is again, similar to what we had anticipated in terms of expansion back in '19..

And just maybe one follow up, could you help us with a little bit more detail on 2020 in terms of what you're expecting from a negative pricing impact and kind of what's your ability to how much can you offset that with efficiencies?.

Yeah, that's a good question. So the pricing levels that we've assumed for 2020 are very similar to what we've seen in '19. So we are operating between 2% to 3%, mid-point being 2.5%.

So it's a fairly large number in dollar terms and we are offsetting these with efficiencies in plants and efficiencies with sourcing and as well, to some extent with engineering, as mentioned by Sachin.

So my key focus in 2020 is really going to be around cost efficiencies manufacturing, sourcing and engineering and make sure that we are more than offsetting that pricing..

Your next question comes from the line of Brian Johnson of Barclays..

I want to continue the discussion 2020 little bit kind of 2019. If we look at the business wins on page on the business - in the page with the 2019 business wins. As you know, fair amount of digital clusters, Display is a smaller part, BMS pops up. I'd love to hear a little bit more about that.

How should we be thinking about the margin profile of that as you make your way to 12% and there is depending on the take rates in the various categories is there room for that margin to move?.

So, Brian. First of all of what I would like to say is that given the environment we are in, a $6 billion plus new business win achievement is quite significant and a significant portion of that has come from our cluster of product line.

Clusters continue to evolve and some transition towards all digital clusters is continuing to cut across the industry. And we are really benefiting from this because fewer of the traditional suppliers can deliver the kind of technologies in software and displays that are required for digital clusters.

ASPs are going up and our margin profile with digital clusters is also better than the legacy products. Displays which is a real stand out for us in 2019 with over $800 million in sales. The reason why we have been able to perform significantly better than in prior years, is the shift towards this multi-display modules.

The ASPs are also significantly higher, a lot of content in them and therefore the margin is also very healthy, are traditionally with the smaller displays I have been very conservative in my approach to the industry but with this shift towards this larger Displays multi display modules.

One, we are in a great position with our capabilities that we have built over the last couple of years and the experience we have gained in launching high volume products in Displays category. And also the fact that the margin is much better is certainly an area for a lot of interest for us.

Now, infotainment is as you can probably tell from the picture is not where we would have liked it to be considering our performance in the last couple of years. This is a transition year for us with respect to Infotainment, we made the switch to a Android-based infotainment for display audio as well as infotainment on SmartCore.

By the way, our strategy for infotainment is display audio standalone for the entry and for the high and integrated digital cockpit computer-based on SmartCore technology. But, in the latter half of 2018 and all of 2019, we have been focused on building our customer base for Android-based infotainment both with display audio as well as for SmartCore.

We have done extremely well with 5 OEMs now on the Android platform. I expect us to be able to grow from this base, Android is still relatively new to the industry and OEMs are not yet ready to commit a multiplatform approach to Android as they are figuring out the technology.

We are getting really good experience and scale, and we expect to be one of the leaders in this new technology for the industry. Coming to BMS, it's a very interesting development. I would like to provide a little more context first on what the BMS or the Battery Management System what that typically looks like.

The system itself consists of multiple electronic components. And historically, with this OEM, we have had legacy business for one of the components, the vehicle interface electronic ECU but not the cell monitoring systems and the other components that make up BMS system.

With EV's becoming a lot more significant for this OEM, we have been able to win virtually all of the business for this new generation of BMS system. What we have been discussing since the first quarter is all the expansion of the opportunity with this particular OEM.

We will still be responsible for providing the electronics hardware and firmware and the OEM is providing the application software. In that sense, we have limited risk in the sense that we are really focusing on what we are good at and this should hopefully give us the experience we are looking for that we can then take with other OEMs.

So overall I would say, given the environment a pretty decent performance here with new business wins, third year in a row of greater than $6 billion of new business wins and the margins are at least as good as what we have had in our order backlog..

And just a follow-up around 2023 guide, it looks like CapEx, as a percent of sales, ran about 4.8% last year. If you held that ratio then your free cash flow as a percent of sales will double by 2023.

Is that the right way to think about it or is there going to be a change in the capital intensity of the new business as it comes on or it be one way or another..

Yes, Brian, it's Jerome, so we are already for 2020 maintaining our CapEx levels, so '19 to '20 is flat in CapEx terms, meaning that the CapEx percentage in relation to sales is starting to decline. We are definitely going to leverage that going forward and we'll have that percentage going down even further in the out years.

I'm not in a position yet to give you the exact percentage, but yes, at this stage you can definitely model a lower CapEx percentage as we are leveraging our base..

And Brian. We have said earlier that we have planned capacity to go up to $5 billion in revenue. So that is still the case and so we should be able to leverage the investments we have made in the last couple of years, and hopefully have a much better CapEx performance as a result..

And just finally, I guess just point on that.

Jerome, would it be fair to say that coming from a very capital intensive, part of the auto industry, which is going to be one of your focus points?.

Yes, I would say on the cash flow side CapEx will be working capital as well and will be beyond obviously expanding on the EBITDA side..

Your next question comes from the line of Emmanuel Rosner of Deutsche Bank..

I was hoping to ask you on the revenue trajectory on Slide 10. So when I look at sort of the out years 2021, 2022, the gross about markets remain solidly double digits. In 2020, I understand the volume impact versus last year's trajectory, but I'm looking at growth-above-market.

It feels like even on the growth-above-market basis you may have dialed back a little bit to your expectations for 2020. So was hoping to get a little bit more color on this. Was there some new business launches being pushed forward into late 2019 or is some of it being pushed out in 2021.

And any factors there in terms of your growth-above-market profile?.

Yes, let me give you some more color on what's happening with 2020. So first of all, we are continuing our better than market performance that we really kind of started in the third quarter of this of 2019 and continued into the fourth quarter and that will continue into 2020.

Now, what we have adjusted our 2020 guidance for, includes a few headwinds which are the lower take rates that I just discussed earlier that we will not see the recurrence of the take rates being higher in 2020 in China as compared to 2019.

We are also seeing some lower production with key customers in particular Mazda, Ford and Nissan, so the customer mix is not very favorable in 2020 and that's the other impact and also some vehicle launch delays especially with Ford considering that we have a number of launches with them and the fact that we have had some experience in 2019.

And so we have also accounted for some potential delays there. Now without these headwinds, we would have been a double-digit growth compared to market. So the story in terms of the new product launches that is pretty intact. It's really an impact of the volumes at our key customers especially the ones that I've just mentioned..

That's really great color. So just to be clear, so there were some delays with the issues with the Explorer launch last year. So it's not, you don't know for a fact, there will be some in Ford's launches this year, but you are basically incorporating some in your 2020 guidance..

That is correct..

Out of conservatism. Okay, understood. And then the follow-up here is on the working capital, could you please go back over, I guess the drivers of sort of like this year-over-year use of cash on the working capital.

What part is not recurring from 2019? Can you just go back over the quantification of this? And what will working capital look like this year?.

Yes. So the 2020 free cash flow drivers are increased adjusted EBITDA, CapEx, flat and then increase in working capital. We have essentially simply an increase in sales year-over-year and that's going to attract a negative working capital.

Combined with that as well is the fact that we had a pretty good performance in '19 and a fairly sizable inflow in working capital in 2019, as Bill mentioned in his presentation. So the combination of the two makes a little bit of a more challenging working capital story for the 2020 cash flow..

And any number?.

We can do - you can do the math. I mean we've got, one more sales. Obviously, the Q4. It's a few millions negative versus 2019, which is a big inflow of about $50 million..

Your next question comes from the line of David Kelley of Jefferies..

Just a quick follow-up on that working capital discussion.

Are you seeing any change in OEM payment cadence, are they potentially pushing out payment terms, giving the choppy production environment we're in?.

No. And I'll let Bill expand a little bit more on that, but we are not..

Yes. No. And in fact, we actually had improvement in our 2019 trade working capital in each of the three components. DSOs improved year-over-year DPOs improved and I inventory turns improved as well. So a lot of that was hard work on our side, but we really haven't seen any change in the OEM payment terms..

I appreciate the color there and maybe to quickly switch gears, a coronavirus follow-up, I think you referenced the potential global impact. I guess are you currently seeing any residual impact and markets outside of China relative to your customer production schedules.,.

Yes, we are unfortunately. As you can imagine, this supply chain global supply chain is very deep and the products that we tend to make especially electronics have hundreds of components and hundreds of suppliers in China, not just supplying to Visteon but also other suppliers that supply to OEMs.

We are hearing about potential impact at several of our customers in Europe and North America. We are working very closely with them, as you can imagine, having joined calls with suppliers out of China trying to manage allocation so that we can continue to keep our customer lines intact and not have an impact on them.

At this stage, it is a day-by-day situation and we will need to get through the next two to three weeks before we can really say whether we are out of the woods or not.

There are few suppliers in China that have only opened their plants recently meaning earlier this week, and so we will be discussing and meeting with them on a daily basis for a little while to understand when they can ramp production back to full capacity and that may take some number of weeks for them to get there.

So we will have to walk - watch this interim period very carefully and manage our supply chain, not just us but also collaboratively with other suppliers with the OEMs..

Thank you. And this concludes our earnings call for the fourth quarter and full year 2019. Thank you everyone for participating in today's call and your ongoing interest in Visteon. Do you have any follow-up questions, please contact me directly. Thank you..

This concludes Visteons' fourth quarter and full year 2019 earnings call. You may now disconnect..