Superior Industries International Inc (SUP) 2019 Q4 法說會逐字稿

Good day and welcome to the Superior Industries Fourth Quarter and Year-End 2019 Earnings Conference Call.

I would now like to turn today's conference over to Troy Ford. Please go ahead, sir.

Thank you. Good morning, everyone, and welcome to our fourth quarter and full year 2019 earnings call. During our discussion today, we will be referring to our earnings presentation, which along with the earnings release, are available on the Investor Relations section of Superior's website. This morning, I'm joined by Majdi Abulaban, our President and CEO; and Matti Masanovich, our Executive Vice President and CFO.

Before I turn the call over to Majdi, I would like to remind everyone that any forward-looking statements contained in this presentation or commented on today are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Please refer to Slide 2 of this presentation for the full safe harbor statement and to the company's SEC filings, including the company's current annual report on Form 10-K, for a more complete discussion on forward-looking statements and risk factors.

We will also discuss non-GAAP measures today, including value-added sales and adjusted EBITDA. These non-GAAP measures exclude the impact of certain items and therefore are not calculated in accordance with U.S. GAAP. Reconciliations of these measures to the most directly comparable U.S. GAAP measures can be found in the appendix of this presentation.

With that, I'll turn the call over to Majdi.

Thanks, Troy, and good morning, everyone, and thank you for joining us today to review our fourth quarter and full year results. Let me begin by taking you through the highlights for the fourth quarter and full year. I'll then provide you an update on this year's progress towards our strategic priorities. And finally, I'll outline our strategy moving forward into 2020.

I'll begin on Slide 3 of the earnings presentation to provide an overview of our full year results. In 2019, we continued to benefit from the secular trends for more fuel-efficient wheels and customer demand for larger premium finishes. We also continue to position ourselves as a premium wheel solutions provider, advancing our portfolio and enhancing our competitive position.

2019 was very challenging from a volume perspective, with our main customers' production down 11% in the fourth quarter and 6% in the full year. Now despite these production declines, we made significant progress on our strategic priorities. Our global teams continue to execute on our premium strategy, delivering key product launches and wins as we shifted our portfolio towards larger, more complex wheels. The result, a 6% increase in value-added sales per wheel versus the prior year. Further, in 2019, wheels 19 inches and greater accounted actually for more than 30% of our portfolio. That's a 10% increase year-over-year. This positive shift in mix fundamentally supported growth over market of 2% on a value-added sales despite weaker volumes.

At the top of our priority is our commitment to improving profitability and generating cash flow to enable debt reduction. As a result of these efforts, we delivered record cash flows from operations of $163 million, enabling us to reduce net debt by $84 million, a tremendous success as we move towards positioning Superior for the future.

As we discussed last quarter, we are laser-focused on optimizing our cost structure to match lower production volumes. This includes realignment of our manufacturing footprint, an overall reduction in structural costs and identifying additional initiatives that will further enhance our operational efficiency. We are pleased to say that these actions are bearing fruit. Despite lower unit volumes and sales, we delivered $169 million of EBITDA on 8% less volume.

Looking to 2020. While we expect a softening production environment, we remain committed to effectively executing our order book, enhancing profitability and driving cash flow through earnings, working capital and a disciplined approach to capital expenditures.

Moving on to Slide 4. As I mentioned, we are executing on our strategy as a premium wheel solutions provider, winning in electrification and offering differentiated technologies to the marketplace. For example, we recently won and launched multiple wheels on electrical vehicle platforms.

During the fourth quarter, we launched a premium wheel on the Mercedes EQC, by the way, which is known as the Q8, which also leverages our pad printing technology, an exciting technology and capability that allows us to put accent colors and stripes across the wheel. This is actually a very unique design element for this vehicle.

Next, we are excited about our recent win with a Detroit 3 OEM on a newly announced all-electric platform launching in the coming years as well as a new win and partnership with a Silicon Valley OEM specializing in EVs. These platforms highlight our relevance in the EV space.

The right side of the chart highlights exciting applications and expansion of our technology portfolio. Now here, you see some firsts for the industry and some firsts for Superior. The Mid-Engine 2020 Corvette is just but a great example and carries a complete spectrum of our product and process technologies, including our patented AluLite technology as well as the flow forming process. Both reduce weight and improve handling of the vehicle. This also represents the first laser etching launch, enabling the inscription of the iconic Corvette name across the side of the spoke. For those of you who haven't seen it, it's really quite impressive. Another exciting first, we launched our first 23-inch wheel. This offering has enabled our customer, Audi in this case, to capture an emerging market segment they have not played in. One more first is the application that you see on this chart of our flow forming technology at Toyota. This is the first time Toyota has ever used flow forming overall.

Finally, I am pleased to announce that we officially commercialized and launched our PVD process, a premium finish that provides a more environmentally sustainable and competitive alternative to chrome. Our PVD technology actually is on the road today. It's on the Ford F-150. We are working closely with our customers to further expand this technology's reach and making very, very good progress. Other customers are excited to see the capability and the validation on all the technical data related to this technology. We are proud of the team for executing on this technology, it's long in coming, really part of the team for bringing this to market.

Moving on to Slide 5. I would like to provide an update on the near-term priorities that I mentioned mid-last year, which focused on execution, enhancing our portfolio, talent and improving operational efficiency. The underlying goals of these actions are to support EBITDA growth and improved cash flow. With that in mind, we made tremendous progress so far, not only commercializing new products like PVD but also reducing expenses and optimizing North -- our North American footprint, which, by the way, is now 100% at low cost. Additionally, we are pleased with the reduction in annual turnover of our Mexican labor force by 17% year-on-year. Now from a margin standpoint, we expect many of these initiatives to narrow the margin gap between our North American operations and European operations.

Further, launching our portfolio, and in particular as we spoke the last earnings call, with European OEMs in Mexico is core to our strategy. It's absolutely critical especially given as you think of the shift in mix where 1/3 of our portfolio is now 19 inches or greater, we're actually adding 1 million wheels in that category to our Mexican operations here in the next 12. So I would tell you, we're very pleased that now our Mexican operations are now manufacturing and shipping premium wheels to European OEMs in North America, in Mexico and in the U.S. This has been a priority, and we're excited that we are finally there. And it's core to our growth strategy, as we discussed previously.

Moving on now to Slide 6. You will see that these same items: cash flow generation, EBITDA growth, executing our differentiated product portfolio as well as maintaining our customer relationships, remain foundational to our long-term value-creation road map. This is where I see the company on the journey towards creating value for our shareholders. The here and now is focused on the current portfolio of launches, fixing troubled product lines such as PVD and aligning our cost to the current operating environment. As we move forward, the focus will be to continue enhancing our core operations, driving commercial discipline, reducing manufacturing costs and winning across the balanced portfolio. All of these initiatives position us for the medium term where we can deliver value to shareholders through revenue enhancement and EBITDA improvements.

To summarize the quarter and the year, while we have made great progress to date, there is still much work to be done. However, you will see when Matti takes you through the financial outlook for 2020 that we expect that the margin-enhancing activities that we've already executed will start to show through our performance. We remain excited about the potential of this business, our positioning as a differentiated technology leader and the progress to date.

With that, let me turn the call over to Matti to provide the details on our financial results for the full year and fourth quarter. Matti?

Thanks, Majdi. Turning to Slide 7. Our full year 2019 value-added sales results outperformed the broader market due to our shift towards larger, higher-content wheels. Value-added sales for the company declined 2% on 8% lower volume, representing a 2% growth over market in value-added sales and value-added sales per wheel growth of 6% excluding FX.

In North America, value-added sales was negatively impacted by lower volumes, including the impact of the UAW strike, which was partially offset by a shift to larger premium wheels. Conversely, in Europe, value-added sales grew 6% and value-added sales per wheel grew 9%, representing substantial growth over market where industry production volumes in the region were down 5%. As Majdi noted, in 2019, 19-inch wheels and greater accounted for approximately 30% of our portfolio compared to approximately 20% in 2018.

Slide 8 reflects the breakdown of unit shipments, net sales and value-added sales by region for the fourth quarter and full year 2019 as compared to the prior year period. As Majdi mentioned, our wheel shipment units decreased to 4.5 million units in the fourth quarter compared to 5.2 million units in the prior year.

For the full year 2019, wheel shipment units decreased to 19.2 million units compared to 21 million in the prior year. The decrease in shipments was driven by the decline in the global industry production volumes, lower production at our key customers and reduced share due to the focus on larger, more complex wheels.

For the fourth quarter, we reported a net loss of $99 million or a loss of $4.25 per diluted share compared to net income of $8 million or earnings of $0.61 per diluted share in the prior year period. Our net loss in the fourth quarter of 2019 was impacted by a noncash goodwill and intangible asset impairment charge of $102 million related to the excess of carrying value over the estimated fair value of our European business unit. The business unit fair value was lower due to a reduction in forecasted industry production volumes and shipments in our long-range plan completed in the fourth quarter of '19 as compared to our prior year long-range plan, which adversely impacted our cash flow and adjusted EBITDA expectations, resulting in the noncash charge. While we still anticipate strong performance out of our European business unit going forward compared to today, the goodwill impairment reflects an adjustment from the prior outlook to the current outlook.

For full year 2019, we reported a net loss of $97 million or a loss of $5.10 per diluted share compared to income of $26 million or earnings of $0.29 per diluted share in the prior year period. In addition to the goodwill and intangible impairment, we had restructuring and net other expense of $19 million primarily due to the rationalization of our Fayetteville production facility during 2019. The total impact on diluted earnings per share of these items is $4.65. Please see the table in the appendix for the impact of acquisition, restructuring and other items on diluted EPS and the reconciliation from net income to diluted EPS.

The income tax benefit for the fourth quarter was $4 million on a pretax loss of $103 million compared to an income tax provision of $5 million on pretax income of $13 million in the prior period. The tax benefit for the quarter was primarily due to the effect of U.S. taxation on foreign earnings under the provisions of tax reform and the generation of additional Polish tax credits based on our investments in Poland.

The income tax provision for the full year of 2019 was $3 million on pretax loss of $93 million compared to an income tax provision of $6 million on a pretax income of $32 million for the full year '18. Similar to the results in the fourth quarter, the tax provision declined from 2018 to 2019 due to the effects of U.S. taxation on foreign earnings under the provisions of tax reform and the generation of additional Polish tax credits. Cash taxes for the company in 2019 were $9 million as compared to the prior year of $7 million. We continue to work on tax planning strategies to minimize taxes.

On Slide 9, let me walk you through our change in net sales and value-added sales year-over-year for the fourth quarter of 2019. Value-added sales decreased to $173 million compared to $206 million in the prior year period. The decrease was driven by lower production volume, including the UAW labor strike, as well as the weakened euro, offset partially by higher-content wheels.

On Slide 10, adjusted EBITDA was $38 million for the fourth quarter of 2019 compared to $46 million in the prior year period. The decrease in adjusted EBITDA was primarily driven by, as I mentioned earlier, lower production volumes, including the UAW labor strike and the weakened euro, which was partially offset by favorable Mexican peso rates. Despite these headwinds, the company successfully managed to align costs with production levels.

For reference, SG&A expense for the fourth quarter of 2019 was $17 million or 5% of net sales, flat compared to the prior year period.

Moving to Slide 11, which provides more detail on our full year 2019 sales results. Net sales were $1.4 billion for the year compared to $1.5 billion in 2018. And value-added sales for the year were $755 million compared to $797 million in 2018. The reduction in value-added sales was primarily driven by lower volumes and the impact of a weaker euro, which had a negative impact of $24 million.

Turning to Slide 12. Adjusted EBITDA was $169 million for the full year 2019 compared to $186 million in the prior period. The decrease in adjusted EBITDA was primarily driven by lower volumes, higher energy costs and plant efficiencies -- plant inefficiencies, partially offset by improved product mix comprised of larger-diameter wheels, more premium content and procurement savings. In the full year 2019, adjusted EBITDA as a percentage of value-added sales decreased by 1 percentage point to 22.3%.

SG&A expenses for full year 2019 were $64 million or 5% of net sales compared to $78 million in the prior period. The decrease is primarily due to a reduction in acquisition and integration expenses and the alignment of reporting for SG&A in both of our regions.

Our full year cash flow and capital structure are addressed on Slide 13. Net cash from operating activities was $163 million compared to $156 million in the prior period. Despite $17 million of lower adjusted EBITDA and the initiation of the accounts receivable factoring program in the prior year, the improvement in operating cash flow was primarily due to net working capital management, including favorable inventory management and extended payment terms with suppliers driven by our global supply chain team.

Net cash used for investing activities was $55 million for full year 2019 compared to $77 million in the prior year period. Capital expenditures for the full year 2019 were $64 million versus $78 million in the prior period. During 2019, we directed our capital expenditures towards the highest-returning activities, including maintaining our equipment and facilities and investing in technologies and capabilities to support our customers' future platforms and a differentiated product portfolio.

As a reminder, in the third quarter, Superior suspended its quarterly common dividend, allowing the company to reallocate approximately $11 million annually. The $11 million of cash savings due to the common dividend suspension will be used to invest in the business and reduce net debt. Dividends paid for the full year totaled $23 million, and purchases from minority holders of Superior Industries Europe totaled $7 million. At the end of the full year, we had approximately $6.5 million or 0.7% of the minority ownership outstanding.

Also during the year, Superior repurchased $37 million face value of its 6% senior unsecured notes on the open market for $32 million, resulting in a pretax net gain of approximately $4 million, which is included in other income and has been deducted to arrive at adjusted EBITDA. The senior unsecured notes repurchases and other debt payments resulted in a total reduction of $54 million of debt principal during the year. In summary, we ended the year with our net debt position $84 million lower than the prior year and with $284 million of available liquidity. The $284 million of availability includes cash and availability under our credit -- revolving credit facilities. There are no near-term maturities of our funded debt.

On January 31, 2020, the available borrowing limit of our European credit facility was increased from EUR 45 million to EUR 60 million. All other terms of the European credit facility remain unchanged. We also have incremental availability under our accounts receivable factoring programs. As of the end of the full year, our net leverage was approximately 3.3x, down 0.2 turns from the prior year period.

Our cash flow and liquidity progression over the past 2 years is detailed further on Slide 14 where you can see that we have significantly increased our liquidity position over time while generating substantially more free cash flow available to pay debt in 2019 as compared to 2018.

Now on Slide 15, I'll move to our outlook for 2020. For the full year 2020, given the current industry production outlook that we are seeing, we expect unit shipments to be in the range of 18.4 million to 19 million units. With regard to coronavirus, we do not currently see a direct impact on our business. If the impact on China continues, there may be some supply opportunities within our facilities where we have capacity. The impacts of the coronavirus on the greater economies in North America and Europe are unknown at this time, and our guide does not incorporate any adverse impacts.

Net sales are expected to be in the range of $1.33 billion to $1.39 billion, which, as a reminder, is impacted by aluminum prices. Value-added sales are anticipated to be in the range of $750 million to $790 million. We also expect a year-over-year increase in value-added sales per wheel in 2020, as the guidance would imply. Adjusted EBITDA is expected to be in the range of $170 million to $190 million. This range is supported by the already implemented initiatives Majdi discussed, including the rationalization of the Fayetteville production facility, the consolidation of the polishing product line in Mexico, procurement savings, energy investments to reduce energy costs in Mexico and an improvement in mix offsetting the lower volume outlook. As well, we have procurement savings initiatives in 2020, which will take effect throughout 2020. We should see a continued progression in EBITDA improvement as we move throughout the year. Our outlook for cash flow and operations is anticipated to be in the range of $125 million to $145 million, which includes cash taxes and cash interest, while capital expenditures are expected to be approximately $75 million.

I want to open the call now to a question-and-answer session focused on the results of the fourth quarter and the full year ended December 31, 2019. While we have and we will continue to engage with investors on all matters relating to our 2020 Annual Meeting and our recommended slate of director nominees, we will not be addressing questions on these matters at this time. Rest assured in the coming weeks, we will be proactively engaging and meeting with our investors regarding these topics.

With that, I'll turn the call back to the operator.

(Operator Instructions) We'll take our first question from Chris Van Horn with B. Riley FBR.

So I guess just starting on the guidance, especially on adjusted EBITDA, what gets you to that higher end of the range? And what are kind of the primary puts and takes on that $170 million to $190 million?

Fundamentally, Chris, the main driver of the guide are all the initiatives that we've been discussing over the last couple of earnings calls where we needed to execute to reduce cost, to consolidate footprint, to improve the portfolio. A lot of these actions are in place and are going to begin to take hold, and we'll see that in our performance in our 2020 results. So fundamentally, that's what's in the guide right now.

Okay. When I think about your underlying production assumptions, are you using basically the IHS or LMC data? Or are you adjusting that for your program or platform mix?

So the base is really IHS data, which is you take North America and Europe, Europe is slightly down, North America flat. So it's really flat to slightly downwards. Clearly, we use customer schedules for the next 12 weeks and IHS going forward. We haven't seen any changes in these schedules from our customers. Now remember, we are mainly a European and North American-based company. As you think -- and just take it forward and think of coronavirus and such, ultimately, how that shakes out and the impact on the OEMs and their schedules and hence the impact on us, that remains to be seen. We have not incorporated that in our guide.

Okay. Got it. And then -- sorry, just to stay on the guidance here, the operating -- the cash from operations, you had a really strong 2019. It sounds like you're guiding for that to not be as high in 2020. Any -- can you give me any detail on the reduction there?

Well, I mean if you think about it, we got a lot on the working capital, Chris, in 2019. So it's like a onetime improvement when you take it out of working capital. We're focused on sustaining it. We do have improvement actions outlined to continue to drive working capital improvement. So for instance, DIO and inventory levels. So I think that's one area of improvement that we are going to be looking at and executing on in 2020.

But the guide -- right now, the guide is kind of what I'll say is pretty standard from what we can generate and what we feel we can generate from the EBITDA levels that we're articulating. And I said it sustained the working capital position that we had end of the year in 2019. As you know, we're a little bit cyclical as a company. We tend to invest in the first half and tend to unwind. We have an aftermarket business in Europe, which requires us to fund some inventory as we build up inventory positions in the first half.

So we have a seasonality of our -- to our working capital. But at the end of the year, I think we feel very confident in the ranges we provided.

Okay. Great. And then maybe shifting over to your technology and EV specifically, just remind us your content per vehicle on an EV versus maybe a traditional ICE depending -- obviously, a 23-inch wheel is much more content than a 19, but maybe just try to apples-to-apples the comparison between an EV and ICE for your opportunity.

Well, I mean it depends. So we make big wheels. So we lightweight the bigger wheels, some for some of the customers, and so not all of them get flow forming and AluLite, as Majdi mentioned earlier. So -- but electric vehicles are really -- it's all about lightweighting. And so it's as much lightweighting as we can. We can put our AluLite technology, which is kind of a back cutting technology where we can carve off more of the aluminum. We try to make them more aerodynamic clearly.

And there is still the aesthetic, though, that EV still want larger wheels. So you'll still see 19- and 20-inch wheels on -- in the electric vehicle market space. So we -- that trend is kind of still alive and well because there's an aesthetic view as well. But clearly, it's all about lightweighting. And it's definitely a value add that we get, so we're able to charge more when we lightweight wheels.

Got it, got it. Okay. And last for me. Congrats on your PVD launch. Is that an end of -- that contract with the F-150, does that go through its current life cycle? And then are you actively bidding for the next iteration of the F-150? And then what's your initial take from the customer on how well that -- or how they're responding to that product?

Ford is -- Chris, Ford is actually very excited about this technology. We actually have been awarded the PVD application on the next-generation F-150, which is going to start in the summer. And as I mentioned, we have a little bit more capacity on that, that we expect to very quickly engage with other customers. We're making good progress on that front. It's a great story that the team has delivered here.

We'll take our next question from Richard Phelan with Deutsche Bank.

I had 3 questions. First is, wasn't clear to me the status of the Fayetteville restructuring. If you could just update us in terms of -- are all the workers gone? What's the plan with the real estate there as we head into 2020? Second question was around the working capital. If you could just update us with the accounts receivable factoring outstanding at year-end? And lastly, I'd love to get any comments you have. You mentioned in the guidance that there's no adverse impact from coronavirus. But perversely, your business is one of the few in the auto space, which is a potential beneficiary, if I can say that because so much of your competition has manufacturing in China. And so I'm wondering if -- any color you can provide in terms of problems that your competitors may be facing either starting up plants or otherwise.

I'll take the first part, and then Majdi can add to the question. So first part of the question was on Fayetteville. We have no production in Fayetteville after Q4. So December, we -- the workforce was rationalized. The production workforce rationalized. So what we're doing now is cleaning up the facility, moving some equipment to various facilities around the globe where we had equipment that we wanted to utilize, which should help offset some of the CapEx needs of the company on a go-forward basis. So we're -- we have a -- I don't want to give you the exact number, but there's a very small workforce left. We do have an engineering center, which we will maintain in Fayetteville. And we have no chance -- no plans to change or modify the engineering center that's there where we have R&D and technical capabilities and test capabilities. So we'll continue with our engineering center in Fayetteville.

As far as the building goes, we haven't made any announcements. We have a lot of work to do to clean it up and clean up the equipment. So -- but I would say that there's not a significant amount of proceeds coming that would change the cash flow if that what's you're getting at.

As far as AR factoring goes, we ended the year $10 million lower than the prior year for AR factoring. So we've got about, Troy, $45 million in AR -- total AR factoring?

That's right.

About $45 million of total AR factoring at the end of the year. So we were able to lower the water level from a factoring perspective.

And then specifically on your China question, we have received calls over the course of the last 2 weeks from various OEMs inquiring on our capacity and where we have open pockets of capacity. So we believe that potentially, it could be a tailwind. If nothing else, it could be neutral to us, but there could be a tailwind coming. So from a supply chain standpoint, I don't want to comment on where the competitors are at and if they're having difficulty, but we have had inquiries over the last 2 weeks.

Majdi, anything you want to add to that one?

Yes. Just to frame the implications to our business on the coronavirus, so first and foremost, from an exposure standpoint, we do not have operations in China. We don't ship product directly into China. So that's first.

And second, in terms of -- from a supply chain, we actually have very limited exposure there. We have some tools and some indirect materials. The team has done a great job of putting in place mitigation plans and resourcing tools where it makes sense. We have a limited exposure in the context where our OEMs ship their vehicles into China. And that's about -- that's a very, very low percentage of our exposure out of Europe. Now having said that, what is going to happen with our customers and production and so on, as you know, that remains to be seen. And clearly, the impact, as it comes, we will have to respond.

And finally, as Matti mentioned, in terms of opportunities, our customers know our footprint very well. And they're looking for us to support them as they pull together their risk mitigation plans for exposure to their supply chain from China, and we're working to support them where we can.

So it's too early to say any positive impact at this point?

Yes, that is correct.

We'll take our next question from Stephanie Vincent with JPMorgan.

Thank you for addressing the coronavirus. Just to press a little bit more on the details with your supply chain, listening to BASF and the chemicals guys, they were talking about just having a few weeks of inventory. Didn't know if you had some thoughts on that. And then I know China is the biggest risk. However, Italy is becoming a bigger risk, and there's obviously some quarantining there. So I'd like to hear your views on your exposure to manufacturing in the Italian market.

And then my second question is just to piggyback on Chris' on IHS. So you had another supplier report yesterday expecting global production down between 5% to 7%, which was pretty aggressive versus IHS' expectations. So how much room do you feel like your guidance has versus the current IHS expectations? Let's say they were going to move more towards the 5% level -- down the 5% level versus where they are today, which I believe is down 2-ish.

Maybe you repeat the questions because we cannot...

So Stephanie, it was very hard to hear you. So you were coming in -- kind of every third or fourth word was skipped. But if I understand the question, the first question was on supply chain and the exposure to coronavirus in our supply chain, is that correct?

Yes. So my questions were -- can you hear me better now?

I can hear you better now, yes.

Yes.

Okay. That's great. I just switched to a handset, sorry. So my first question was on the coronavirus. Thank you for the detail. I just wanted to ask a question on your Italian manufacturing exposure given some of the, I guess, quarantining activities we have there. And then also in your supply chain, I guess we've had big chemical players say that they only have a few weeks left of inventory. Didn't know your views on dual sourcing on the chemical side.

And then finally, just on your expectations for IHS, you had a supplier yesterday coming out with a negative 5% to 7% global production view. I know that you have your North American and European exposure. But if we did move that global production more towards the down 5% versus IHS at 2%, how much cushion do you have in your asset demand?

So thanks, Stephanie, for the question and repeating it. Sorry to make you repeat it, but it was hard to hear you the first time around.

Sure.

So the supply chain, we've assessed our supply chain, and we don't believe we've got significant risk. We did have some -- we do have some exposure, specifically tooling -- some tooling and some indirect spend in China. We've been at it. We've been able to get the tools out of China prior to the kind of crisis really breaking. And we were -- and we've got alternate sources at equal cost. So we don't necessarily see a big issue for us in our supply chain. That's number one.

From an Italian manufacturing standpoint, as you are aware, I think our big 3 customers are the big 3 German customers, and they don't have a huge footprint within the Italian. Now the sales side of it could get impacted, but we don't believe the production side is going to be dramatically impacted. Now if it spreads throughout -- if it continues to spread and there's these cells that continue to spread, we don't have a view on the impact. I would say that I don't have a view on what would happen if the coronavirus were to expand.

And then from a room, again, guidance standpoint, look, I think we'd have to come back and assess what a 5% global production, but I believe that supplier had China exposure. And so that's really what was driving the guide down. But we have very little China exposure. There is some exposure to some of our customers that export product from Europe to China. But that's pretty much -- as you know, Jaguar Land Rover is a big one that does that. We have nominal exposure to Jaguar Land Rover, and we wouldn't expect to be nominally impacted from export sales into China.

(Operator Instructions) We'll take our next question from Glenn Chin with Buckingham Research.

So just going back to the guidance, Matti, I think your comments -- in your comments, you mentioned that you expected continued improvement in EBITDA as you progress through the year. Is that a function of the volume backdrop that you guys envision? Or is it a function of the initiatives that you have with respect to efficiency and operational, et cetera?

It's the latter part. So I'll just say that from a launch perspective, we're a little heavier in the first half than we are in the second half from a launch perspective. Launches are about flat year-on-year. So overall launches, so we're a little heavier in launch activity in the first half. That's one consideration.

Number two is we are going to -- procurement savings. As we drive more procurement savings, we have a central procurement team actively engaged in our global spending and trying to global-source the buy. And so we're going to see continued improvement. And all the initiatives will take hold as we move throughout the year. Now many of the initiatives, as Majdi mentioned, were implemented -- for instance, the Fayetteville production rationalization was done in Q4. So that one's done. But as we move forward, we'll continue to see energy savings kind of ramp up as we go through 2020. So it's going to be -- we should see improvement as we go forward from an EBITDA perspective.

Okay. Very good. And then just some questions on VAS. Can you guys share what the impact from the UAW strike was in VAS terms?

We can't give you the VAS terms, though we had approximately 300,000 units related to the UAW strike.

Okay. And then sort of sticking to VAS, so your proportion of 19-inch wheels, that came down slightly sequentially. Is there any seasonality to that? Or is that a function of the GM strike?

Well, it's definitely going to be GM strike and, I'd just say, overall mix. But certainly, the GM strike impacted it.

Okay. And then may I ask still on VAS, year-over-year VAS declined more than unit sales. Why is that if mix was a tailwind?

Give me a second here.

Right, the share or the proportion of 19-inch wheels and larger was greater year-over-year, and I'm assuming complexity, et cetera, was also a tailwind, but VAS was down more than unit sales?

Yes. I think as you go quarter-to-quarter, VAS is not always going to be on the north side going up every quarter in and quarter out. Clearly Q4 heavily impacted with the UAW strike. And then as we kind of -- but as we kind of look forward, we should be seeing -- going forward continue to see penetration, 19-inch wheel space and premium content. So we're going to continue to see expansion in VAS sales specifically on a per unit basis. But Troy wanted to add something.

Yes. And then, Glenn, as you know, the mix can have an impact. So we like to use the 19-inch and greater as the barometer, but a smaller-diameter wheel with a premium finish can have a higher VAS, value-added sales, per wheel selling price. So that does play into the mix, although we quote the 19-inch and greater.

And we have no more questions in the queue at this time.

Thank you, everyone.

Thank you.

This concludes today's call. Thank you for your participation. You may now disconnect.