Adient plc — FY2020 Form 10-K
Reporting period: Fiscal year ended September 30, 2020. The filing is an annual report, not a standalone Q4 filing; quarterly figures below identify the fourth quarter where relevant. Adient is a global automotive seating supplier operating in 32 countries.
Financial performance
| Metric | FY2020 | FY2019 |
|---|---|---|
| Net sales | $12.670 billion | $16.526 billion |
| Gross profit / margin | $592 million / 4.7% | $801 million / 4.8% |
| Operating income (loss), before interest and tax | ($195) million | $229 million |
| Net loss attributable to Adient | ($547) million | ($491) million |
| Diluted loss per share | ($5.83) | ($5.25) |
| Operating cash flow | $246 million | $308 million |
| Capital expenditures | $326 million | $468 million |
| Total debt at year end | $4.307 billion | $3.738 billion |
| Cash and cash equivalents at year end | $1.692 billion | $924 million |
Cash flow from investing activities was positive $166 million, including proceeds from business divestitures; financing activities provided $393 million. Operating cash flow less capital expenditures was approximately negative $80 million. Working capital was $663 million, up from $281 million. ABL facility availability was $787 million at year end, with no amount drawn; availability is subject to the borrowing base.
Fourth-quarter net sales were $3.597 billion versus $3.921 billion in the prior-year quarter. Net loss attributable to Adient was $36 million versus $4 million. The quarter’s cost of sales was $3.352 billion.
Material changes and unusual items
- Annual sales fell 23%, primarily due to COVID-19 production shutdowns and reduced volumes across regions; unfavorable currency effects and divestitures also contributed. Global light-vehicle production declined 18.8%.
- Annual gross profit declined 26%, while gross margin edged down to 4.7% from 4.8%. Management cited lower volumes, partly offset by operating improvements, lower launch inefficiencies, reduced waste and freight, and favorable commercial settlements and pricing.
- Net loss widened despite lower SG&A. Factors included the volume decline, higher financing costs, and a $231 million noncash impairment of the YFAI investment. Equity income fell to $22 million from $275 million.
- Fiscal 2020 restructuring and impairment costs were $238 million. The company also reported a $13 million net loss on business divestitures. The YFAI impairment was recorded in equity income, separately from restructuring costs.
- Adient completed the sale of its YFAI investment, receiving $329 million at closing, with $60 million of deferred consideration subject to the transaction terms. It also sold its automotive fabrics business for approximately $170 million net proceeds and sold RECARO automotive seating; it reduced its Adient Aerospace ownership to 19.99% and deconsolidated the venture.
- Debt increased by about $569 million year over year. Adient issued $600 million of 9% senior secured notes in April 2020 and redeemed $103 million face value of 4.875% notes. The €165 million European Investment Bank loan was classified as short-term because future covenant compliance was uncertain, although Adient was compliant at year end.
Liquidity, outlook and risks
During the pandemic, Adient drew $825 million on its ABL facility and repaid it during the third and fourth quarters. It also reduced spending and compensation, deferred certain payments, and received approximately $273 million of dividends from Chinese joint ventures. Management said current financial resources were expected to meet liquidity requirements for at least the next 12 months, based on its assumptions; it cautioned that pandemic duration, resurgence and operating impacts remained uncertain.
No quantified FY2021 revenue or earnings guidance is provided in the supplied filing text. Adient expects its FY2020 restructuring plan to reduce annual operating costs by approximately $180 million when completed, with an estimated 35%–40% translating into net savings; completion is expected substantially by FY2024. The company’s principal risks include COVID-19 and vehicle production levels, high indebtedness and debt-service needs, covenant compliance, access to financing, customer pricing and launches, supply-chain disruption, joint-venture performance, foreign exchange, commodities, and execution of its turnaround and restructuring plans.
The board had suspended ordinary-share cash dividends after the first quarter of FY2019. Management reported effective disclosure controls and internal control over financial reporting; the auditor issued an unqualified opinion on the financial statements and internal controls.
Key facts for investors to verify
- Whether vehicle production and customer demand recover sufficiently to restore sales, margins and operating cash flow.
- Liquidity headroom under the ABL borrowing base and the company’s ability to satisfy debt covenants, particularly the EIB loan requirements and upcoming maturities.
- Actual cash conversion and the extent to which divestiture proceeds, joint-venture dividends and payment deferrals supported FY2020 liquidity.
- Whether restructuring savings are realized as planned, including the distinction between gross cost reductions and estimated net savings.
- Final collection of the deferred $60 million YFAI consideration and any associated earnout, as well as the ongoing economics and term of the extended YFAS joint venture.
- Potential further impairments or tax valuation allowance changes if operating forecasts, vehicle volumes or other key assumptions deteriorate.