Adient plc — Q2 FY2021 Form 10-Q
Reporting period: Three and six months ended March 31, 2021; fiscal year ends September 30. Adient supplies automotive seating systems and components globally.
Financial performance
| Metric | Q2 FY2021 | Q2 FY2020 | Six months FY2021 | Six months FY2020 |
|---|---|---|---|---|
| Net sales | $3.819 billion | $3.511 billion | $7.667 billion | $7.447 billion |
| Gross profit / margin | $298 million / 7.8% | $237 million / 6.8% | $639 million / 8.3% | $500 million / 6.7% |
| Income (loss) attributable to Adient | $69 million | $(19) million | $219 million | $(186) million |
| Diluted EPS | $0.72 | $(0.20) | $2.30 | $(1.98) |
| Operating cash flow | Not presented separately | Not presented separately | $140 million | $183 million |
| Capital expenditures | Not presented separately | Not presented separately | $126 million | $185 million |
Q2 sales rose 9%, reflecting stronger volumes against COVID-affected prior-year production, favorable currency, commercial settlements and material recoveries; prior-year divestitures partly offset growth. For the six-month period, sales increased 3%. Semiconductor and petrochemical shortages caused unplanned production stoppages, premium freight and operating inefficiencies. Q2 Americas adjusted EBITDA fell to $64 million from $106 million, while EMEA rose to $141 million from $62 million and Asia to $121 million from $63 million. These are segment measures, not consolidated EBITDA.
Cash, debt and liquidity
- Cash was $984 million at March 31, 2021, down from $1.692 billion at September 30, 2020. Working capital was $429 million, down from $663 million.
- Six-month cash flow was $140 million from operations, $(95) million from investing and $(762) million from financing. Financing outflows included substantial debt repayment; operating cash flow was below the prior-year $183 million.
- Reported debt was approximately $3.668 billion, comprising $14 million short-term debt, $8 million current long-term debt and $3.646 billion long-term debt, compared with approximately $4.307 billion at September 30, 2020. Adient repurchased $640 million of 7% notes during the quarter at a premium, contributing $45 million to financing charges.
- The $1.25 billion asset-based revolving facility was undrawn, with $945 million available net of letters of credit. Management said available resources were expected to fund liquidity needs for at least 12 months, while noting pandemic-related uncertainty.
- After quarter-end, Adient amended its Term Loan B: maturity extended to April 2028, Eurodollar margin reduced to 3.50%, and $214 million of incremental loans brought total loans under the amended agreement to $1.0 billion. It also redeemed $80 million of 7% notes in April and intended to redeem the remaining $80 million in May.
Material developments, outlook and risks
- Adient recognized a $33 million pretax gain from selling its 50% interest in SJA for $58 million; net proceeds of $53 million arrived April 1. This was a one-time item within equity income.
- On March 12, Adient agreed to a series of China transactions with Yanfeng, including the proposed sale of its 49.99% YFAS interest for CNY8.064 billion (about $1.228 billion), subject to conditions and approvals. Related transactions include potential acquisitions and sales of other Chinese interests. Adient expected key transactions to close in the second half of calendar 2021; completion was not assured. The company also expected to write off a $92 million intangible asset upon closing.
- COVID-19 effects continued, and automotive supply-chain shortages and higher commodity costs pressured operations. Management cited uncertain vehicle demand, pandemic resurgence, customer and supplier impacts, transaction approvals, execution of its turnaround, new-program launches, debt service, currencies and broader economic conditions as risks. No numerical earnings guidance is provided in the filing text.
- Restructuring plans target completion substantially by fiscal 2022. Adient reported about 13,000 employees separated against plans covering approximately 18,000 and 19 of 24 planned plant closures completed. The fiscal 2020 plan was expected to reduce annual operating costs by about $69 million; the fiscal 2021 plan by about $3 million, with approximately 35%–40% expected to result in net savings.
- Gross unrecognized tax benefits were $487 million; $139 million would affect the effective tax rate if recognized. Environmental reserves were $10 million. Management did not expect the disclosed legal proceedings or known environmental matters to materially affect financial position, results or cash flows.
Most important facts for investors to verify
- Whether the Yanfeng and related China transactions receive approvals, close on expected terms and timing, and produce the anticipated cash proceeds; assess any Boxun put-related funding obligation.
- Whether operating cash flow can improve as working capital normalizes, while Adient reduces debt and manages lower cash balances.
- How semiconductor and petrochemical shortages, commodity prices, production interruptions and new program launches affect margins, especially in the Americas.
- The final effect of post-quarter debt refinancing and note redemptions on interest expense, maturities, covenants and liquidity.
- Potential outcomes of significant unrecognized tax benefits and the stated pandemic, restructuring and transaction risks.