Business context and reporting period
Adient plc is a global automotive seating supplier serving vehicle manufacturers across the Americas, EMEA and Asia. This Form 10-K covers the fiscal year ended September 30, 2021; comparisons are primarily with fiscal 2020. Fiscal 2021 results reflect a recovery from pandemic-related shutdowns, followed by production disruptions from industry-wide semiconductor shortages, as well as significant China joint-venture transactions.
Financial results and liquidity
| Metric | FY2021 | FY2020 |
|---|---|---|
| Net sales | $13.680 billion | $12.670 billion |
| Gross profit and margin | $826 million; 6.0% | $592 million; 4.7% |
| Income (loss) before interest and taxes | $1.726 billion | $(195) million |
| Net income (loss) attributable to Adient | $1.108 billion; diluted EPS $11.58 | $(547) million; diluted EPS $(5.83) |
| Cash from operating activities | $260 million | $246 million |
| Capital expenditures | $260 million | $326 million |
| Cash and cash equivalents at year-end | $1.521 billion | $1.692 billion |
| Total debt, approximately | $3.7 billion | $4.3 billion |
Fiscal 2021 net income included approximately $1.214 billion of gains from sales of China affiliate interests, principally the $1.181 billion gain on the 2021 Yanfeng Transaction. Equity income was $1.484 billion, compared with $22 million in FY2020. Net financing charges rose to $311 million from $220 million, including debt-repurchase premiums and transaction-related derivative losses.
Working capital was $1.575 billion, up from $663 million, including a $643 million receivable related to the Yanfeng transaction. The asset-based revolver was undrawn at year-end, with $739 million available after letters of credit. Operating cash flow was nearly offset by capital expenditures. Adient reported current assets of $5.086 billion and current liabilities of $3.511 billion.
By segment, FY2021 sales and adjusted EBITDA were: Americas $6.164 billion and $232 million; EMEA $5.564 billion and $277 million; Asia $2.123 billion and $486 million. Adjusted EBITDA improved in EMEA and Asia, while Americas was broadly stable.
Material changes versus the prior comparable period
- Sales increased 8%, mainly reflecting recovery from FY2020 COVID-19 production shutdowns and favorable currency and material-recovery effects; semiconductor and petrochemical shortages caused current-year stoppages and inefficiencies.
- Gross margin rose to 6.0% from 4.7%, supported by higher volumes and operational improvements, but pressured by commodity costs, premium freight and disrupted production.
- Net income swung from a substantial loss to a profit, but the change was dominated by China transaction gains and the prior-year $231 million non-cash impairment of the YFAI investment. The transaction gains are not a recurring operating earnings base.
- Cash from investing activities was $347 million, including $715 million of proceeds from the 2021 Yanfeng Transaction and $53 million from the SJA sale; Adient also spent $211 million net on acquisitions.
- Adient amended its Term Loan B in April 2021, extending maturity to 2028 and reducing the stated Eurodollar margin to 3.50%; it also repurchased and redeemed all $800 million of its 7.00% notes due 2026, paying premiums. Total debt declined year over year.
Outlook, management commentary, risks and unusual items
The filing provides no specific consolidated FY2022 revenue or earnings guidance. Management said current financial resources were expected to fund liquidity requirements for at least the next 12 months and indicated China transaction proceeds could support voluntary debt repayment in FY2022. The FY2021 restructuring plan is expected to be substantially completed in FY2022 and, when complete, is estimated to reduce annual operating costs by about $23 million; management estimated 25%–35% of that amount would result in net savings.
Management highlighted ongoing semiconductor-driven vehicle production cuts and plant downtime, higher steel and petrochemical prices, sharply increased freight costs, and labor availability and wage inflation. Mitigation through customer and supplier negotiations and cost actions is expected to offset only part of the pressure. COVID-19 remains an uncertainty, including the potential for further operational disruption.
Other notable items include $38 million of gains from retrospective Brazilian indirect-tax-credit recoveries; $134 million of withholding tax expense associated with the Yanfeng transaction; and a $9 million impairment charge on French assets held for sale. The company recorded no goodwill impairment in FY2021, although goodwill was $2.212 billion and its impairment testing depends on significant forecast and discount-rate assumptions. The auditor identified the annual goodwill impairment assessment as a critical audit matter. Management and the auditor reported effective internal control over financial reporting; two acquired China subsidiaries, together representing about 5% of consolidated assets, were excluded from the year-end control assessment and audit.
Key risks include automotive cyclicality and customer concentration (Stellantis and Volkswagen represented 13% and 11% of FY2021 sales), supply-chain and commodity cost exposure, launch and pricing risks, joint-venture and China transaction execution, foreign exchange, pension funding, tax uncertainty, and the company’s substantial debt and ability to service or refinance it. Management stated that known legal matters were not expected to materially affect financial position, results or cash flows. Cash dividends have been suspended since the first quarter of FY2019; future payments remain discretionary and subject to Irish-law distributable-reserve requirements.
Most important facts for investors to verify
- How much of FY2021 earnings and cash proceeds came from China transactions and other nonrecurring gains, and what the ongoing earnings base looks like after the divestitures.
- Collection and use of the Yanfeng-related receivable, completion and cost of the Boxun equity purchase, and the expected benefits and integration costs of the newly consolidated China businesses.
- Whether semiconductor-related downtime, freight and commodity inflation, and labor pressures continue to weigh on margins and cash generation, and how much cost recovery is achieved from customers.
- Debt maturities, interest expense, covenant headroom and the use of transaction proceeds for debt repayment; the $600 million 9.00% notes due 2025 remain a comparatively high-cost obligation.
- Progress against restructuring savings, pension contribution needs, tax valuation allowances and open tax matters, and the assumptions supporting the $2.212 billion goodwill balance.