Earnings Call: Q2 2021

Aug 6, 2021

Greetings, and welcome to the Magna International Incorporated Second Quarter 2021 Results. During the presentation, all participants will be in a listen only mode. Afterwards, we will conduct a question and answer session. 2019. As a reminder, this conference is being recorded today, Friday, August 6, 2021. It is now my pleasure to turn the conference over to Louis Tonelli, Vice President, Investor Relations. Please go ahead, sir. Thanks, France. Hello, everyone, and welcome to our Q2 2021 results conference call. Joining me today are Swamy Kotagiri and Vince Kalifi. Yesterday, our Board of Directors met and approved our financial results for the Q2 21. We issued a press release this morning outlining our results. To find the press release, today's conference call webcast, the slide presentation to go along with the call 2019 and our updated quarterly financial review, all in the Investor Relations section of our website at magna.com. Just before we get started, just as a reminder, The discussion today may contain forward looking information or forward looking statements within the meaning of applicable securities legislation. 2018. Such statements involve certain risks, assumptions and uncertainties, which may cause the company's actual or future results and performance 2018. To be materially different from those expressed or implied in these statements. Please refer to today's press release for a complete description of our Safe Harbor disclaimer. 2019. As we review financial information today, please note that all figures discussed are in U. S. Dollars. We've included in the appendix a reconciliation of certain 2019. Thank you, Steve. Thank you, Steve. Thank you, Steve. Thank you, Steve. Thank you, Steve. Good morning, everyone. 2019. Our quarterly earnings discussion today excludes the impact of unusual items. Please note that when we use the term organic in the context of sales movements, We mean excluding the impact of foreign exchange, acquisitions and divestitures. And with that, I'll pass it over to Swamy. Thanks, Luis, and good morning, everyone. We are happy to be here to provide you with an update on Magna. Overall, we were pleased with our Q2 performance considering the day to day production disruptions caused by the semiconductor chip shortage 2019. As a result of much expectations for the quarter. Naturally, this impacted our Q2 earnings. And as Vince will discuss later, it is also impacting 2019. We continue to have a sharp focus on managing our costs through the volatile production period. This includes ongoing activities to enhance operational excellence as well as realizing savings from restructuring initiatives announced last year. Our focus on costs helped mitigate the impact of lower sales in the quarter. 2nd quarter. Longer term, our portfolio positions us to continue driving sales growth over market as well as strong free cash flow generation. 2 weeks ago, we signed a definitive agreement to acquire Veoneer. I'm sure by now many of you have heard about Qualcomm's unsolicited offer for Veoneer yesterday. We learned of the news likely at the same time as you did about 24 hours ago. We are evaluating our options and considering next steps in light of Qualcomm's announcement. We will be disciplined in our approach and remain committed to earning appropriate returns on our investments. We are excited about Magna's future, 2018, particularly given our systems and complete vehicle know how and approach. We recently highlighted Magna activities that reflect 2019. The technology developed together with our partner, Uunder, And in the area of electrification, we closed our joint venture agreement with LG. This JV, which enhances our e motor and inverter building blocks is an important vertical integration step that strengthens 2019. Our overall e drive systems capability. At the same time, it allows us to participate in the fast growing e machine and inverter markets for OEMs who choose to do some system integration work in house. We recently profiled 2019. This technology offers many key features with respect to LED, which provides opportunities for future growth for us 2019. Lastly, we won 6 supplier of the year awards from General Motors. 2nd quarter. Magna is the only supplier to receive 6 awards in a single year, and we just did it for a 2nd consecutive year. We are very proud of this and we would like to thank our customer for this recognition. Let me turn to some of the market dynamics 2019 that are affecting our business right now. It is clear that the global semiconductor chip shortage has been and will be more impactful to 2021 than most in the industry anticipated earlier this year. Significant chip shortages continue to impact OEM production into the second half of twenty twenty one. Commodity costs, while modestly better for 2021 than what we expected a quarter ago, remain higher than what we expected at the beginning of the year. And wage pressures in certain markets together with new labor loss in Mexico have led to increases in labor costs. In terms of tailwinds, the industry continues to experience robust auto demand following the COVID-nineteen induced industry challenges of 2020. Strong auto demand coupled with OEM production disruptions this year have led to historically low dealer inventory levels, particularly in North America. These two factors together with indications from OEMs that they intend to run strong production once additional chip capacity comes on stream points to a positive midterm production environment for auto suppliers. Overall, we continued our solid performance in Q2 Despite facing a difficult operating environment, consolidated sales increased to 9,000,000,000 And free cash flow increased to $178,000,000 in the quarter, bringing our year to date level to almost $600,000,000 Despite reducing our 2021 outlook as a result of the semiconductor chip shortage, we maintained our expectations 2021 free cash flow. We returned $226,000,000 to shareholders. And lastly, we reached an agreement to dispose of 3 loss making exterior facilities in Germany. The transaction which closed on July 3 improves our exterior manufacturing footprint in Europe and better positions us for the future, Thank you, Swamy, and good morning, everyone. I'm going to start with a detailed review of the quarter. The Q2 of 2020 included the unprecedented industry wide production suspensions due to the COVID-nineteen pandemic, while the Q2 of this year included the production disruptions due to the ongoing global semiconductor 2nd quarter. Global vehicle production increased 58% in the 2nd quarter, driven by significant increases in North America and Europe. On a Magna weighted basis, light vehicle production increased 133% in the Q2 of 2021. Our consolidated sales were $9,000,000,000 more than double the sales level in the Q2 of 2020. Organic sales underperformed weighted production in the quarter. However, on a year to date basis, our organic sales growth is roughly in line with weighted production. 2019. As a result of the strong year over year sales growth, adjusted EBIT and EPS each improved dramatically from the Q2 of 2020. Perhaps more informative comparison is reviewing sequential results. Comparing Q2 'twenty one to Q1 of this year, global light vehicle production was down 10%, driven principally by 2nd quarter. North America and Europe and substantially due to the semiconductor shortage. This led to our sales being down 11% sequentially. Our adjusted EBIT declined from $770,000,000 in Q1 2021 to $557,000,000 2nd quarter and EBIT margin fell from 7.6% in the first quarter to 6.2% in Q2 of 21. The reduced earnings on the $1,100,000,000 in lower sales effectively represented all of the net 2019. There were a number of puts and takes quarter over quarter. We had higher commodity, new facility and launch costs, incremental labor costs in Mexico and higher net application costs in ADAS. Essentially offset by favorable value added tax settlement in Brazil, higher tooling contribution and a net settlement of customer claims in the first of 2021. We estimate that our decremental margin on the sequential decline in consolidated sales was about 19%. Similarly, decline in sales represented the most significant factor in the lower earnings for our segments. I'm now going to review our cash flows and investment activities. During the Q2 of 2021, 2018. We generated $777,000,000 in cash from operation before changes in working capital and invested $249,000,000 in working capital. Investment activities amounted to $387,000,000 including $277,000,000 in fixed assets, $93,000,000 increase in investments, other assets and intangibles. Free cash flow was $178,000,000 in the second quarter. We used 99,000,000 to repurchase shares, representing 1,000,000 shares and paid 127,000,000 in dividends. Our adjusted debt to adjusted EBITDA stands at 1.29, down from 1.74 at the end of Q1 and continuing the sequential quarterly improvement we have experienced since the Q2 of 2020. And our liquidity remains strong at $6,900,000,000 at the end of the second quarter. Substantially as a result of the semiconductor chip shortage, we have lowered our 2021 outlook compared to May. Our assumptions for light vehicle production for North America have been lowered by 1,200,000 units or 8%. We've also slightly increased our expectations for the Canadian dollar, the Chinese RMB and slightly lowered our expectations for the euro, in each case relative to the U. S. Dollar. These currency changes have a negligible impact on sales and margin in our outlook. Mainly as a result of the lower assumed light vehicle production caused by the semi shortage, We have reduced our sales ranges for all segments as well as consolidated sales. Our outlook for BES includes 2nd quarter. A reduction of about $200,000,000 as a result of the disposition of 3 German exterior facilities in early July. And our outlook for Seating sales has been impacted by ongoing negative program mix, the majority of which we experienced in the second quarter. 2nd quarter. Despite the roughly $2,000,000,000 decline in our consolidated sales range, we have only modestly reduced our adjusted EBIT margin range, 20 basis points to a range of 7% to 7.4%. We slightly reduced our equity income by $5,000,000 2019 at the top and bottom end of the range, also reflecting the lower assumed vehicle production. Interest expense has been lowered by $20,000,000 2019 to approximately $80,000,000 Net income attributable to Magna has been reduced, reflecting the lower sales and margin, partially offset by lower interest expense. 2019. And as Swamy indicated earlier, we have maintained our 2021 free cash flow expectations at 1.6 $1,800,000,000 despite the lower sales and earnings outlook. This mainly reflects a lower expected investment in working capital for the year. In terms of segment margins, as a result of the lower 2021 segment sales outlook, 2019. We have reduced our full year margin ranges for Body Exteriors and Structures, Power and Vision and Seating. However, we have increased margins for complete vehicles largely due to a change in program mix relative to our previous expectations. In summary, we had solid performance 2018 for Q2 in a challenging environment. Despite the volatile production schedules due to the chip shortage, 2018. We did a good job managing our costs and decremental margins, including execution on improved operational excellence and implemented restructuring actions. 2018. We generated free cash flow of $178,000,000 bringing our year to date amount to almost $600,000,000 We 2019. Despite lowering our 'twenty one outlook due to the ongoing semiconductor chip shortage. Just before we turn to Q and A, as Swamy mentioned earlier, we are evaluating our options and considering next steps with regards to Vemir. 2019. We don't intend to answer questions about Qualcomm's bid or what the implications may be for Magna. We 2019. Our first question is from the line of John Murphy with Bank of America Merrill Lynch. Please go ahead. Good morning, everyone. This is Aileen Smith on for John. I wanted to follow-up first on the commentary around the decremental margins, Specifically as it relates to the outlook in the second half of the year. I think you referenced 19% in the second quarter. If we're looking at The front half of last year, that was incredibly pressured. I think one where you put up a decremental in 2Q, which was The worst of it is 22% decremental. As you think about the cadence that you're looking towards in the second half of the year, How do you think about further containing decrementals, if that's possible at all, specifically with a commodities environment that's going to be less favorable? Is your question related to further deterioration to volumes compared to our assumptions? 2018. Yes, not relative to your own assumptions, but internally as you think about decrementals in the second half of the year, Your own internal expectations, are there ways from a cost perspective that you could further try to contain the decrementals versus I think when you look at kind of the very first half of the year and as we think about the second half of the year, Yes, depending on where we are in the ranges, we're seeing that the margins should actually be Doing a little better in the second half versus the first half, which implies decrementals being The same or a little better than what they were in the first half. And I would attribute that to a couple of things, a bunch of moving pieces. But 1st of all, I think about our seeding operations has been disproportionately hurt in the first half of the year as a result of product mix. We saw some benefit last year. We saw some benefit in the first half of the year. We continue to expect to see that benefit increasing as we move on in the second half of twenty twenty one. But in terms of everything else, I think there's a lot of Okay. That's helpful. And then I wanted to ask a bigger picture question around strategy and not Specifically, Braxton V and Air, but sort of related to it. As we think about the outlook or I guess the thought process as we head into 2022, Whether or not the Viaener acquisition ultimately goes the way you anticipate or not, but presuming it doesn't, how does that change in any way your focus from a strategic perspective around what technologies you think you may need access to, to accelerate the growth trajectory? Is there still a hyper focus on 2,008 SAV. Or separately, could you look at other areas within the portfolio, whether it's powertrain or electrification and try to get more aggressive there? Hi, good morning, Amy. This is Swamy. I think I would refer back to the strategy that we outlined during the April Investor Day and we said Accelerate our investments, our focus on the megatrend areas that remains and ADAS being one of them, right? And we also if you look into what we've said in the past, we have been investing in ADAS over the last number of years. We have the building blocks to address the requirements for ADAS, the sensor suite, the compute and the software. The acquisition that we talked In one way, we would accelerate our position in ADAS. But we had the path and we will continue on that. On the electrification aspect, We talked today about the closing of the LG JV, which addresses some key building blocks as We talked about in e machine and inverters, and we continue to make progress in the business of electrification. We are launching programs in our Hasko JV. We have had wins on primary and secondary drives. And there is one of the program and various discussions that we'll be able to give color when the customers will allow us to do that. So the strategy remains and we continue to make good progress. Please go ahead. Good morning. With the first on the semiconductor shortage. I'm particularly thinking as the GM trucks, I think are going to be having more downtime over the next couple of weeks. I'm just wondering like how do your plants react to it? So I believe you have that plant near London, Ontario that does frames for GM truck. So like do you take the plants down and send the employees home or you reduce shifts So how does Magna react to this volatility that we're seeing in the production schedules for your primary platforms? Good morning, Peter. I think that's one of the plans, right? We have a lot of content in that platform. The semiconductor shortage, as you know, is continues to be a dynamic situation and difficult to predict. There's a lot of start, In terms of volumes, in terms of changes in variance, in terms of the amounts of releases, It's been difficult, but we have been able to continue to support our customers through this dynamic time right now. Regarding your question of how we manage, it's kind of a mix of all the above that you talked about. It's Very difficult to have what I would call a playbook, right? I mean, we are reacting to a very dynamic situation. As some of the volumes change and some of the lines have different run rates, we are going through that. Part of the restructuring, how we flex, the time, on different programs, even sharing between different facilities Between COVID and semiconductor shortages and other things. So it's kind of a mix of all right now, Peter. Okay. And then Swamy, my last question. I'm just wondering if you could elaborate a little bit more on the LG joint venture. When you expect to be delivering products, Which customers you're targeting and I know you'll be doing electric drives there, but there are other areas Within Magna that we'll be doing electric drives. So is it that the LG joint venture is positioned more for Asian customers and Won't be addressing the North American and European markets. I'm just wondering how you're carving up this e powertrain market because you seem to have A number of areas of expertise that we'll be pursuing that product category. Peter, I think from the electric drive systems perspective, Magna powertrain remains the forefront. When we talk about the LG Magna JV, the recently closed transaction, It will be focused on supplying the eMachines and the inverters, right? So A little bit more color maybe from a North American and European customer perspective. Magna Powertrain remains the lead and the JV We'll be supplying the e machine and the inverter. From an Asian customer perspective, The JV would take the lead from the customer interface perspective, but Magna Powertrain would still We'll be providing the expertise of the overall system. So the JV is really focused on supplying the e machine and the inverter And we believe that's really advantageous as some of the OEMs look at doing the system integration themselves. So it allows us to look at the overall system, plus where necessary to supply the addressable market of eMachines and inverters. And what assets are there in the joint venture now? Has LG contributed like facilities that are up and running now? Or what is the status? And what needs to be built? So LG does have engineering and production facilities they have in Korea, Obviously, complemented by the footprint of Magna elsewhere. And they also have an engineering center, Which are a development center that works on the e machine and inverter piece of it. And we will continue to see where it makes sense to add as we get additional programs. They currently have programs with OEMs. I think, Luis, we talked about roughly about $150,000,000 or so in 2019. Correct. Yes. And they've also I mean, we haven't talked a lot about the customer specifically other than they said that they have, the Chevy Bolt Thanks, Louis. That's all I have. Thank you. Our next question is from Chris McNally with Evercore ISI. Please go ahead. Thanks so much guys. So two questions, one about production and 2nd half cuts have caught us by surprise in the second half and GM definitely indicated that in their second half versus first half comments earlier this week. Could you just maybe comment in your 11% now North American production outlook, do you think you fully incorporated sort of some of The down year over year comments that GM made on production or are some of those comments new to you as well? Yes, Chris, it's good morning. It's Vince. As we look at overall production assumptions for the second half of the year. We started our internal forecasting process some time ago with a certain set of assumptions. We continue to refine our outlook based on the information that we were receiving from all of our customers. So I'd say that The outlook we've got today reflects what we had as production scheduled in the last So it's pretty current. But Chris, things are pretty volatile as So Swamy and I have commented on, so things could get better, maybe they get a little bit worse. I think we've got most of caught in our overall forecast. Nothing to shift. Hopefully, there's not much variance to that other than upside. Good news is, of course, with Sales being strong and constrained, production gets pushed out, it still means strong couple of years of production going forward. That's great. That's really helpful. And then maybe on the decrementals where They are actually pretty impressive. If I just do the guidance, it only looks like a 10% cut from where the revenue was cut. What I think is somewhat surprising is the second half margins implied in the guidance I actually assume like a 50 basis point improvement second half over first half, roughly 100,000,000 Great EBIT second half over first half. And I was just wondering if we don't have to get specific into percentages on decrementals, When we look at something like body, where we had a pretty big drawdowns in Q2, 190 basis points lower than Q1, I'm assuming it's back up into the 8% 8.5% range in second half, even though revenue is not that strong. Could you just maybe talk about body because it's such a big driver and obviously has the most exposure to the D3 where production could be the weakest in the second half? Chris, just something that is impacting, particularly in our Body, Stairs and Structures Group 2nd half margin. So remember, we talked about disposing of 3 German facilities. That's added to margins second half versus first half. The business, We probably had about a couple of $100,000,000 of sales in the first half, but these divisions, These clients generated losses. So if you think about the second half, sales are lower as a result of not consolidating these three facilities Profits are higher because we don't have the losses. So that's going to be incremental. The other incremental in DES as well as There's restructuring activities that we started last year. Remember we talked about 2022. We recognized about 25% of that benefit in 2021. We're going to recognize We expect about half of that $200,000,000 in 2021 and the balance in 2022. So If you look at that $100,000,000 we're probably about halfway there in the first half. So that continues in the second half And then we get an incremental benefit from continuing restructuring. So that's going to help the overall margins. And BDS is certainly going to be a beneficiary 2019. And seating, if you look at Magna, seating as well had a pretty tough first half. The expectation is based on production It looks better in the second half. So sales are stronger and margin stronger. That's great. And so Vince, I was actually fully putting in the benefit of the disposal of the 3 German facilities. That's obviously something that's in your 'twenty three guide and obviously that's something that's going 2022 as well as that annualized next year? Yes, well, Chris. We've been focusing on these divisions for some time, but they have not been contributing to Bottomline. And When you look on an annualized basis, it's probably about $350,000,000 in sales, just to put that into perspective. Chris, as we get out of 2023, we're going to have to redo our entire. Now, like volumes are going to change, we got new programs or so on. But if you look at this alone on its own, this will be better for overall margins going out to 2023. Our next question is from Brian Johnson from Barclays. Please go ahead. Sure. Just want to I think two questions. Can you give us a sense, obviously without going into confidential details on the discussion pipeline For that, just kind of I don't know if you have a formal pipeline, but kind of something around what could be coming. And then second, Since there is a lot of interest, we heard Fiskars sounding very confident last night, for example, in your capabilities there, How you would think about, the breakpoint because it is a very chunky business of opening up a new facility to handle additional EV builds? Good morning, Brian. I think in terms of the discussions, We've said in the past, we obviously continue to have strategic discussions with customers that are in production today, Various discussions on that topic, plus the new entrants that you talked about or The existing customers that are looking at variance and so on. So it's a mix of all of this that we are Constantly looking at. And when we talked, if you look at the capacity that we have in place in Gratz and Hoje in Europe. And then we have the footprint in China. Luis, you can To be more specific, but somewhere in the range of 200,000 units in our Ho Chi facility, our Ho Chieng Crats And about a similar 180 to 200 in China. So we have the footprint that we continue to look at. We have the flexibility to figure out variance and how we go through the manufacturing process. And I think we continue to say we remain open to the footprint in North America given the right business case viability. But more importantly, Even if we start somewhere, if there is a good visibility in the road map, I think that's what's going to trigger the decision for us. Okay. So you would be open to it, but you'd have to have confidence obviously in the volume estimates. Just a follow on, ICON radar, could you elaborate a bit more on that product line in particular, how much is developed within Magna and how much So this development goes back a few years and we've been talking about it and our thought process going through this The rationale going through it was as we have more proliferation of the radars, we have to look at some key attributes like interference mitigation, Look at higher resolution. And if you look at the some key factors like object detection, Like you should be able to look at a tire on the road at 75 meters, example, or look at some object separation, a pedestrian walking next to A guardrail at about 75 meters or so or maybe even likely more to detect a vehicle greater than 300 meters, Pedestrian at 150 Meters. So we thought these were all important things and that's where we worked with the start up and our partner, Uunder. They're looking at the silicon side of things, and we continue to look at the, call it, the overall integration of the system, the 2nd quarter. Magna would be looking at it and working and interfacing with the customer. And at the silicon level, call it really the 4 d Hi, good morning. Thank you for taking the question. I want to on the margin in the quarter. Maybe you can help decompose a little bit. Just a couple of pieces on this. First, How much was mix a contributor to the result in the quarter? Because I 2nd quarter. I think we actually saw GM's truck program hold up well in the Q2 and we know that's your largest program. And on the flip side, maybe you could talk How much of the margin was weighed down from supply chain pressures or labor inefficiencies on start to stop production or cost inflation as opposed to lost volume. So if you could just decompose the quarter, the margin in the quarter a little bit, Sure, Dan. It's Vince. Let me try to decompose a little bit for you. I said on a consolidated basis, there were some puts and takes, Higher commodity costs and additional costs for new facilities and launch costs for new programs. The Mexican labor law change was a negative in the quarter compared to Q1 and this is all compared to Q1 by the way. And we certainly benefited from additional tooling contribution. I did talk about Brazilian value added tax settlement. And then in Q1, we had a customer settlement that hurt margins, so that reversed in Q2. All of that that I just talked about nets to 0. But when you look at the various segments, it's a little bit different to sorry. I think what stands out to me, what I'll do is the biggest asset in that Certainly, it is a reduction in volumes and I attribute that all to the semiconductor situation. And How much of that is inefficient labor by starting and stopping and what that does to overhead? It's a real challenge to try to measure that. But I can tell you when I look at our Seating business, I think they've been disproportionately 2nd quarter. From a sales and a margin perspective, and that's because when you look at some of their larger programs, The volumes just have not been close to what the markets performed at. I think when you look at some of the others, I look at our Body Exteriors and Structures Group, I think the biggest negative quarter to quarter was higher commodity costs, and that comes primarily in the form of resin, with a little bit primarily resin. And in that one group, again, they're launching a whole bunch of new business. So That was a quarter over quarter drag on margins. Other than that, It is a pretty clean quarter and we would have had a different discussion if we didn't have a reduction in volumes. It would be pretty straightforward to talk about the quarter, but That's kind of what I see when I look at our business. And then looking at mix for a little bit, Dan, relative to North American production growth and European production Our top 30 programs did underperform. And you're right, you picked up GM, the impact of the GM trucks, but Yes, price of mid event is a big program. It was actually pretty significantly down in the quarter and a few others like that as well. So top 30, North America did underperform, like I said, in Europe a little bit as well. So I mean, it doesn't happen every quarter, but this quarter, it's a definite impact. So overall, I'd say it was negative. Great. And then just to clarify, commodity costs in the year, did you give an update on that? We talked about, I guess, in Q1, we gave some guidance on commodity costs. And as we look from where we were at the beginning of the year to now, There's been a little easing of commodity costs, probably a benefit of about $25,000,000 to $30,000,000 versus Higher expectations, but year over year still negative. And that benefit is primarily as a result of Great. Thanks. And then second question, if we could just zoom out a little bit and look at Seating. It's been That segment has underperformed the other segments a bit and I know that a large piece of it more recently has been on the volume side, but maybe you could just Give a sense on how seating is positioned today versus where it's been historically. Are you still Trying to gain additional share, are you onboarding new customers, the views on vertical integration there? Just a bit of a zoom out on where seating stands today would be helpful, please. Yes. Maybe I'll start Sorry, the numbers Swamy, maybe you can then talk about overall strategy. You'll recall in Couple of years ago, we talked about getting some new business with a European customer where It wasn't all about that, it was just in time, and that was going to depress margins, not necessarily impact returns on capital, but margins. So we were anticipating that and we talked about that as we look at successor programs, we're expecting that our content is going to increase. So our margin should expand. That's all kind of in line. The growth that 2019. As we outlined in our Investor Day or beginning of the year call, proceeding was still At least for the first half of the year, have been substantially underperforming on the revenue side compared to our other segments. They also have launch cost. So longer term, when I look at this business here and Look at overall margins, I expect margins to continue to expand. And just to remind you, when we We talked about growth in this business back at the beginning of the year between 2021% to 2023%, we're expecting growth of kind of 60% to 13% Swamy, maybe just talk about kind of where the group fits structure? Yes. If you just look at it as I would say seating is really good business and we are deliberate in looking at the programs and how we bring value to the table. And just looking at the overall picture of the vehicle and with our business and how we are addressing the new entrants, I think overall it fits very well. And I also talked about the business segment that is kind of agnostic to the megatrends. It doesn't mean that there's going to be no product evolution. Of course, there is going to be. But as The vehicles continue. We are going to have seats, right? So looking at the Baseline where we are and how we continue to grow faster than the market, I would 2019. Our next question is from Mark Delaney with Goldman Sachs. Please go ahead. Yes. Good morning and thanks very much for taking the questions. First question was to better understand what you're assuming with regards to your second half revenue outlook. If I look at the midpoint of the adjusted revenue guidance, I believe it implies a slight year over year decline in revenue 2H this 2nd quarter versus last year. So maybe you could talk a bit more around what assumptions are going into that both in terms of any content per vehicle benefits you may get in terms of outgrowth and And then what you may be assuming in terms of any headwinds in terms of potentially OEMs having partially built vehicles and you're Good morning. Let me try to give you some color there. I think when you look at 2018.8 percent to 20.3 percent. So the midpoint, which showed a slight increase in sales second half versus first half. When we look at overall content, and we made some comments How we've been growing relative to the market and grew a little faster than the market, which will imply content per vehicle growth In the Q1, a little bit behind in the Q2. But for the full year, we're expecting to be kind of in line or maybe a little So I'd say content for VFFL year over year really not much of a change, which is what We assumed at the beginning of the year and as you get out to 2022 and 2023, we start to see our content for vehicle growth over market Yes, if you look at production last year in the second half, North America was 8,000,000 units. We're implying about 7.4% for this year's second half. And I think if you look at last year's Europe, it was like 9.6% and when that were at 8.8%. So it's still a pretty significant I guess, Mark, I kind of look at Magna. But as I think about what's going to happen next year, sales are So strong, inventory level sales our customer sales are still strong. Inventories are low Very low, at historic lows. Interest rates are still at very good levels. So as I look into 2022 Could you go into some more depth about what you're hearing from your own semiconductor suppliers in terms of how the back half of the year may What sort of linearity are you expecting in terms of improved chip supply and when potentially the supply demand situation may ease? Good morning, Mark. This is Swamy. I think the semiconductor situation, I would say, is still dynamic and We have task forces kind of looking at every program working with the customers as well as the chip suppliers. We took the best forecast that we could and it's kind of a very dynamic situation on a daily basis to look at it. We've been Fortunate to continue to support our customers. We didn't stop any customer because of the shortage from our side, But it's really industry wide. So if you look at it, there seems to be a path in the next 3, 4 months, but we thought so last quarter. We got to continue to monitor this situation. We kind of start seeing a little bit of relief towards the end of the year. So that's It's very difficult to give a definite answer to how it works out. We already saw the production down by about 1,200,000 and 400,000 units in North America and Europe, respectively. 2019. Our next question is from Michael Glen with Raymond James. Please go ahead. Hey, good morning. First question, so when you're seeing the OEMs introduce EV variants like full battery electric variants on existing platforms that you're providing content on. Can you just Discuss like how does your content vary on those EV variants versus what you Are you indeed seeing an increase? Or is it does it stay relatively stable? Good morning, Mark Michael, sorry. I think if you just kind of look at it, there are some EV variants. There is a platform where you have an EV variant plus A normal, call it, propulsion system. When it's in hybrid, we are talking about the hybrid DCTs or some variant of a DCT, which gives them CO2 reductions. But when you're talking about full Bev, let's say, if you had an all wheel drive, 4 wheel drive system, we would be now addressing that with a 2019. So from a content per vehicle perspective, if you're replacing an all wheel drive, 4 wheel drive, it's higher With the e drive. If you're looking at a just a front wheel drive system, which was not an addressable market is now becoming an addressable market for us. So I would say its total addressable market perspective as the EV variants 2019. And if it is a replacement of an all wheel drive, 4 wheel drive with a primary and a secondary drive with All the feature functionality of connected powertrains and torque vectoring and so on, then the quantum per vehicle would be higher there too. And we talked about e beam as one technology where we believe that OEMs would have a chance to get an EV variant without having to significantly change their existing platform. So overall, if you sum it up, with EV variants increasing, Our addressable market and content per vehicle that we can address would be higher. Okay, perfect. And then Sorry, Michael. I was just going to add, you may not see it all in our sales figures. There'll be an element that's 2019. Like LG that's unconsolidated, but we're going to keep track of that and provide some color on that as well as you can see the incremental sales that don't go through our P and L. Okay, perfect. And then just a capital allocation question. I mean, just when we look at the Veoneer transaction. And I hear you make the comment during the opening remarks about Magna being focused on generating So when you look at the amount of capital that was going that could potentially go towards How do you assess that return on capital versus say, allocating such an amount to a substantial issuer bid for the stock? Good morning, Michael. I go back to kind of what I've been talking about for years, so I'm just talking about it Recently, just kind of overall philosophy. And if you look at where Magna is and where the 2023 is and where it's growing and the position we hold and our unique capabilities for the right opportunities. If we're investing in the business, we're creating for the right returns, obviously, we're creating And I call it sustainable value, because it's just going to it's kind of each and every year we're generating value. And that's our preferred course of auction. And to the extent that We have excess liquidity after we're paying dividends to buyback stock. And I look at the buybacks of the stock, You're paying it somewhat to reduce your share count and return capital to shareholders, but that value doesn't continue to grow. 2019. So our preference and our approach and our strategy is to stay focused on 2019. Our overall product strategy continue to fill the gaps or complement what we do And invest in the business, but we're going to be prudent about that. And if it doesn't fit our strategy or doesn't mean our returns And we have excess liquidity, then we return it back to shareholders. We've been doing that for years, and I don't see that changing at all at Magna. And this is all the time we have for questions. Mr. Kotsigiri, I'll turn the call back to you for closing remarks. Thank you. Thanks everyone for listening in. Despite ongoing Semiconductor related production challenges. We had a good quarter, solid quarter despite the short term impacts. We are encouraged by the mid- and long term auto environment, and we remain focused on executing our plans and delivering solid results. Thanks again. Enjoy the rest of your day. And that does conclude the conference call for today. 19. We thank you all for your participation and kindly ask that you please disconnect your lines. Have a great day everyone.