Good day, ladies and gentlemen. Thank you for standing by. Welcome to Emerson's Investor Conference Call. During today's presentation by Emerson management, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. This conference is being recorded today, February fourth, 2020. I would now like to turn the conference over to our host, Pete Lilly, Director of Investor Relations at Emerson. Please go ahead.
Thank you so much. Welcome everyone to Emerson's first quarter 2020 earnings conference call. I'm joined today by David Farr, Chairman and Chief Executive Officer, Frank Dellaquila, Senior Executive Vice President and Chief Financial Officer, Michael Train, President, and of course, Tim Reeves, Director of Investor Relations, Emeritus.
Emeritus? I graduated.
Promotion. I encourage you all to follow along in the slide presentation, which is available on our website. I'll start on slide four with the results of the quarter. Underlying sales growth came in slightly below expectations, flat year-over-year, driven by softness in global discrete markets and North American upstream oil and gas activity. Despite lower sales, operations executed well to deliver adjusted EPS of $0.67, spot on the guidance we provided in the fourth quarter call. Automation Solutions underlying was up 1%, which was somewhat below management's expectations, primarily due to the aforementioned U.S. discrete and upstream market softness. Demand in other global process and hybrid markets remained stable. Importantly, we also saw several large LNG projects book in the quarter after delays from the second half of the last year.
Commercial & Residential Solutions was in line with expectations, down 1%, reflecting continued softness in global professional tools and cold chain markets, somewhat offset by stronger markets in Europe and Asia, Middle East and Africa. The company initiated $97 million of restructuring actions in the quarter, well above the $70 million discussed on last quarter's call. These actions, combined with incremental actions from the second half of last year, are expected to drive improved profitability in 2020. Cash flow performance was solid in the quarter, with free cash flow up significantly versus prior year, reflecting 94% conversion of net income. Turning to slide five, we'll review the P&L. First quarter gross margin was roughly flat at 42.4%, as favorable price cost was offset by unfavorable business and regional mix, primarily due to lower U.S. shale and highly profitable upstream and discrete markets.
SG&A, as a percent of sales, increased 110 basis points to 27.1%. However, this includes 150 basis points of unfavorable impact from higher stock compensation due to higher stock price. Adjusted EBIT and EBITDA margins, which exclude restructuring and related costs, declined 180 basis points and 170 basis points, respectively. Importantly, these changes include 220 basis points of combined unfavorable impact from stock compensation, pension, and FX losses. Excluding these impacts, adjusted EBIT and EBITDA margins were up 40 and 50 basis points, respectively, reflecting strong read-through of prior year restructuring actions. Turning to slide six. From a geographic perspective, we saw mixed underlying sales results in Q1. The Americas were down below expectations due to weak U.S. upstream oil and gas and discrete end markets. The United States and Canada were down 3% and 1% respectively, and Latin America up 4%.
Europe was down slightly, with 2% growth in Western Europe offset by sluggishness in Eastern Europe. Asia, Middle East and Africa was up 6%, led by China up 6%, and strong growth in the Middle East. Turning now to slide seven. Total segment adjusted EBIT margin dropped 40 basis points to 15.4%, reflecting the negative impacts of foreign transaction losses, as well as unfavorable business and regional mix. These items totaled 80 basis points unfavorable impact. As previously mentioned, stock compensation costs increased due to a higher stock price, and pension costs increased due to lower discount rates. Corporate and other costs, excluding restructuring and related costs, was favorable. Q1 cash flow performance was solid. Operating cash flow increased by over 30% to $424 million, and free cash flow of $310 million represented 94% conversion. Turning to slide eight, we will bridge first quarter EPS.
Tax, stock compensation, pension, and foreign exchange transactions totaled $0.13 headwind for the quarter, which was in line with guidance. Operations, share repurchases, and lower interest costs delivered $0.05, also in line with guidance, to net $0.67 of EPS on an adjusted basis. In summary, operations and balance sheet delivered our target EPS contribution on lower than expected sales. We will now review the business platforms, turning to slide 10. Automation Solutions underlying sales came in somewhat below expectations at 1% growth for the quarter. December trailing three-month underlying orders were up 2%, driven by several large LNG bookings that had been delayed from the second half of last year. Of note, backlog grew by 7% to nearly $5 billion on a sequential basis compared to last quarter. The Americas' underlying sales were down 1% as discrete and upstream markets continued to soften.
Europe sales were also down 1% as low single-digit growth in Western Europe was more than offset by weakness in Eastern Europe. Asia, Middle East, and Africa grew 6%, led by China and the Middle East. Our long-cycle businesses continued steady growth, with both systems and Final Control up mid-single digits. Adjusted EBITDA margin was down 60 basis points, reflecting 50 basis points unfavorable impact of FX transaction losses, as well as unfavorable mix resulting from the year-over-year decline in the more profitable North American upstream and discrete markets. Excluding these impacts, the business delivered improved adjusted segment EBITDA margins on lower than expected sales, reflecting the benefit of 2019 restructuring actions. In the quarter, restructuring actions totaled $83 million across the platform.
These actions, together with approximately $30 million of incremental actions in the second half of 2019, are expected to support improved adjusted segment margins on flat to slightly positive underlying sales for the year. Now turning to slide 11. Commercial & Residential Solutions underlying sales were down 1%. December trailing three-month underlying orders were also down 1%. The Americas' underlying sales were down 3% as North American residential HVAC markets remained soft and slower industrial markets weighed on professional tools and cold chain demand. Latin America grew by 6%. Asia, Middle East, and Africa grew 5%, with mid-single digit growth across China, the rest of Asia, and the Middle East. Commercial & Residential Solutions adjusted EBITDA margin increased 90 basis points, primarily reflecting favorable price cost and the benefit of prior year restructuring actions.
For the quarter, restructuring actions totalled $10 million, combined with approximately $5 million of incremental actions from the second half of 2019. We expect improved profitability for the year on slightly negative underlying sales. Turning to slide 13, we'll cover the updated guidance. Despite some progress toward trade resolution, we continue to expect geopolitical tensions, pending elections, and corporate focus on cost-cutting to drive a low to no growth environment in 2020. For the full year, there is no change to our expectations for underlying sales. Of note, this outlook does not include any potential impacts from the unfolding coronavirus, which will be discussed later in the call. As highlighted on the last call, Emerson has managed multiple economic slowdowns in our history. In the current environment, we have shifted our management investment focus from a growth mindset to a cost mindset.
We initiated this process last year, increasing restructuring investments $35 million in the second half of 2019. Today, we announce the next phase of that plan. For fiscal year 2020, we expect total restructuring spend to be approximately $215 million, of which $175 million will happen within the Automation Solutions platform. Commercial & Residential Solutions and corporate will each take $35 million and $5 million of actions respectively. Of note, during our upcoming investor conference, we expect to present in additional detail the outcome of the board's review announced on October 1st, as well as update the longer-term guidance framework beyond 2020. We now expect adjusted EPS in the range of $3.55-$3.80, an increase of $0.07 at the midpoint, reflecting the benefit of 2020 cost actions. We expect minimal net cash impact from restructuring actions.
Operating cash flow is now expected to be $3.15 billion, and CapEx spending is increased to $650 million, leaving our free cash flow target unchanged at $2.5 billion. Please turn to slide 14. This slide bridges our 2020 adjusted EPS guidance. The starting point for the bridge is 2019 GAAP EPS of $3.71. Walking across to the right, we have adjusted 2019 EPS of $3.69, which excludes $0.14 of favorable discrete tax items and adds back $0.12 of restructuring charges. Continuing from $3.69, we expect a total of $0.26 of headwind this year for tax, FX, stock comp, and pension. Largely offsetting these headwinds, we now expect $0.15 of operational improvement on flat to slightly down sales, up from $0.08 discussed in our prior guidance, reflecting the benefit of 2020 restructuring actions.
We also expect $0.09 of EPS from improved debt cost structure and a strong balance sheet with $1.5 billion of planned share repurchases. This gets us to a full-year adjusted EPS midpoint of $3.67. Please turn to slide 15. This slide lays out our second quarter 2020 guidance. The underlying sales outlook for the quarter is flat, reflecting continued headwinds in North American upstream and global discrete markets. Note that this outlook does not include any potential impact of the coronavirus. Despite continued North America mix headwinds, we expect total segment adjusted EBIT margin up 20 basis points and EBITDA margin up 60 basis points, driven by the benefit of prior year restructuring actions. We expect adjusted EPS of $0.81, which excludes $50 million of planned restructuring actions in the quarter. Please turn to slide 16.
This slide lays out the first and second half adjusted EBITDA margin progression for our business, assuming the midpoint of their respective underlying sales guides. We expect first half restructuring spend totalling approximately $145 million across both platforms. These investments, together with easing mix headwinds and favourable price cost, drive significant margin improvement in the second half, with Automation Solutions adjusted EBITDA margin up approximately 150 basis points and Commercial & Residential Solutions up approximately 100 basis points. We plan to exit 2020 with an improved cost structure that yields stronger earnings and cash as we go forward, and we look forward to laying out our long-term plans at the investor conference on February 13th. Now, please turn to slide 18. With that, I will turn the call over to Mr. David Farr.
Thank you very much. I want to welcome all the Emerson investors this afternoon and the analysts that follow Emerson in our markets we serve as we discuss our first quarter results and what we expect for the full year. I also want to thank all the Emerson leaders around the world and for all the Emerson employees that made this quarter happen and are implementing the total aggressive cost resetting programs to make Emerson stronger, more competitive as we deal with this challenging and uncertain global industrial and commercial markets. Thank you very much for your efforts. As you can see from the first quarter press release, it's been a busy first quarter executing around our two-and-a-half-year cost resetting efforts. As you know, we accelerated the fourth quarter cost resetting by about $35 million.
That money and those savings are flowed into this year, built into the plan originally and from a savings dollar for dollar, maybe a little bit more than a dollar for dollar based on the headcount reduction program. In the first quarter, we did $97 million. Part of that included corporate, where we took down the Emerson plane fleet to five, and we sold the helicopter. We are expecting for the total year around $215 million of restructuring. In total, you'll see next week well over $420 million, $425 million of cost reductions during this time period, over this two-and-a-half-year time period, with savings well north of $425 million. We're expecting incremental savings on the first quarter restructurings around $50 million.
The big issue now is we're starting to attack and go after the excess facilities. The higher cost structures will pay back more in 2021 and 2022. We're going to continue to drive, as you can see, well into the second half this year and well into 2021. We will have over dollar for dollar savings when it's all said and done. The execution is going pretty well at this point in time. I'm pleased with it. We reviewed it in great detail yesterday with the board. Well more than three and a half hours of details with the board, as they understood what we're doing to make sure we're taking permanent cost actions, permanent cost setting, and not damaging the core quality of investments, the technology, and the customer service support that we have out there.
Not damaging the long-term viability and franchise businesses that we have at Emerson. As you know, we have our annual investors conference next week in New York City on February 13th. Not being on Valentine's Day is unusual for me, so you guys make sure you do everything special for your spouse that evening. We're going to be doing our investors conference in the morning. Details around the global cost resetting to drive the new peak margins will be laid out very detailed with a very little growth environment. You'll see what we're trying to undertake and how we're trying to do it, the timing, the annual savings, when they're flowing in, when we're going to reach those margins from an EBIT basis and an EBITDA basis.
At the same time, we're taking very significant actions around the corporate headquarter structure, not only here in St. Louis, but around the world as we look at best ways to optimize our cost structure, looking between the Automation Solutions and the Commercial Residential. This is driven internally by the key leaders, the business leaders, and the corporate leaders, but also with the support of McKinsey as we looked at how we could optimize Emerson's efficiency, effectiveness, and profitability to drive record levels of margins by each of the major business units. Bob and I will put more color on this next Thursday, but we're having very good progress. As you can see, in the second half of this year, Automation Solutions margins are starting to pop up.
Bob took after this last year, Bob and his team, Bob Sharp, and they're already seeing improvement in the underlying profitability of the businesses. The actions are taking hold, and they are doing a good job, and we'll talk a lot more about that as we go forward. As the global Emerson employees know, and know full well, we are fast in the execution mode right now, and we cannot depend on the fact that there's no growth out there. We are figuring out how to grow our profitability, how to grow our earnings, and grow our cash flow in a no growth, low growth, or maybe a negative growth environment. I'm ignoring the coronavirus right now.
Both Mike Train and I will talk a little bit about this and what we see at this point in time, but it's definitely going to have an impact in the near term, medium term, and potentially long term as we look at this. As you can see, our total orders are trending in the +2 , -2 range right now. Trending right now towards the zero, as we look at the current month and the current quarter. It tells me that we are trending very tightly in the range that we've laid out for underlying sales. We continue to look for those catalysts that drive up in North America and other markets of the world. As I look at the world order pace, I look at the sales pace right now, North America is weak, weaker than we thought. Western Europe's about in line 2%-3%.
Eastern Europe's down, primarily driven by Russia and Turkey. The Middle East and Africa, which we were just in, is doing better, and several large projects are happening underway. In Asia Pacific, as of the middle of January, was trending pretty well and had pretty good growth in the first quarter, and we still look at pretty good growth for the full year there. My concern as I look at the next couple of quarters is I don't see the catalyst to drive the fundamentals to pick back up in the U.S. at this point in time. I don't see Canada, nor do I see Mexico and other parts of Latin America. What we're trying to do right now is control our destiny through our costs and cost resetting to figure out how to drive better earnings and cash flow through this cost reset.
If growth comes and we get it, so be it. We're going to have to fight, I believe, all year long for incremental pockets of growth, and things are continuing to happen to us. You can see, the global markets are not easy at this time. They're definitely not easy. I do see opportunities for growth out there. I don't see how and when we will get to those levels at this point in time. I know people believe there will be a stronger second half. From my standpoint right now, I'm not betting on that. This company is betting on very low growth, moderate growth, or no growth, and we're driving the actions necessary around that. Operating cash flow will be good. You saw the first quarter, we had very good operating cash flow for the first quarter.
Some of that was trapped, in my opinion, working capital on the balance sheet. We also had some cash flow based on taxes. Frank had done some restructuring, Frank and his team, restructuring taxes that flowed through in that first quarter. That should continue to help us as we go into the first half of this year. I think our cash flow is going to be up nicely in $3.15 billion-$3.2 billion. As we reviewed with the board and how we see this, assuming no significant acquisitions, we're going to pay back $1.2 billion in dividends. We're working on our 64th year of increased dividends. Our dividend ratio, as you look at free cash flow, is dropping down below 50. Our share repurchase somewhere around $1.5 billion, assuming no significant acquisitions at this point in time.
Close to 85% of our cash flow this year will be paid back to shareholders in support of what we're trying to do with our shareholders. Again, if we have the opportunities for acquisitions, we'll take them. We're also assuming higher capital spending this year. We've raised capital spending up to that $650 million range in support of the actions we're taking as we build new best cost locations around the world as we continue to reset our facility structure and our cost structure. Our acquisition funnel right now is pretty small. People are very nervous about selling assets at this point in time with the uncertainty around the cycle, now with China situation.
We're in the process right now of closing two nice little bolt-on acquisitions worth about $125 million of value purchase price, both one in Automation Solutions, one in Commercial & Residential Solutions, both in the control element part of the pyramid that we always talk about. Mike and I are joined, and we're going to tag team a little bit on China, give you some insights of this. Let me give a brief overview. I'm going to turn it over to Mike, we'll go back and forth here. The China situation first, I want to say something to all my employees. We have 11,000 employees there. We are in constant touch with them. We have the ability to communicate to 80,000 of our employees on an ongoing basis every minute, every day.
Our hearts are going out with all the people that are locked up in their apartments right now. Fortunately, we are all safe at this point in time, but clearly they're in their apartments. They're working, communicating, obviously by phone, by email, as they try to figure out how do we get ready to get going as we come out of this. Our thoughts are with them at this point in time, and it's a concern that we have relative to all our employees, not only there, but also around the world. As I look at this right now, it will be a negative impact. I'll let Mike go through some points here.
From my perspective, assuming that they do allow us to start manufacturing again, and we start seeing a supply chain again on February 10th, I still believe we'll have somewhere between $50 million and $100 million of sales impact. Folks, I'm giving you my feel for knowing China and my feel for what I think is going to happen. If this extends, that number will go up, I'm just giving you my feel. As I look at the sourcing situation, we'll show you I am concerned about the startup of this, Mike will give you some numbers around that. I'm concerned about the customers and how fast they'll come back up and live.
We also have a lot of our customers that do a lot of manufacturing and shipping out of there, and we have components we bring there, and I'm concerned about some of that work going on. My perspective is, as I look at the number of $50 million-$100 million right now, some of that will be permanently lost, depending on Bob Sharp's business in the heating system marketplace. Once the heating system's gone, you're going to wait for the next year. I firmly believe that Automation Solutions, assuming this doesn't go too long, should make it up before the fiscal year is done or within the calendar year. Again, what I look at right now is the feel that we have based on how long we're going to be shut down and our sort of estimate of how quick this thing will start up.
Mike, why don't you give a couple of facts, and then we'll go back and forth and talk a little bit for you.
All right, great. David, great to be with everybody this afternoon. Thank you very much. First of all, I also want to share my thanks to our China team. Our 11,000 employees. We recently celebrated our 40th anniversary in China. Today we have a terrific business in China, nearly $2 billion in size, and again, almost 11,000 employees. We had a solid Q1 in both platforms in that mid-single digits that Pete talked to.
Secondly, January 15th, we saw the signing of the US-China trade deal, which was pretty important. That Phase One deal is pretty important to us. I think there were announcements on both sides that there'd be phase two discussions commencing shortly. We're excited by that. It's going to take some time, but we're excited by that. Wanted to highlight that. Just about at that same time is when people were recognizing that we have this coronavirus issue. Our employees went out on January 24th for their Chinese New Year holiday. They've been out now for 11 or 12 days. Currently, under the government regulations and guidance, we intend to restart our facilities next Monday on February 10th, but we need to make sure that happens, and we'll be watching that. I think we can report on that a little bit next week.
Yes, we can.
I think some of the issues that we're going to face are going to be around as you restart these facilities. Obviously, we're going to have to manage our facilities. We have the temperature monitoring. We have travel restrictions. We're doing everything we need to manage. Our supply chain, I think, will be something that despite best efforts, it's just going to be a rocky start.
Yeah
the supply chain, sub-suppliers, and all those kinds of things.
How much do we have in our supply chain right now, both for China, Mike?
Our supply chain in China is about $750 million. $500 stays in China, $250 actually goes out to the global business. We'll have impacts in China, we'll have impacts beyond China.
Correct
In terms of that. Again, as you were highlighting, we have several global customers that use China to build their projects, their modules, that kind of thing. We're going to see some impacts there that would impact business in other regions beyond China as well. We're starting off with kind of the view of what's going to happen here. I think next week will be a big, important week.
Yeah.
We'll learn some more things as we go forward, and then maybe we can comment again next Thursday.
We do that.
what's going to happen there.
Thanks. Thank you, Mike. As I look at this, I referred to the board yesterday and today. I've heard for the people, I'm aging myself here, the Apollo space programs. In the five or six minutes we have their re-entry blackouts. We are in that re-entry blackout period for China right now. We do not know what we don't know at this point in time. Clearly, the organization for China, who I know are listening on this phone or will be listening on this phone when they wake up, are doing everything they possibly can to get ready right now. I just know that the supply chain, the uncertainty, logistics, all these different things. There's a lot of moving parts. The sub-supply chains, the feeders to our supply chain. There's a lot of components here.
For people not to think that it would not be a negative short-term, I don't think they're thinking straight. It will be a negative. It will be a negative for the global economy. It will be potentially bigger if it doesn't get started, if the thing drags on a long time.
Yeah.
Right now, our feeling is it's not going to drag on, but we're just getting ready for it, and we're planning everything around this so we can execute and make sure they have the resources they need to get the job done. They're all geared up to come back to work. We'll give you an update on the 14th as we look at on the 13th, I'm sorry. We look at what happens the 10th, 11th, and 12th, because we'll get a good feel for this. My gut tells me it'll be a slow recovery, and they'll get their act together, and things will happen. Again, we are in that Apollo space program re-entry, 5 million-6 million minutes where no one knows what's going on. When I talk to you on the 13th, you'll get me, "Houston, we're live." We'll talk about that.
Again, that's how we see at this point in time. I don't want to scare people, but it's the facts. We do a very major business in China. We're very strong in China. We have a good sense of China. Mike and I both managed and worked in China for many years together as a team.
Yeah.
We spent a lot of time there. We're supporting our employees, we're supporting the government, and we're supporting our government as we try to work through this. That's where we sit at this point in time. We'll keep you informed. I want to thank all the employees. I want to thank the board's engagement, and I also want to thank the shareholders' engagements I've been having the last several months, and I will continue to have with our shareholders. With that, we'll open the lines, and we'll take some Q&A to see if we can get some clarity around the concerns and questions people have out there. Thank you.
We will now begin the question and answer session. To ask a question, you may press star then one on your touch tone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. The first question comes from John Walsh at Credit Suisse.
Hi. Good afternoon.
Good afternoon, John.
Thank you for all that color around China. I guess just maybe a point of clarification. You kind of detailed what you think the impact could be, I guess going through the prepared remarks and looking at the release, you have some comments that the guidance excludes any impact from the coronavirus.
Correct.
How do we kind of sensitize that? Is it in the ± $0.02 that you call around next quarter, or would it actually be greater than?
I would say it's in the ±$0.02 right now in that quarter, John, to be honest. We're assuming that we're going to have starting up in the 10th, February 10th, and we have a slow ramp. I see some potential impact to the year, that $50 million-$100 million. That ±$0.02 I would say covers that right now based on what we're seeing on slow start. If we're sitting there in New York next week and I'm saying, "Hey, this thing's really grinding, and we're having a hard time both with our customer standpoint and also our supply chain standpoint, and we'll have to reconfigure that." Right now, that's how we have this factored into play, that ±$0.02. You're exactly right.
Okay, great. Thank you. Just thinking about the margins for the quarter in Automation Solutions, you called out a couple of things in the prepared remarks. As I'm looking at mix for the balance of the year, thinking about North America, about discrete, about maybe some OE greater than aftermarket at some point here. How are you thinking about the cadence of seeing mix be, I guess, maybe less negative as we go through the year? How are you thinking about that?
What we would like to see happen in the cadence of the year, obviously the first quarter flow, North America was really very negative for us.
Right.
The discrete business was very negative for us relative to our discrete around the world. Very high profit business, both those. The cadence will be expect, I think we're going to continue to see strong KOB 3, which does help us. I think our cadence is that we see some stability within the oil and gas market space in North America, not growing, but stabilizing. As we look at the channels, as we look at our customer base, we'll see some improvement in the flow and discrete business, which will help us a little bit on the margin pressure. The rest of the help is going to come from all the restructuring. You called it right. The flow in discrete right now in North America is a very challenging issue for us. Was very difficult the last two quarters.
As we look at this right now, our plan is we see some stability, some improvement, which will help put a little margin wind to our back as we get into that second half. That's where we see it right now. Obviously, you'll be able to tell on our order releases and our comments basically how we're seeing it. If you start seeing us say, "Hey, things have stabilized, things are improved," you'll know, John, that we're seeing a little bit better improvement around that flow business, which is very important to us.
Great. Thank you for the color. I will pass it along.
Look forward. You going to make it next week?
Of course, I'll be there. Yep.
Okay. I'm bringing a Dune rocket book with me.
The next question is from Andrew Kaplowitz at Citi.
Good afternoon, guys. Can't wait for the rocket book.
Good afternoon, Andrew.
How you doing, Dave? I know you don't want to give us too much color or more color around the $425 million program before the Analyst Day. As your board and the consultants reviewed your cost, that opportunity from what it looks like in FY 2020 for the initial $215 million, it looks like the majority is focused on AS versus C&RS or corporate. When all is said and done, how much confidence does the program give you to get AS margin back up to the 19% margin that you've previously talked about?
Yeah. My confidence level in the board, as I said, the board spent three and a half hours on these actions we're talking about. The board confidence, my confidence is extremely high at this point in time. Extremely. We are taking serious actions. Bob's business start, as you well know, Bob's on his sixth quarter of negative sales. Bob started his cost out seven quarters ago. If you look back at his major restructuring, it actually started in late 2018, throughout 2019. What he's working on right now are actions around fixed facilities to try to take some fixed facilities offline and consolidate. His are a little bit different. That's why you're not seeing a lot with Bob right now. His business is over the next couple of years, and he'll be doing that fixed savings, and he's starting to get that.
I feel very, very confident. Now I'm involved in reviewing the work with Lal and Ram. The board and I looked at detail and we look at the costs. I feel very good about those savings. I feel very good about the bridge chart that we're showing you from the second half. I think the question the previous caller, John, asked is very relevant relative to that mix issue, which needed stability. As I look at the actions they're doing right now in the short term, because it's very much people-oriented, and then we're starting to take some of the longer-term facilities up. I feel very confident we'll start seeing that margin move up in the second half. Anything you want to add to that, Frank?
No. I think we've got a good plan going forward. We're looking for significant margin improvement in the second half. A lot of it does depend on the pace of business and the mix, but the restructuring actions will kick in, and we're pretty confident in the margin development as we go through the year.
McKinsey reported to the board yesterday in the work that we did between the two business units and corporate, and we have additional actions that we can deal with, probably starting in another couple of years. We want some backup stuff and some other opportunity. Let's put it this way, our plate's pretty full right now with actions we got going on. We're going to study and lay them out and see how we can start flowing some of them maybe later this year, early next year, to give us some protection in case, I'm not supposed to swear, but I'm going to swear, oh, happens. From my perspective, we're trying to cover that. McKinsey did a good job explaining how we're protecting what makes Emerson unique, our franchises and the corporation culture.
At the same time, look at how we can be more efficient and more effective. It was a very good discussion around from the board perspective as they pulled back the sheets.
Thanks for that, Dave. You mentioned when you released December orders that they did display some signs of picking up in AS and really in LNG, and you said that again today. AS backlog increased 7% sequentially. Did you see a bit of an uptick in project releases by customers? Do you think they've become more cautious again as coronavirus continues to spread? Maybe stepping back, it's been a little while since you updated us on the large project funnel. Do you still have $1 billion of projects that you've been told you've won but haven't booked, and is your project funnel improving, decreasing, or roughly stable?
You've hit the nail on the head here. The issue right now, I think the North America projects we're starting to see release. I'm very worried, as I'm sure my customers are worried about, because a lot of that business is going to be shipped, production will be shipped to China. My concern is if this coronavirus goes longer, it could delay those projects and it could slow down some of the projects we think that should be released here in the next couple of months. The coronavirus has an impact on many, many things relative to our business space. Therefore, that's why we are still convinced that the second half could be a challenge for us, and that's how we're banking on that zero growth, because of things like that.
The projects we see releasing, and I still believe will release, are the Middle East and India. Those projects are separate from the work going on in China. I would say the Middle East, Mike, you and I were just there.
Yeah.
China, I mean, the India projects. I feel good about those, and I think that will help us as we fill out that pipeline for the second half of the year, and then as we move into 2021. We've got to get some settlement, some resolution on the corona. We've got to get some travelling, and if we don't, then that's going to clearly slow down some of the North American projects.
Thanks, Dave. See you next week.
See you next week, Andrew. Thank you.
The next question is from Gautam Khanna at Cowen and Company.
Hey, good afternoon, guys.
Good afternoon, Gautam. How you doing, my friend?
Doing well, thanks.
Well, I bet your San Francisco friends out there weren't too happy about that Super Bowl game, were they?
I know, right? That was tough to watch. It was a meltdown.
You guys in the East Coast might even watch it because there's no East Coast team in there. Okay. What do you want to know, Gautam?
Not the same without the Patriots. Yes. Just curious, what is your expectation this year for KOB-1 as a percentage of Automation Solutions revenue?
Okay. I'm rubbing my rally monkey's head here a little bit, Gautam, so I can see. Okay. I'll give you my feeling right now, okay?
Okay. Yep.
I think we're going to be around 25% for KOB-1. I think we will be 57%, 58% for KOB-3. What does that mean? 18% for KOB-2. That's where I think we're going to be right now, and I don't have any crystal ball more than you, but that's where I see. I look at the pipelines, I look at the things we're talking about right now. We shared with the board, we're not backing off any of the KOB-3 investments. We have the organization highly motivated to try to take some market share on installed base. We're focusing other things to cut our costs around. That area right now is right for us to continue to take share, and we want to build that KOB-3 up strongly because those projects will start flowing, and it'll help us offset the margin dilution from the projects.
Got it. Not to steal thunder from next week, but how far out do you anticipate providing long-term financial targets? Is this a fiscal 2022, or what are you thinking?
I think we're going 2023. We're going to go 2023. We will bridge the $450 and what we see. As you know, I try to be honest, and transparency's sort of like the Iowa caucus. I will try to bridge for the 2021 numbers. These guys all can't handle this. They can't handle the truth. They could not be in any movies like me. We'll break that so you can see what the $450 we talked about, and then we'll talk about what we see going on going forward. You're going to see a much lower sales forecast as we manage the growth to keep it. We're focusing on the costs, and until I see some real strength in what's going to happen in underlying growth, we're going to keep that growth rate down and manage around cost.
We'll give you that bridge, but think 2023. Also, I'll tell you what I think about 2021 and what we told you last year. I always try to bridge what I committed to.
I appreciate it. Thanks. Good luck, guys.
All the best to you. See you next week.
Yep.
The next question is from John Inch at Gordon Haskett.
Sorry. Afternoon, everybody. Afternoon, Dave.
Good afternoon, Mr. Inch.
Good to-
Are you down in Florida, or are you a hard worker up in New York?
I'm hardworking in New York, although it's almost warm enough to be Florida.
Don't worry about it. The cold weather's coming. We're about to get three or four inches of snow. We had 70-degree weather. It's now raining and snow's coming tonight.
Okay.
It's coming your way. We're going to put it in a little Federal Express pack and send it to you.
Oh, I like those Inches. Okay.
Oh.
Whoa. Whoa.
Whoa.
No pun intended.
Did we pay for that? Well, you haven't paid yet. Okay. Just want to be clear. The 215 of restructuring, the 95 that we did last year, Dave, you talked about reviewing this with the board. Does this mean on the 13th when you talk about the board's review or you present it, that there's no new restructuring on top of that? The restructuring basically is now confined to what you've articulated, or is there more still potential?
No. What I just laid out for this year is locked and loaded. Okay, is it going to be 210? Is it going to be 220? Yeah, that's what we're talking about right there at this point in time.
That's the beyond.
We're going to show you 2021, and what we're going for, as you well know, we wanted to try to get everything done within a 24-month time period as best we could. We did a little bit last quarter, in the fourth fiscal quarter last year. We're doing a lot right now in this period right here in 2020. We're going to be doing a pretty busy 2021. When we get out of 2021, I want to move back towards our stability rate, run rate of restructuring, which typically is around $50 million. You're going to see how we go up to over $400 million total in the cycle and how we're focusing that. What we told you this year, that number ain't changing. Okay, I shouldn't say ain't, because it could change.
If we had something happens in the world relative to a major change and we have to refocus, something happens in China, something happens with the business. Right now that's what we've locked and loaded, and I would say that's going to keep our hands full for the year.
What we're going to hear then on the 13th, other than the traditional analyst review, the board, you guys have McKinsey in there. You've done this obviously top to bottom look through. Are you going to be talking about the strategy or the payback or if there's no more new restructuring, what should we expect?
We're going to talk about lack of restructuring. You're going to talk about outcome of some of the review of our businesses. We're going to talk about the cash flow generation and how we're going to allocate that cash flow generation for the next couple of years and some fundamental strategies. You're going to see a presentation on digital transformation coming out from one of Lal's key new platform leaders, which we built. Not platform, but business level units presidents. We're going to give you an update on the final control work that Ram's doing. Ram's going to give a presentation on where he's taking this to the next level. There's a lot, going to be a lot of strategy. There's going to be insights on what we're doing and how we're going to drive.
Fundamentally, I want you to walk away with the strategies in place, and we're driving costs, and we're going to drive around that business. We're also going to give you an update after 18 months of owning the Textron tools business. We're going to give you an update around the professional tools and how that program is going. Both VNC and the professional tool ones are going very well, and they're a key part of our repositioning effort to drive value. Tim's down here in the room down there. He's real happy because he's going to be part of that maybe. We're thinking about, there's a couple positions open, like HR and maybe plant management, and we're going to put him in there, see if he can do anything different.
That would be good.
Yeah.
I hear there are vacancies in Canada open, but anyway.
You know, Canada, his wife doesn't like cold.
He could buy one of your heat pumps. Okay, thanks very much, guys. Appreciate it.
That's a good joke. John, you got a new book on laughter or something like that? Jokes, you said?
I'm working on it.
See you later, John. I'll see you next week.
We'll see you then. Bye-bye.
See you.
The next question is from Deepa Raghavan at Wells Securities.
Hey, good afternoon, Dave.
Good afternoon.
Okay. Just a quick question on the clarification on the EPS range that you are maintaining. We understand the coronavirus impacts are not easy to assess. How does the 367 guidance at midpoint feel given what we know now? It looks like there's this virus impact, your North American region is trending below your expectations. Just curious, do these newer headwinds just clip the upper part of the EPS range but keep the midpoint intact, or is there any risk to the midpoint also at this point in time?
No, we wouldn't put a guidance out there. We can believe we can hit both ends of this, both the top and the bottom and the middle. Our feeling right now based on the trend lines is that the midpoint is the most likely. The upper point, even with the coronavirus, because we're assuming that it'll come back and production will start coming back up, and we'll start calling back some of the $50 million-$100 million of sales. We fundamentally believe that range is still viable, even with everything we face around the world at this point in time. The cost actions are happening. We get a little bit more cost out from the timing issue. There's always a lot of timing in there. It can help our margins and obviously help the EPS.
At this point in time, we're very comfortable with that range, and My highest probability clearly is at that zero, but I still see some potential on the positive side, too.
All right. Thanks for that. Another clarification question is on China again. Can you ring-fence what percentage of your China sales are profits are in the affected area versus your overall China exposure? I know you gave us a supply chain number and the impact to revenue.
No, I think we can't do that. That China sales are. We sell across all of the markets depending on which customer is going on right now. Is the customer going to be further west, east, north? No, there's no way we can break that down at this point in time. This one's going to be kind of fluid as we see things moving back up. I know our sales force are going to try to figure out how they can claw some of it back. They're going to be pretty energized to figure out how to get that business back, and it may come in a different location. There's nothing that says at this point in time.
All right. Okay, thank you. See you next week.
The next question is from Julian Mitchell at Barclays.
Hi, good afternoon.
Good afternoon.
A first question on slide 13, the restructuring costs and earnings tailwind. You have the restructuring costs of $0.26, the benefit this year of $0.07. That balance of sort of $0.19, do we assume that that's a mix of what's recognized in 2021 and also what's kind of reinvested in 2020 in things like the service network? Just wondered how we thought about that drop-through.
We will share with you how the savings are going to flow up in 2021 and 2022. I'm not sharing that with you yet, but we'll share that out with you. Say that again, Julian. Say that one more time.
Sure. It's just that on that slide 13, you're spending about $0.26 worth of restructuring this year.
Yeah.
You're recognizing $0.07 as the benefit. I just wondered that balance of $0.19, is it all coming next year or a portion of that $0.19 is reinvested into the business?
No. A big chunk of our savings will come next year.
Yeah
of the delta, the spend, from the standpoint, the area that we'll still have some delay out is going to be around the facility restructuring and the facilities, because that may not start flowing until early 2022 or late 2021. What we see there is the reinvestment's built into our core plan. We took the cost out and we've netted that out already. There's nothing else going on here from that standpoint. Those savings will flow, and there should be a significant increase in savings as we move into 2021, and you'll see that. As Lal talks about his repositioning effort. As you know, there's very little cash being impacted here because we've been pretty good about managing that cash flow and trying to keep it cash neutral. Those savings are multiple.
I would say 90% of those savings will flow back into 2021, and we'll still have a little tail hanging over us in 2022 from this restructuring right there you're talking about.
Thank you. That helps. My second question, just on the top line outlook in Automation Solutions, maybe just focused on the sort of chemicals and petrochem piece of Automation Solutions. Some companies last week, like AspenTech, sounded pretty negative on chemical spending. Some of the customers in petrochem, like Chevron or ExxonMobil, are under some pressure. I know you had good orders growth in your chemicals and petrochem piece in calendar Q4. Do you think that can continue through this year? Or it's more likely to get sort of lumpier?
Right now, we still feel pretty good about it. I think the first quarter number was a little bit stronger than I thought it'd be. We had some project business come in there. Julian, we're not too worried about that at this point in time. Now, I like to see another quarter of what's going on there. That business, that petrochemical, the chemical businesses, as we know, we serve a lot broader group of that customer base than an AspenTech will serve.
Our KOB 3.
Yeah. We got strong KOB 3 going on right there. I don't feel concerned about that. I'm more worried about the upstream side and the new oil and gas investments. I think what I see coming down the downstream right now, I feel better about it, and that's a very high KOB 3 marketplace. As I said earlier, when some of the guys asked me, I firmly believe we'll continue to see some improvement in KOB 1. I'm more optimistic about that.
Thank you. See you next week.
See you next week, Julian. Thank you.
The next question is from Jeff Sprague at Vertical Research.
Good afternoon, everyone.
Good afternoon, Jeff.
Hello. Hi.
Hey, are you in Florida? Are you up in Connecticut? Where are you? Are you paying taxes staying Connecticut, what are you doing?
I'm getting creamed by the SALT deduction issue every day up here in Connecticut.
That's because we carried you for so long. It's about time you paid your fair share.
Yeah.
You want to talk about paying taxes, come talk to me.
All right. You got a little bit bigger W2 than I do, Dave.
Oh, okay. Now we're playing the size card. Okay.
Size matters, buddy.
Okay. Jeff, take it out. Ask me a question before I get in trouble here.
I guess this kind of dovetails off an earlier question, but just kind of thinking about incrementals. Obviously, if we're in a no growth environment, incrementals is kind of a non-concept, I guess, right? Are you suggesting to us, though, that we should assume you do some kind of normal 30% or so incremental on growth, and we can drop at the end of this two or three-year period of time, $425 million of savings on top of that?
Yes. That's what we're talking about doing here. We're going to have the incremental growth of sales. We'll show that to you as we lay out our plan, and then obviously the restructures that we're going to flow through. Someone, I think Julian just asked me about the reinvestments. We'll lay that detail. We went through that with the board because the board's very interested in making sure we don't cut key programs long term, but we're trying to structurally make some changes here so that it does flow through. The key thing right now is we're banking on very little growth here for the next 12, 18 months. That's the key issue.
Yeah. That 30-35, is that kind of the ZIP code you're comfortable with for incremental?
I think what we're building on is 30% from that standpoint. That's what we're building on, Jeff.
Yeah. Hey, then on the LNG stuff. It was good to see some of the orders come through. I was wondering two things. Was the stuff that was released and hit your order book deliverable from a revenue standpoint for 2020 as it currently stood?
I don't think we'll see any deliveries on that. I think you could have some progress payments and some of the stuff.
Yeah. Stuff that went to orders.
Yes
we'll start working on.
We will probably have some progress payments in the latter part of 2020. They'll be more flowing into 2021. As you well know, the way these bookings will go, you'll see more coming. It goes, obviously, the compressors in the big LNG projects are systems, then the control valves, then instrumentation. We are in the early stages of this four-way right now. We're anticipating here in the next two, three, four months a continuation of booking some stuff. I wouldn't see that we'll book many sales this year be more than 2021. I guarantee you we'll have some progress payments probably on the systems in late this year.
If you thought of your total scope on these projects, kind of total Emerson scope, what have you booked so far? We're talking only 10 or 20% of the project value so far?
Very small.
Very small.
Yeah.
Very small. That's one of the concerns, I think. I can't remember which of you guys mentioned this. My concern is this whole coronavirus, could that slow down the process here a little bit again? We've got it going again with the trade deal that Mike mentioned. There was the trade first Phase One, now the coronavirus. Will that slow things down again? That's always a concern of mine. That's why we need to get through this, we can get a little bit more visibility on what everyone's going to do. Right now, we should have a lot more bookings around those major projects.
All right. Great. Thanks for the color.
Okay. Take care, Jeff.
The next question comes from Steve Tusa, J.P. Morgan.
Hey, good afternoon. This is actually Pat Bammann on for Steve Tusa.
Oh, hey, Pat. How you doing?
Good. How you doing?
Not too bad. Are you in training today? Is that what's going on here? Is that why Steve sent me a text, to harass you? Is that why? I was wondering why he sent me that text. Make sure you really harass him.
No, Dave. No, Steve's with his second love. He's working on the HVAC stuff today.
Yeah.
Down in AHR.
Okay, good. Okay, let's go.
Yeah. He gave me an opportunity to harass you. Hey, on the restructuring, can you explain why you're seeing minimal net cash impacts from the actions you're taking? What was the comment on the cashflow-based taxes you made about helping results?
Yeah. Go ahead.
Yeah. This is Frank. There's a lag on the spend versus when we book the expense that's pretty significant as we get out of the gate here. A not insignificant portion of the restructuring is non-cash. It's facilities, it's asset write-downs, and things of that nature. When we wash it all through, we think the net impact in 2020 will probably be not terribly significant, less than $50 million.
Yeah. A lot of times in the people, which was our front-load late last year, earlier this year, there's cash up front, but eventually you get some of that cash back because you're not paying.
Sure.
It washes out, and right now, in cash generation's pretty good. The net's going to be pretty neutral. The tax is just basically some work that Frank's been doing relative to some of our international subs as we go through this process.
It's just ongoing reorganizations that we've been doing. We've had several discrete tax benefits last year. I don't expect them to be the same magnitude this year, but we will have a little bit here and there, and we did have a cash tax savings that actually went through into the cash flow in the first quarter.
What will be the net cash out for that $425 you mentioned?
Oh, I don't have the number off the top of my head. Frank, do you have a rough number?
I would say in the end, 80, 85% of it is probably going to be cash.
Over time. Yeah.
Over time.
But again, I-
It's lumpy. I mean, the timing is the key.
The key issue there is that the sooner you get some of the cash impact when it's done, the faster you get the cash payback. They pay it quickly. The facility ones are the hardest part because the cash goes out, and then you don't get the savings for a long time.
Okay. Maybe switching gears, just can you give us an update on what you're seeing in res AC markets in North America? What did the business do for sales in the quarter, and kind of what's your outlook there for this year?
North America is still in a tough zone right now. We're sort of in the middle of winter here. Flat to slightly down. It's hard to say how fast. The one thing I like is the residential marketplace construction has been good. That's a good sign. Typically, we start seeing some payback and some improvement here as we get into that March time period. It's not going to be much of a change until we get into a little bit warmer weather. We had a good quarter in Asia and China. That was before everything happened there. That bothers me. I'm a little bit concerned about that now as we come out of it. We hear from Xi . He's going to try to pump up the financing and try to get some spending going to get the economy going.
Typically, that goes after the markets the Commercial & Residential Solutions guys go after versus the Automation Solutions guys going. Right now, our HVAC business in North America is weak, and we're forecasting probably our sixth down quarter in total for Commercial & Residential Solutions globally. The question is, can we see some improvement as we move into the second half of the year?
Did you see anything in the orders in January out of China that makes you concerned at all about the business there? Is it more just like what you expect?
They were pretty much what we expected. It was slightly negative. It was not that good. Again, it's a short month because it's the Chinese New Year.
Kind of off.
From that perspective, it's a pretty small month. I'm really worried about because we're trying to take orders over the phone right now. We're still live, but there's not much business going on. I'm really worried about as we get into this post-February 10th, as we start seeing what people do, what happens. That, it's sort of live here after that February 10th time period comes up for the next two or three weeks to see if there's any slowdown or pick back up. We'll see.
Okay, great. Thanks for taking my question.
No problem.
Appreciate the time.
The next question is from Joe Ritchie at Goldman Sachs.
Thanks. Good afternoon, everyone.
Good afternoon, Joe.
Hey, Dave. Just focused on Automation Solutions for a second. Really just trying to think about the margin step-up expected in your fiscal second quarter. Clearly, there's definitely some headwinds out there. We talked about coronavirus. I'm just curious, are things expected to get much better in fiscal 2Q versus fiscal 1Q from a mix standpoint? Secondly, clearly, you guys took a lot of restructuring actions here in the first quarter. Do we start seeing a pretty sizable benefit from those actions in fiscal 2Q?
Yeah. Okay, did you back into auto sales margins in the second quarter? Is that what you did?
Yeah.
You can back into them.
You have your margins up.
You can do a quick CapEx. You can back into it. There's two things. One, Automation Solutions, if you think about progression, our second quarter sales typically are seasonally higher, obviously in the second quarter. We are expecting some stability around the mix of business around that flow in the discrete business. That's normal for us. We've obviously starting to get some savings. Some of the $35 million that we spent aggressively in the fourth quarter, most of that was around Automation Solutions. Obviously a lot of the $97, over almost, I think $85 of it was around Automation Solutions in the first quarter. Those guys are going to start seeing that benefit more and more about that as they go into that second quarter and clearly ramps up into the third and fourth quarters.
That's how we see it right now. The savings are happening because these are really near-term cost actions they're taking.
Okay. All right. That's helpful. Then I guess just my one follow-up, I saw that there was no change to the buyback portion of the bridge. I guess the question I have is, look, your balance sheet is in great shape. You guys have the opportunity to toggle it up if you want to and be a little bit more aggressive with the buyback. I guess at this juncture, what's holding you back from potentially doing a little bit more?
First of all, I think if you look at our history, we buy back substantially more stock than most people. Secondly, we also continue to want to work on the acquisition front and investment capacity. If we feel that we don't have the opportunities, we'll continue to take that buyback up. For right now, if I look at what we've bought back the last several years, it's been a pretty high pace, and I don't see any reason to take it any higher at this point in time. The Board always reviews that. If we see the acquisition front stays as very moderate, then we're going to have the situation coming forth that we're going to have to increase the leverage in the balance sheet. Keep in mind, I said it again, we're already paying back shareholders 85% of our cash flow in 2020, 85%.
That is a good number.
That's a big number. All right. Appreciate it.
Thank you.
Thanks, David.
Our last question comes from Robert McCarthy at Stephens.
Good afternoon, everyone.
Good afternoon, Rob.
I guess the first question, have you had any contact with the Chinese authorities about the nature of the response, what they need to do, any kind of comfort around that? Obviously it seems to be there's definitely a credibility gap that seems to be emerging over the last couple of days, and any thoughts around that, just given the fact that you have substantial tendrils in China?
Our organization, we have a leadership there. The team's in constant contact with the Chinese Government, and Mike and I in the top OCE get a daily report back out from what they're being told by the Government, both at the national level and the local level. I disagree that the Chinese Governments are misleading people. I feel they've been very open to us. Now, everyone wants a hard answer, but you can't get a hard answer in something that's moving like this. As I look at the consistent information I'm getting from the Government and from the regional governments to my people and my leadership team that reports into Mike, I feel very good about it. My comfort level right now is pretty high.
The key issue for me is can they get the plant there, allow the people to go back to work if nothing else major happens here, and then can the supply chain start mobilizing? Logistics could be a problem as things start flowing around. It's just a matter of getting planning, and I know Mike and all the guys and gals across China are working on this pretty hard right now. My comfort level is pretty good, assuming they can hold that 10th. If it goes to the 11th or 12th, that's not a big deal. Within that couple of days, that's Rob. I think we're ready at this point in time. Again, it goes back to the Apollo moonshots when it comes back to the United States.
We're in that blackout period right now, the re-entry blackout period for about the next five or six days.
Yeah. To that point, it seems like your guidance outlook could have two very almost binary outcomes or trajectories. One, you could see a global synchronous downturn, real problems with the supply chain, demand destruction in oil impacting your projects to a material degree. Obviously high visibility on you in terms of your cost actions. Conversely, if we do have a quicker than expected resolution to this, you could see a pronounced rebound in oil, which would probably be broadly stimulative of upstream projects. You could see an upside to growth overall, and obviously maybe a tendency M&A. That obviously puts a lot more pressure on you to deliver the restructuring in what would be fundamentally a different demand environment.
Correct.
How do you square the circle in terms of where we could be?
First of all, I'm not in the Pandora's box, which is your first thing, where you might as well throw in a couple locust attacks and maybe some ships going down and planes going down at the same time there. I'm not in that side of the equation. I could say there could be some positives as this thing recovers pretty quickly. I feel that. I'm more in the status right now that this thing slowly recovers and regrowth comes back. We probably lose a couple points of the high single-digit growth that we were talking about for China, which takes a little bit away from us a little bit. I'm more in the glass half full than the glass empty or glass all full, which you just would.
Even if they do stimulus, it's going to really be more.
Yeah
late to next year even.
I know everyone's trying to second guess this. I think you got to wait. Those dates, the 10th, they've been holding here pretty consistent. If those things hold, and it's, say, the 10th or 11th going back to work and we start seeing the plants up and running, I feel good about it. Now, if the plants start starting up and they start failing, that could be a good thing for us because it's obviously business. I think we got to watch that. You got to listen to all the people you follow and listen to them and see how things are starting, and I think that'll be the key indication. Are they starting up or not starting up? Are they getting the supply? I think you're going to hear people communicate that pretty loud and clear.
Thank you for answering my questions. I'll see you next week.
See you next week, Rob. All the best. I want to thank everybody. Again, I want to thank the global organization. I want to thank the investors and the shareholders for supporting us as we go through this process. Thank you very much. Now bye.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.