Linamar Corp

TSX:LNR

Earnings Call Transcript 2019-Q1

[Operator]

Good afternoon, my name is Robert, and I will be your conference operator today. At this time, I would like to welcome everyone to the Linamar Q1 2019 Earnings Call. [Operator Instructions] Linda Hasenfratz, Linamar's CEO, you may begin your conference.

[Linda S. Hasenfratz, CEO & Non]

Thanks very much. Good afternoon, everyone, and welcome to our first quarter conference call. Joining me this afternoon are members of my executive team, Jim Jarrell, Roger Fulton, Mark Stoddart and some members of our corporate marketing, finance and legal teams. Chris Merchant, our Global VP of Finance, will fill in prior CFO, Dale Schneider, on the call this quarter, as Dale is unfortunately not able to be here today.Before I begin, I will draw your attention to the disclaimer currently being broadcast. So let's start off with sales, earnings and content, as per normal. Sales for the quarter were $1.97 billion, up 4.3% from last year despite some soft markets out there, which is great to see. Operating earnings were $197.7 million, normalized for balance sheet exchange impacts and any unusual items, down 5.6% over last year. Taxes, interest and depreciation were clearly a big part of that, meaning normalized EBITDA was actually fairly flat last year. A few factors were key in driving our performance this quarter. First, MacDon continues to perform despite some market pressure with market share growth offsetting flat market globally on key combine header product. And secondly, launches in the Transportation business are running strong and doing great job of driving top line growth for us in some challenging market.A few factors were a challenge this quarter and hurt our results. First, light vehicle markets for the 3 regions we serve were down at 5.1% with weakness seen in every region globally. We saw continued significant declines in the light vehicle market in Europe, thanks to both deteriorating demand for diesel vehicle and the WLTP situation. In addition, vehicle volumes were significantly down in China, affecting several key customers. Finally, volumes were down in North America as well, but particularly so with the Detroit 3, who of course are important customers of ours. Secondly, launch costs and transition impact were a key factor in the quarter as well. First of all, the transition to next generation platforms is weighing on margins, as both launching and declining platform are currently running at sub-optimal level.Secondly, costs of launches globally are high given the high level of programs that are currently launching. We do expect these effects to moderate over the next couple of quarters. Also, impacting the quarter were higher commodity costs in our Industrial segment and higher interest and tax costs than last year as mentioned.Normalized net earnings as a percent of sales in the quarter were 7.1%, down from last year due to these factors. On the positive side, our Industrial segment continues to perform extremely well, with normalized operating earnings up 24% over last year and normalized margins at 16.7%, also up over last year's 15.8%. The Transportation segment's earnings and margins declined due to launching transmission impact as described. We do expect another quarter or 2 of this impact before we start to see some relief.In North America, content per vehicle for the quarter reached $167.37, up 1.2% from last year, thanks to launching business in a market that was down 0.2%. Q1 automotive sales in North America as a result were up 0.9% over last year at $752.9 million. In Europe, content per vehicle for the quarter was $84.62, up 10.3% over last year, thanks to launching business in the region in a market that was down 5.3%. Growth in Europe has really been fantastic. It's only 5 years ago the content in Europe was only about $20. Q1 automotive sales in Europe as a result of our content increase we're up 4.5% over last year at $472.4 million. In Asia Pacific, content per vehicle for the quarter was $10.29, down 5.6% from last year, largely due to China production declining much more steeply than overall Asian production. When combined with market declines of 6.6%, we saw Q1 2019 automotive sales in Asia Pacific down 11.7% versus last year to reach $120.2 million.Asia will be a significant growth area for us over the next several years with more than 50% growth over current sales levels booked already. Much of the growth is coming from electrified vehicle program launches as might be expected given the stronger focus for new energy vehicles in China. In fact, nearly 25% of our Asia group sales will be for electrified vehicles by 2023. It's great to see continued content per vehicle growth in the quarter in most regions, reflecting our increase in market share, thanks to large amount of launching business. Market share growth is key to accelerating growth when volumes start to pick up. Other Automotive sales not captured in these content calculations were $69.8 million, up somewhat over last year due mainly to increase [ in resale. ]Commercial and Industrial sales were up 13.4% in the quarter at $559.2 million compared to $493.2 million last year, thanks to a full quarter at MacDon this year; if you recall, last year was just 2 of the 3 months and global market share growth for combine headers that MacDon experienced despite a flat market.Investing in our future continues to be a priority for us at Linamar. CapEx in the quarter was $120.4 million or 6.1% of sales, down over the last couple of quarters as expected. We still expect 2019 to see lower CapEx than 2018 and end up at the low end of our normal 6% to 8% range. 2020, we'll see a similar picture at spending at the low end of our normal range.Our net debt level came up a little largely due to changes in IFRS accounting. Ignoring such, we would have seen free cash flow of more than $20 million in the quarter and debt down $10 million over Q4 and $156 million down over last year. Net debt to pro forma EBITDA of 1.78x and still expected to be back down to about 1x EBITDA by the end of the year. We expect to be under 1x next year based on continued strong and positive cash flows. We're going to drive that leverage down, thanks to the excellent free cash flow that we are expecting this year. We will generate between 500 and $700 million of free cash flow this year, thanks to higher earnings, lower CapEx and a focus noncash working capital improvement program. We've already seen an improvement in noncash working capital as a percent of sales compared to the last quarter and expect to see continued improvement to such, particularly in the back half of the year.Turning to our market outlook. We are seeing stability or moderate growth this year in most of our markets with a somewhat similar picture next year that reflects slightly softer markets in a few areas. Industry experts are predicting on-highway medium/heavy-truck volumes to be up this year in North America and Europe at 5.9% and 6.4%, respectively, but to decline in Asia. Next year, declines are expected in both North America and Asia, but moderate growth expected now in Europe. Off-highway medium-duty and heavy-duty volumes are also continuing to show signs of improvement.Turning to the access market. The industry is expecting mid-single-digit growth in the global aerial work platform market this year. Performance is being driven by growth in all global markets and in each product group. Next year is expected to see market contraction in the mid-single digit, primarily driving out of North America. We continue to see positive industry metrics with significant infrastructure spending planned in every region and an ARA forecast of 4% to 5% rental revenue growth for the rental business this year. Skyjack's backlog is strong. It's our goal to continue to outperform the market through market share growth this year and next.Turning to the agricultural market. The industry expectation is for a flat to declining Combine market this year in North America, thanks to tariffs, hurting North American farmers and therefore dampening demand. This is particularly true for soybean and canola products and particularly in Canada.Europe, CIS and Australia are also expected to decline driving the overall global market down in the mid-single digit range despite Q1 being reasonably flat. It's our goal to outperform the market through global market share growth at MacDon as well. For the global light vehicle business, the forecast is for flat to slightly down light vehicle volumes at globally again this year to 16.8 million, 21.6 and 49.7 million units globally -- in rather North America, Europe and Asia, respectively. Next year, we'll see similar flat volumes have plus or minus 1% to 2% depending on the region. As mentioned, we expect to see pressure in the first half of the year in most regions shifting to some year-over-year growth in the back half according to these latest IHS estimate that you can see depicted here on the slide. This is going to result in a second consecutive year of global light vehicle volume declines with forecast for growth to resume in 2020 in most regions at this point.I think that it is important to reflect on past cycles of auto production and how they linked to Linamar's earnings per share growth. In the first decade of this century, we saw US light vehicle sales declined 3.3% as depicted on this chart. In that same time frame, Linamar grew EPS 10.9%. In the next 10 years, when US sales grew out of compounded rate of 5.7%, Linamar grew our EPS 97%. The bottom line is, Linamar has a strong track record of outperformance and long-term growth regardless of auto cycles being up or being down.Turning to an update on growth and outlook. We continue to see good levels of new business wins and a strong book of business being quoted in our Transportation business. Q1 was another good quarter for us in terms of new business for the Transportation business with quite a few notable strategic wins, driven by continued acceleration of powertrain outsourcing, which is very exciting. Our addressable market across a range of vehicle propulsion types continues to look excellent, as you can see on this chart. Global vehicle growth is forecasted to grow at a compound rate of 1.5% to 2% over the next 25 years. Each type of vehicle propulsion offers excellent and growing potential for us and our suite of products for each continues to be developed and to grow. The total addressable market for us today is more than $125 billion as you can see and growing to nearly $325 billion in the future.We have 204 programs in launch at Linamar today. Look for ramping volumes on launching transmission, engine and driverless platforms to reach 40% to 50% of mature levels this year. These programs will peak at more than $4.3 billion in sales. We saw a shift of about $110 million of programs that moved from launch to production last quarter. Including the $30 million in incremental sales from those programs hitting this year, we will see a total in launches this year in the 800 and $900 million range. Next year, we will see growth in these programs at 60% to 70%, which means incremental sales from launches of more than $1.2 billion in 2020.In addition, as noted, Skyjack is targeting growth above market this year, so expect high single-digit to low double-digit growth for Skyjack for 2019 and relatively flat performance in 2020, as they offset market contraction with market share growth. MacDon will face market pressure as noted for the balance of the year. Market share will help offset market declines, but the extra month sales, which benefited Q1, will of course not repeat. This should all balance out to result in a flat to somewhat increased sales for the year compared to 2018. Next year, we are targeting single-digit growth, but of course this will be market sensitive. On a positive note, quarter sales for North America have tripled since MacDon took over sales and distribution of the [indiscernible] product, which is great to see and testament to the fantastic brand name and reputation MacDon has developed here in North America.Temper that growth, was the loss of business that naturally ends each year, noting to expect such at high end of our normal range of 5% to 10% this year and next year, as well of course as normal productivity givebacks.To summarize, expectations for the top line for this year are strong, backlog of launching business and growth in our Industrial sectors will offset market softness in the Transportation segment and drive mid-single digit top line growth rates this year. Next year, we'll see growth pick up, thanks to strong launches and more stable markets. On the margin side, we expect to see fairly flat margin performance in both segments this year. This means staying at the mid to high-end of our normal OE margin range of 14% to 18% for the Industrial segment and 7% to 10% for the Transportation segments just as we saw in 2018; excellent results, really given market pressures. Next year, we will see margin expansion in both segments as we get to the other side of the transition to next generation platform and market settle out and MacDon resumes growth.The sales growth noted coupled with flat margins will result in mid-single digit, normalized operating earnings growth this year as well, an excellent expectation driving from organic-only growth in soft market. Next year, we expect double-digit normalized operating earnings growth, thanks to margin expansion in both segments and stronger growth.I'd like to highlight a couple of our more interesting wins this quarter. First, we won a fully machined block program for on-highway trucks for one of our US facilities. Production will start in 2022 for this program. Also, on the commercial truck side, we picked up several components for an on-highway truck program in India, including a block and a head. It's great to see that commercial vehicle market is starting to yield some opportunities and also to fill in additional work for our facility in India. In fact, new business wins on the commercial vehicle side represented a sizable portion of new business wins for the quarter.On the casting side, we were awarded a major expansion program for cylinder heads castings for one of our European foundry. Production will start next year. We continue to see excellent opportunities for our foundry business with nearly $70 million in new business wins that is ordered for this division, one this quarter alone. Finally and possibly most excitingly, we were awarded a development program for a conformable hydrogen fuel take for a fuel cell vehicle under development by a key light vehicle customer. We feel this project is strategically very important, as we believe we will see a move towards more fuel cell electric vehicles in the light vehicle space over the next decade, and the fuel tank is a very high-valued, technologically sophisticated product in a fuel cell vehicle. The tank design derives from IP that we acquired last year for a unique design in tank that had significant design advantages over traditional hydrogen tank design. It's [indiscernible] and offers much more flexibility in terms of vehicle design, which is of great interest to our customers.Turning to an innovation update. We continue to invest in innovation in each of our key businesses. I wanted to highlight a project in our Transportation business this quarter for innovative light-weight structural components. This project involves a cross car beam, which is a structural component that's found within the instrument panel of the vehicle. We jointly designed this product with our customer, which will be produced in ultra-lightweight magnesium. We developed a unique process to cast the part, which is much more efficient and cost effective and alternative casting method. We're utilizing a newly installed 4,400 times high pressure die cast press to do the job, the largest tonnage machine, by the way, installed in North America. We're really proud of the team for the work that they've done on this program.Structural parts, cast and lightweight materials have huge potential in the market as they replace heavy and costly [ stamp ] steel assemblies. Light weighting the body is particularly important in electric vehicles where heavy battery packs are adding as much as 800 kilo to the vehicle weight and impacting the efficiency of vehicle performance. Lightweight structural parts will, as a result, likely have a higher market potential in electric vehicles than traditional internal combustion vehicles, although of course, light weighting is welcomed in these vehicles as well.We also continue to make considerable progress on our broad digitization initiative that summarized on this slide. We're rapidly transforming our shop floor to be more efficient, more proactive and reactive, safer, and more connected and in the progress, creating more exciting clear opportunities for our employees. There is a huge amount of opportunity in these technologies to dramatically improve efficiencies of our operations, both on the shop floor and in the back office as well, which we can deploy on a global basis.In other areas of operations, our plans continue to perform well, both on mature business metrics and in terms of launch. Our launch systems excellent and plant controls are world-class. In terms of new plants, we are making great progress on our 3 key expansion projects that are underway at the moment. Our new state-of-the-art facility in Hungary to have the significant e-axle gearbox program is nearing completion. We'll be moving equipment into the facility in the summer to continue launch preparation. The project starts into production late next year. Secondly, the expansion of our fabrication facility also in Hungary to accommodate growing corn head sales and also to have the European requirements of Skyjack is also nearing completion as you can see here. And finally, the expansion of another facility in China is also well underway. This facility will also take on a major e-axle program, which launches next year as well.Finally, a trade update. Unfortunately, not a lot to report here. Discussions continue to ratify USMCA in all 3 countries here in North America. It is yet unclear if this will happen this year or not. Frankly, I'm less concerned about that and much more concerned about the need to eliminate the tariffs, which are continuing to take their toll on our American customers. They are seeing billions of dollars shift from investment in important new technologies, transforming the auto industry to funding the US Treasury, which is a serious concern for the North American industry. On the positive side, the impact of tariffs to Linamar, although not zero, is certainly not close to material for either the China or metal tariffs. Again, the concern is more about the impact to our customers and there for the broader industry whether in auto, ag, access.With that, I'm going to turn it over to our Global VP -- our VP of Global Finance, Chris Merchant, to lead us through a more in-depth financial review. Chris?

[Chris Merchant]

Thank you, Linda, and good afternoon, everyone. As Linda noted, Q1 was a good quarter. Our sales grew 4.3% despite a tough market environment. All 3 regions were affected with Asia down 6.6%, Europe down 5.3%, and North America down 0.2%. For the quarter, sales were $1.97 billion, up $80.6 million from $1.89 billion in Q1 2018. Operating earnings for the quarter were $187.7 million, this compares to $214.9 million in Q1 2018, a decrease of $27.2 million or 12.7%. Normalized operating earnings for the quarter were $197.7 million.Net earnings decreased $24.3 million or 15.5% in the quarter to $132.3 million. Normalized net earnings were $139.4 million for the quarter. As a result, fully diluted net earnings per share decreased by $0.37 or 15.6% to $2.0. Normalized fully diluted EPS decreased by $0.21 to $2.11. Included in the earnings for the quarter was the foreign exchange loss of $5.1 million, which included a $6 million loss on the revaluation of operating balances and a $0.9 million gain on the revaluation of financing balances. The net FX loss impacted the quarter's EPS by $0.06. From business segment perspective, the Q1 FX loss due to the revaluation of operating balance of $6 million was a result of $4.8 million loss in Industrial and $1.2 million loss in Transportation.Further looking at the segments, Industrial sales increased by 17% or $67.6 million to reach $465.1 million in Q1. The sales increase for the quarter was due to additional sales as a result of the acquisition of MacDon, favorable changes in foreign exchange rates since Q1 2018 and increases in European and Asian scissors. Those were partially offset by the expected deferral of purchases by certain North American customers from Q1 to later in 2019. Normalized Industrial operating earnings in Q1 increased $15.2 million or 24.2% over last year. The primary drivers of the Industrial operating earnings results were the inclusion of a full quarter of MacDon's earnings in Q1 2019, a favorable impact from exchange rates since Q1 2018 and increase in the scissors volumes in Europe and Asia at Skyjack, which were partially offset by increased commodity prices and the impact of differing purchasing in North America.Turning to Transportation. Sales increased by $13 million over Q1 last year to reach $1.51 billion. The sales increase for the first quarter was driven by higher sales on our launching programs, a favorable impact from the changes in FX rates since last year, which were partially offset by market declines in Europe, largely due to the continued WLTP and diesel engine issues, in addition to the market declines in Asia. Q1 normalized operating earnings for Transportation were lower by $27 million or 18.4% over last year. In the quarter Transportation earnings were impacted by European and Asian sales declines on higher margin mature volumes. The impact on the transition to next generation powertrain platforms weighing on margins as both launching and declining mature platforms are running at less efficiency at the current [ volume ] levels. Additional costs related to heavy launch activity globally and the restructuring costs incurred in the quarter. These were partially offset by additional earnings from new launching programs and the favorable impact on the changes in FX rates since last year.Turning to the overall Linamar results. The Company's gross margin was $303.9 million and decreased $12.2 million due to the product mix issues related to the transition from lower mature program sales to higher launching sales. Additional costs related to heavy launch activity globally and increased commodity costs in the industrial segment, which were partially offset by a full quarter of MacDon's earnings, increased earnings from launching programs in both segments and a favorable exchange rates. Cost of goods sold amortization for the first quarter was $94.8 million; cost of goods sold amortization as a percentage of sales was relatively flat at 4.8% of sales.Selling, general and administration costs incurred in the quarter were $110.2 million, up from last year at $106.6 million. This increase is mainly due to the additional SG&A expenses as a result of having a full quarter of MacDon results in 2019. Finance expenses increased $2.9 million since last year due to higher interest rates from the Bank of Canada rate hikes, following Q1 2018 inclusion of 3 months of interest expense related to the MacDon acquisition debt, which were partially offset by the reduced interest expense as a result of debt prepayments and higher interest earned on the investment of excess cash and on long-term receivable balances. The consolidated effective interest rate for Q1 increased to 2.9% primarily due to the Bank of Canada rate hikes. The effective tax rate for the first quarter increased to 23.4% compared to last year, which was mainly driven by an increase in nondeductible expenses for income tax purposes. We are expecting the effective tax rate for 2019 to be in the range of 22% to 24%.Linamar's cash position was $486 million on March 31, an increase of $30 million compared to March 2018. The first quarter generated $130 million in cash from operating activities, which was used to fund CapEx and interest payments. Please note that the new IFRS 16 standard was adopted as of January 1, 2019. The effect of this standard was to take all off balance sheet leases, commonly known as operating leases, and put them on the balance sheet. The impact is primarily to the balance sheet where approximately $80 million of leases are now recorded as an increase in fixed assets and increase in debt. To compare to 2018 debt to 2019, you will need to adjust your 2019 to remove this impact to get a proper comparison as IFRS 16 leased debt do not exist in 2018.Net debt to pro forma EBITDA decreased to 1.78x times since the acquisition of MacDon despite the additional -- the addition of approximately $80 million of new debt as a result of adopting IFRS 16 lease standard. We still expect net debt to pro forma EBITDA to be back to 1x by the end of 2019. The amount of available credit on our credit facilities was $692 million at the end of the quarter.To recap, Linamar had a good quarter despite the significant market declines in Europe and Asia. Linamar was able to grow sales, maintain EBITDA and to reduce debt excluding the impact of IFRS 16.That concludes my commentary. I would now like to open up the call for questions.

[Operator]

[Operator Instructions] And your first question comes from the line of Kevin Chiang with CIBC.

[Kevin Chiang]

Maybe just first for me, as it relates to MacDon, it's facing a number of, I guess, headwinds related to the trade issues. I'm wondering if that's changed your long-term strategy or maybe your near-term strategy in terms of the growth levers you pull there, whether it is product expansion or geographic expansion, has that changed over the past year as you try to maybe mitigate some of these trade risks?

[Linda S. Hasenfratz, CEO & Non]

I mean our strategy for MacDon has not changed. We are looking to grow the business globally. We saw a success with that already. In fact, just in this quarter as noted, MacDon was able to grow our global market share with their combine headers and that growth is coming from markets outside of North America. So great to see success in that regard. We continue to believe there's massive opportunity to focus on that global growth. The global combine header market is 75% or more of it is actually outside of North America, so MacDon who is primarily until now focused on North America could literally quadruple their business by getting the same kind of market share globally as they have here now. I mean that's not going to happen overnight. There's a lot of work to do to get that put in place, but absolutely that continues to be the long-term strategy, as looking for our additional products that the team could be selling through their distribution network and I think the corn head is a super example of that. I mean they took that product, it's a solid good product. We have brand named it MacDon, put it into the distribution network and sales have tripled. So I think that's very positive.When it comes to these trade issues, to me, it's a short-term noise and we need to look positive and not make important strategic decisions based on that. We can make short-term tactical decisions, but long term we obviously need to focus on fundamentals. So we continue to believe very strongly in the MacDon story. The fact that they're going to be flat this year when markets are down is in itself a good indicator of the great business and products that they have that will be able to offset market softness with some market share growth.

[Kevin Chiang]

And then you provided good color on, I guess, the book of business in Asia with the significant percentage of that growth related to new energy vehicles. I'm wondering as you grow into that book, how should I think about content per vehicle in Asia? Does the growth trajectory -- is it a different growth trajectory than you would have seen in Europe and North America in the past because a higher percentage of the sales will be associated with an electric propulsion vehicle?

[Linda S. Hasenfratz, CEO & Non]

Well, no, not at all. I mean we've got this business that can grow our sales in China by more than 50% over the next 3, 4 years and as noted 25% of that is electric. So we are seeing lots of exciting opportunities in that marketplace for both hybrid and battery electric vehicles across a wide range of products. It's very opportunistic. There is huge content potential for us in electric vehicles to the tune of somewhere around $2,000 at a minimum. So we think lots of exciting opportunity. I mean we're at $10 today, that gives us a lot of room to grow.

[Kevin Chiang]

And just last one from me, more of a clarification question. These deferred purchases in Skyjack that are being pushed off from Q1, is this primarily made up in Q2 or is it something that was just expect as a tailwind kind of through the balance of the year?

[Chris Merchant]

A lot of it will be made up in Q2.

[Operator]

Your next question comes from the line of Mark Neville with Scotiabank.

[Mark Neville, Analyst]

Just want to clarify some of the numbers on the guidance. So there's a lot of numbers given, just, I guess now on a consolidated basis, the expectation is mid-single digit growth in operating earnings versus high last quarter, is that right?

[Linda S. Hasenfratz, CEO & Non]

Yes. So we're looking at mid-single-digit sales growth and now mid-single digit operating earnings growth, yes. I have put it back up on the screen as well for you.

[Mark Neville, Analyst]

In Industrial, I think it's now flat margin for the year, you had a really good Q1. I'm just curious, I guess, the incremental pressure, I don't know if pressure is the word, but is that predominantly MacDon?

[Linda S. Hasenfratz, CEO & Non]

So I mean the first quarter was pretty strong for MacDon because the market was fairly flat. It was up like 1% or 1.5%. But they grew market share, so they have a nice growth in the quarter. The ag market is expected currently to decline in the balance of the year and more negative performance going forward. So MacDon will obviously look to offset that as best they can from market share. But we do expect to see that through to MacDon. So as noted, if the market is flat and Q1 was up, okay, obviously, there [indiscernible] going to be negative MacDon. Now offsetting that is going to be Skyjack, which will have a stronger Q2 and Q3, right. So they had a flat first quarter because of the deliveries being pushed out. But the market is increasing in single digits and Skyjack can outperform the market at high-single digit or low-double digit. That means growth in the next couple of quarters for Skyjack, which should more than offset the MacDon decline. So I think a good way to think about the Industrial segment is kind of tempered growth over the balance of the year.

[Mark Neville, Analyst]

And this one on Transportation. I think again the guidance calls for flat margin. It was down quite a bit in Q1. You've got some of the pressures you faced in Q1 from launch costs and the mix. It sounds like it continues for another quarter to 2. So I am just sort of curious that the levers to pull to sort of make up the ground in the rest of the year on the margin?

[Linda S. Hasenfratz, CEO & Non]

So we do expect to make up ground over the balance of the year more so in the back half of the year than in the front half, just because of continued market pressures and because we're continuing to work through that transition from the old generation to new generation platforms and both of them running at the moment at sort of sub-optimal levels. So we do expect to see things starting to improve little bit in Q2 more so in Q3 and more so in Q4. So the difference in margins this year versus last year, obviously, negative now but then improving over the next couple of quarters and actually up over prior year at the back half in order to get that flat for quarters overall.

[Mark Neville, Analyst]

It wasn't clear to me, was there any earnings impact to EPS in the quarter from the transition to IFRS 16?

[Linda S. Hasenfratz, CEO & Non]

We have the debt impact, right. So we ended up with an extra about $80 million on the balance sheet cash shifting into debt but there was no P&L in that.

[Mark Neville, Analyst]

And I appreciate the free cash guidance as well.

[Operator]

Your next question comes from the line of Peter Sklar with BMO Capital Markets.

[Peter Sklar, Analyst]

There was a, I believe, a $4 million restructuring charge during the quarter. Can you tell us what that related to?

[Linda S. Hasenfratz, CEO & Non]

It's in a couple of different areas of just reacting to some market situations and also restructuring within our Light Metal Casting Group. So we're doing -- we're changing the old structure a little bit and shifting -- shifting more responsibility out of the plant. So there is [indiscernible] associated with that this quarter and last quarter as well.

[Peter Sklar, Analyst]

This deferral you're seeing in Skyjack with some of your customers are customer delayed ordering from Q1 into further quarters. Does some of that relate to United Rentals acquisition of BlueLine? Is that -- that's kind of thing you're talking about?

[Chris Merchant]

Yes, it would have some impact for sure on their CapEx plans and certainly a lot of the orders that we had had just got pushed out because of the CapEx that they had and utilization.

[Unknown Executive]

Peter, United just -- I mean they had to take some time to evaluate the assets that they got there with BlueLine, but from what we've seen, actually even March shipments were up significantly and same within April.

[Chris Merchant]

And our backlog is strong.

[Peter Sklar, Analyst]

You mentioned in the MD&A that WLTP is still having an effect. Do you think that's wound its way through or there still powertrains that need to be qualified?

[Chris Merchant]

Yes, we see even just talking with OEMs that it will sort of bottom out by the end of Q2.

[Peter Sklar, Analyst]

And then lastly, these efforts that you're making with working capital, like your working capital investment in the quarter was less than it was last year. So you're making progress in your noncash working capital investment, but I think, and correct me if I'm wrong, I think you said last quarter, you actually wanted to create cash through working capital, so you're anticipating divesting or unwinding working capital. So is that still the plan?

[Linda S. Hasenfratz, CEO & Non]

Yes, absolutely. That is still the plan. We're going to see more of the realization of those efforts in the back half of the year than in the front half of the year as we work through some of the long-term receivables; we're looking at putting new programs in place for MacDon since then and that wouldn't happen until the end of the year and other elements of inventory are more realistically going to be able to be reduced in Q3, Q4 than in the other first half.

[Peter Sklar, Analyst]

And then just can you comment on the credit experience that you're having with the long-term receivables that you've extended to the rental yard operators?

[Linda S. Hasenfratz, CEO & Non]

We obviously keep a very close eye on where we stand on those long-term receivables. I'll just remind you as well we put a new program in place last year as of -- sort of mid-year last year. That has basically put in external financing company in place to do the financing for those long-term customers. So our level of long-term AR for Skyjack has actually been declining since sort of mid-year last year. So our exposure is gradually obviously winding down and risks shifting over to that external credit provider.

[Peter Sklar, Analyst]

And if you have -- with what you have, you had any negative credit experience?

[Chris Merchant]

No.

[Operator]

Your next question comes from the line of Brian Morrison with TD Securities.

[Brian Morrison, Research Analyst]

Just wanted to ask a follow-up on Peter's question actually, you had the nice slide on free cash flow. And then you just comment upon the components, one of them being long-term receivables, but can you just talk about the magnitude of the working capital benefit you anticipate during 2019?

[Linda S. Hasenfratz, CEO & Non]

Well, I mean, it is a significant portion of that cash flow that we're looking to -- I am just looking back to the slide, that we're looking to create. But at the same time, don't forget that earnings are up this year -- and earnings are up this year and CapEx is down, so that in itself -- and last year, we generated $150 million of free cash flow. So we are going to get a chunk of that cash flow coming out as basically operations. And then in another slide that will come out as a noncash working capital. We have haven't up like what's the split of the 500 and $700 million between the 2, but it is the combination of both.

[Brian Morrison, Research Analyst]

And then just going through Transportation margins with the reset again. I presume, I know the answer to this, but I just want to understand the cadence of margins as you go through the year as you comment you expect headwinds for another quarter or 2. So I presume that we should expect the trend to be some pressure in Q2 and then it should revert back to positive with the performance you had in Q3 of last year. Is that how we should be looking at it?

[Linda S. Hasenfratz, CEO & Non]

You're definitely going to continue to see impacts in the second quarter. I mean I think that if the comparison to prior year, the differential is definitely going to shrink. But it's not going to completely go away. You won't see that until Q3 and Q4 at which point, you'll actually see a more positive margin compared to last year.

[Brian Morrison, Research Analyst]

So the inflection is going to happen in Q3?

[Linda S. Hasenfratz, CEO & Non]

Yes.

[Brian Morrison, Research Analyst]

And then last question, Mark asked this earlier, but I understand IFRS 16 had no impact upon P&L. Do you know what the impact on EBITDA was?

[Linda S. Hasenfratz, CEO & Non]

We'll have to come back to you on that, Brian. I don't know off the top of my head, but I'll get Dale or Chris to give you a shot back with that.

[Operator]

Your next question comes from the line of Warren McCann from McCann & Associates.

[Warren McCann]

I've got a question with regards to the normal course issue bid, and I saw as of March 31, there were, I think they were 45,000 shares that have been repurchased. Is that the intent of the Company to perhaps focus on the reduction of debt before they address share repurchases over the next 10 to 12 months?

[Linda S. Hasenfratz, CEO & Non]

I mean we have for sure taken a more cautious approach to the market on our NCIB. We're definitely conscious at that levels targets and really wanting to achieve those and trying to balance those goals with goals around the buyback, which we understand is important to shareholders, and so important to us as well. What we've done is, try and use sort of a disciplined system to buy when we see weakness and hold off when we see the share price strengthening and we will look to continue to adjust that and continue to balance, what do we want to do on an NCIB, what do we want to do on debt reduction throughout the next 12 to 18 months.

[Warren McCann]

So it's just a perspective with regards to where you see the best allocation of debt repayment to where -- and the cash flow that you project in the next year or so, and then you will allocate accordingly?

[Linda S. Hasenfratz, CEO & Non]

Exactly.

[Operator]

There are no further questions at this time. I now turn the call back over to the presenters.

[Linda S. Hasenfratz, CEO & Non]

Great, thanks very much. So to conclude this evening, I'd like to leave you with 3 key messages. First, we are very happy to see both sales and market share up in most of our businesses this quarter despite challenging market according Linamar's consistent above-market performance throughout historical economic cycle. Second, we are expecting to see strong cash flow this year of $500 million to $700 million, which will further fortify our already strong balance sheet. And finally, we are excited about the new opportunities we are seeing in electrified vehicles, both battery, electric and fuel cell electric as our industry evolves towards the future. Thanks very much, everybody, and have a great evening.

[Operator]

This concludes today's conference call. You may now disconnect.