Martinrea International Inc
TSX:MRE
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
9.65
14.45
|
| Price Target |
|
We'll email you a reminder when the closing price reaches CAD.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
Martinrea International Inc
You don't have any saved screeners yet
Good afternoon, ladies and gentlemen, welcome to the Martinrea International Fourth Quarter and Year-end Results for 2019 Conference Call. [Operator Instructions]
Good afternoon, everyone. Thank you for joining us today. We always look forward to talking with our shareholders, and we hope to inform you well and answer questions. We also note that we have many other stakeholders, including many employees on the call, and our remarks are addressed to them as well as we disseminate our annual results and commentary through our network. With me this afternoon are Pat D'Eramo, Martinrea's CEO and President; and our CFO, Fred Di Tosto. Today, we will be discussing Martinrea's results for the quarter and year ended December 31, 2019. I will make some opening remarks. Pat will make operational and strategic comments and give you his perspective. Fred will review the financial results. I will finish with some general closing comments and go over some of the great things that are happening here at Martinrea. And then we will open the call for questions, and we will endeavor to answer them. Our press release with key financial information discussed on a fairly detailed basis has been released. Our MD&A, AIF and full financials have been filed on SEDAR and should be available. These reports provide a detailed overview of our company, our operations and strategy and our industry and the risks we face. Given the detail in our press release and filed documents, our formal remarks on the call today will be generally overview in nature. We're very open to discussing our remarks and we hope, in the Q&A, some highlights of the quarter or year, the state of the industry today, how we are addressing the challenges and progress in our operations. As always, we want you to see how we see the world. As for our usual disclaimer, I refer you to the disclaimers in our press release and filed documents. Our public record, which includes an AIF and MD&A of operating results, is available on SEDAR. You may look at the full disclosure record of the company there. Welcome to 2020, a year which we look forward to with great anticipation as we intend to continue to develop and apply our One Martinrea culture in our business with a view to improving our financial performance, continuing to improve our leading safety and quality metrics, delighting our customers, satisfying our employees, performing for our shareholders and leading the way in good corporate citizenship in our communities even in a challenging environment in terms of some of the geopolitical trade, coronavirus and economic issues we all face. In sum, we will continue to perform well as we did in 2019 and in the years before that. And here to tell you all about it is Pat.
Thanks, Rob. Good afternoon, everyone. As you saw in our press release, our Q4 adjusted net earnings per share came in at $0.42, within our guidance. Q4 production sales came within our guidance as well. But we did not see as much of the increase as expected from General Motors, post strike. Our adjusted operating income margin for the quarter was 5.6%, lower year-over-year due to the effect of the GM strike as well as higher than normal tooling sales. For the year, we achieved an operating income of 7.5%. This, despite the previously mentioned strike. Actually a very strong year. If we were to adjust out the strike and the higher tooling sales, operating income margin would have landed at over 8% for our pre-strike plan. For the full year 2019, we had our highest EPS to date coming in at $2.27. Our net debt, excluding IFRS 16, ended the year at $663 million. Our net debt to adjusted EBITDA ratio ended the year at 1.41x, so we continue to stay within the 1.5x range, plus or minus. And this, despite the significant amount of share buybacks. Production sales for Q4 came in at $787 million within our range of $750 million to $810 million. Though there continues to be volume pressure in Europe and China, North America trucks, CUVs and SUVs continue to have good sales levels, which is where we are heavier weighted. For Q1, our adjusted EPS is projected to be between $0.60 and $0.65, reflective of some volume softness in certain areas of Europe and including the impact the coronavirus is having on China vehicle production. Actually, given some of the headwinds, a good projection from an earnings perspective to kick off 2020. Q1 guidance also includes one month of results from our just-closed acquisition of Metalsa's Structural Components business, which I will discuss in more detail momentarily. The business is expected to be slightly negative to earnings at the onset and transform into a positive earnings run rate by the end of the year, obviously, subject to volumes, some restructuring that needs to be complete when we wrap our arms around the operations. Production sales are projected to be between $860 million to $910 million. We have a good number of launches in 2020, though a number of programs were delayed, as I discussed on the last call. This means more launches in the latter part of the year as well as into 2021. New business wins for Q4, as noted in our press release, came in at $140 million in annualized revenue at peak volume. First, in our lightweight structures group, we continued to increase our book of business with Toyota, this timing with control arms for the Toyota Tacoma pickup truck. This is our first win in the Toyota chassis space, including engineering and design development, a great step forward with a new customer. As previously announced in our lightweight structures group, we won approximately $100 million on the body-in-white work on the new Daimler EVA II electric vehicle platform. We're very excited about this win due to the number of joining technologies the vehicle will employ with multiple materials. This product will be built in our new Tuscaloosa plant near the Daimler U.S. location. This is one of the facilities that will come with our recent acquisition. In our propulsion systems group, we won $30 million of work with the ZF Group. We'll be machining one of the current transmission housings and both casting and machining the next-generation model. Looking back on 2019, we successfully launched a number of products, including the T1XX Silverado, Ford Explorer, Mercedes A-class vehicle, Chevy Blazer, new Ford V6 engine, [ Volvo I6 ] engine, among many others. The most recent, this past fall, was the Ford Escape affecting 4 of our locations at various levels. At the current time, the vehicle production numbers are lower-than-expected due to external factors unrelated to us, but including part supply. We expect this to be resolved and anticipate volumes to increase on this product in the near future. Launches in program management continue to be at the forefront, and we continue to improve our ability to deliver quality on time. As we look back on 2019, the fifth year of our Martinrea 2.0 strategy, we have a lot of good news to reflect on. Starting with safety, a 72% improvement over the last 5 years. In quality, a 34% improvement in the same time frame. Annual adjusted EPS has grown from $0.98 EPS to $2.27 earnings per share. Net debt to adjusted EBITDA ratio from approximately 2.6x down to 1.4x, including a significant amount of share buybacks. Our operating income margin from 4% to nearly 8%. Again, if not for the GM strike in 2019. We will stay focused on our core and continue to improve at an even faster pace. As we enter 2020, we will take the next steps to responsibly grow the enterprise while continuing to improve our base business with our lean activity. We have taken a number of steps to support our project breakthrough strategy over the past year, including more engineering and soon-to-launch multi-material aluminum subframes, our first multi-material cradle and using joining technologies at a high-volume for a multi-material body-in-white production product. To accelerate this, we recently announced the acquisition of Metalsa's Structural Components For Passenger Car business. We have previously noted some key points, but let me touch on a few benefits once again, maybe with slightly more granularity. As we've discussed in the past, there are a number of things Martinrea wanted to accomplish with both our initial 2.0 plan as well as our recently shared project breakthrough strategy. Our first priority has been to take a young, fast-growing company and put systems in place to assure financial, technical and cultural strengths and a business capability to engineer and flawlessly launch profitable quality products to our customers. The journey to improve this core does not end. In fact, despite our consistent improvement, in my view, we are still just getting started. The improvement has been consistent and strong. And in the past few years, we have formulated our next phase to continue to follow our operational improvement plan, while putting more emphasis on new product capability and technology in order to grow our customer base, revenue and support our plan to be a great long-term company. The acquisition of Metalsa's Structural Components For Passenger Car business does a number of things to support this breakthrough thinking. It diversifies our customer base, adding significant revenue of two key customers. Our steel metal forming group moves from a North American player to a global player, with locations near a number of our aluminum plants which, in turn, supports our multi-material aluminum and steel lightweight strategy. We gained a strong, reputable engineering group in the heart of Germany, not only continue to support the European customers, but also some North American customers as well. Along with adding engineering capability, we'll enhance our lightweight multi-material joining technology, an area the facility in Germany has accelerated and has, in some cases, put into production. As you can see, we're excited about this acquisition. It's much more than $400 million in additional revenue. Of course, there's always challenges with an acquisition. After all, many fail in taking full advantage of these opportunities. Martinrea is no stranger to acquisitions. After all, this is how we came into being. We have developed a top-notch integration team using our strong program management thinking as our approach. Our strategy is to not take over blindly in this potential opportunity. Instead, we have and will continue to dig deep and assure we absorb the attributes as well as the revenue and capacity to strengthen our company as we grow it. I'm really excited for 2020, proud of the Martinrea team accomplishments and thankful to be part of it. With that, I'll pass it to Fred.
Thanks, Pat, and good afternoon. As Pat already noted, Q4 production sales and adjusted net earnings per share both came in within the range of our previously announced guidance. So very much in line with our expectations. As reflected in our sales and earnings guidance, Q4 production sales and adjusted earnings were both down year-over-year due largely to the impact the UAW strike at General Motors had on our North American financial results for the quarter. This was partially offset by some very strong results in our Rest of the World operating segment, margins for which came in at a healthy level for the quarter, generally consistent with the third quarter due to positive sales mix, lower launch-related costs and productivity and efficiency improvements across the operating facilities in this segment. Operating margins in the Rest of the World segment are expected to normalize in 2020 as the product mix in the segment is expected to change, customer pricing is adjusted to reflect competitive forces and volumes are challenged. In particular, with the recent coronavirus matter and its direct impact on production in our facilities in China. The coronavirus is clearly having an impact on Q1 production levels in China. Beyond Q1, it is unclear on how deep the impact gets and the extent to which it impacts global supply chains and production levels outside of China. We are obviously keeping a close eye on the matter, along with the rest of the world, and we'll react accordingly. Notwithstanding our operations in the Rest of the World, albeit a relatively small portion of our business performed well for us in 2019. We definitely showed some nice progress this past year. As it relates to Europe, operating margins were down in the fourth quarter due largely to loss contribution from the volume headwinds we have been and are facing in that region and our overall negative sales mix. Losing volume in Europe tends to translate into a more significant bottom line impact compared to other parts of the world as our ability to flex costs in Europe, in particular, in a place like Germany, is somewhat limited due to the fixed nature of the overall cost structure. As noted, the UAW GM strike ended during the fourth quarter, at the end of October, but ultimately, it did end up having a relatively significant impact on our 2019 financial results. As a result of the strike, we lost about $20 million in production sales in Q3 and another approximately $65 million in Q4. So as you can see, the impact was significant. We had originally expected that most of the lost volume will be made up over time. However, that has not been the case to date as we have not yet seen much increased post-strike volume from GM, as Pat already noted. Outside of the strike, 2019 was a very good year for Martinrea. Overall, I'm very pleased with our 2019 financial performance, especially when you take into consideration some of the headwinds we and the industry faced during the year. Let me summarize some of the financial highlights for 2019. We recorded increased sales of just under $3.9 billion, inclusive of higher tooling sales, which inherently reflects a strong pipeline of new and replacement business. Our sales grew year-over-year, increasing approximately 5.5% when the overall industry was generally flat and down in some areas. But for the UAW GM strike, we would have improved adjusted net earnings for the tenth year in a row. We generated adjusted net earnings of approximately $188 million, our fully diluted adjusted net earnings per share of $2.27, the best-adjusted EPS performance in the company's history. But for the strike in higher tooling sales, our adjusted operating income margin would have increased again in 2019 to north of 8%, showing continued improvement from about 4% in 2014, as Pat already noted. Our operating margin has progressed nicely over the past 5 years, outperforming most industry players. On an absolute basis, our operating margins were not higher than many of our direct competitors in the areas in which we compete and in terms of general automotive parts suppliers.Our balance sheet remains strong, and in 2019, at a net debt to adjusted EBITDA ratio of 1.41x, excluding IFRS 16, very much within our targeted range despite paying dividends, funding a significant amount of share buybacks and increasing our investment in NanoXplore during 2019. We now own approximately 25% of NanoXplore and are very excited about its prospects. We have a strong balance sheet with this industry and are committed to keeping it that way. Another important positive this past year was our free cash flow profile. We have been very consistent with our messaging on this topic. We have said, for quite some time, that we would see our free cash flow profile turn positive in 2019, and that is exactly what happened. We generated free cash flow, as defined and reconciled in our MD&A, of $127 million in 2019, a very healthy number, with $51 million of that generated in Q4, aided by a decrease in tooling-related working capital, with the cash generally used to pay dividends and buy back shares, make our incremental investments in NanoXplore and pay down debt. So overall, a very good result and very much consistent with what we have been saying. Our company is clearly becoming a significant cash flow generator. As you can tell, we are very happy with the overall progress we are making as an organization and our ability to deliver, and particularly in this very volatile environment. We keep getting stronger every year, and 2019 was no exception. We expect to get even stronger in 2020 as we continue to progress as an organization, including adding the Structural Components business of Metalsa to our portfolio and tackle the challenge in front of us and the industry head on. As a result of the Metalsa acquisition and, to some extent, the current volatile market outlook, we are updating our 2021 targets as previously provided. With the addition of the new Metalsa business, we are projecting sales to approximate $4.4 billion in 2021, subject, of course, to overall market volumes. And while operating margins are anticipated to increase in 2020 from 2019, we are targeting an adjusted operating income margin of somewhere north of 8% in 2021 based on our anticipated new mix of business, inclusive of Metalsa. I'd like to thank the Martinrea team for their hard work and dedication. As I've said so many times before, we are making a difference. I'd also like to take this opportunity to welcome the employees from Metalsa to our family. You are in good hands. We are very excited about this acquisition and its prospects for the future. Thank you. With that, I'll now turn it back over to Rob.
Thanks, Fred. Some comments on capital, our industry and culture. Let me start with an update on capital allocation. As you can see from our press releases and past discussion, we have won a lot of new business over the past 2 years. That's a lot of new business to launch. Some of it is on new models, some of it is conquest business. Of course, we continue to win repeat business, too. That implies a few things. First, our customers are rewarding us with new work because of our product offering and performance in quality, delivery and competitiveness. Second, in terms of capital allocation, investments we have been making in our business have been bearing fruit, and further, we will continue to invest in our own business. This will continue to be our priority. There's clearly tremendous value to it. With the recent acquisition, we should have well over $4 billion in revenues this year, and there will be more organic growth beyond 2020. With top line growth, given our discipline on financial return hurdle rates, our bottom line will grow, too. Note that this growth is over an increasingly broad range of customers over many geographies, especially outside Canada, and over a broad range of vehicles: internal combustion engine, electric, hybrid. Opportunities abound. That is our primary focus as a use of cash. Many people have asked us about M&A opportunities for the past few years. We have stated, we have seen a lot of what I would call noise, but we are clearly not averse to M&A activity. After all, we've done it many times in our past, and now we've just done it again. We generally apply a build-or-buy scenario and where it is cheaper and faster to buy than build, we do so, especially if there are cheap assets available even in fixing to do. We have been fixing very well as our margin improvement attest, and we will do so, too, on the Metalsa assets over time. Today, we certainly remain willing to look at opportunities, but we feel it is very important to be disciplined and to buy prudently. Note that we have always invested in and will invest in technologies or products that support our business. We increased our investment in NanoXplore in 2019, for example, and we are excited about that and the future of graphene in our products and in general. In terms of our debt levels, we like and have a strong balance sheet. This is helpful not just from a funding perspective, but our customers, frankly, like companies with financial strength. They know we are there for the long term. Believe me, this industry has long memories and customers still don't like over-leveraged suppliers. So we will maintain a strong balance sheet even as we fund our internal growth and make strategic investments or acquisitions. In terms of returning capital to shareholders, as you recall, we increased our dividend in 2018, and that has represented some increased return. We are announcing an increase to our dividend again today, reflecting our confidence in our business and our desire to increase shareholder return when we can. The total increase is not large in dollar terms, admittedly, but the percentage increase is over 10%. As well, we purchased about 4.8 million of our outstanding common shares or about 5.7% of our float in 2019. We promised we would buy back some shares as a good investment of capital while still funding our growth, taking advantage of investment opportunities and maintaining a strong balance sheet. We have kept our promise on all accounts. Since we started buying back shares in 2018, we have repurchased over 7 million shares, about 8% of our outstanding amount. This rewards our shareholders with a higher portion of ownership of our company, higher EPS and less dilution of earnings. Our intention at this time is that subject to all the points I just made, we will be back in the market under our normal-course issuer bid next week until the end of the first quarter when we enter a blackout. We will likely be renewing our normal-course issuer bid in August. In terms of the industry, let me talk about that for a second. Volumes, for the most part, were fairly flat to negative across our markets over the past year, and at times of robust year-over-year growth, maybe over at least in some areas. Nevertheless, volumes are at a very healthy level today. In particular, in North America, where the majority of our business resides. Volumes in Europe are off a bit, but should be flattish. Right now volumes are off in China, especially as the coronavirus has weighed on the industry. Not only has production slowed, but people aren't buying cars. We expect this crisis to be over at some point, but volumes will be off in China and the lack of China production has affected and will affect global production in varying degrees. There are many prognostications about overall volumes in 2020. But I think it is safe to say they may be flattish to down in 2020. Many car companies and auto parts companies are tempering their guidance as a result. We only give specific guidance on a quarterly basis, as Pat has done today, and on an overall long-term basis, we remain bullish that over time, our revenues, profits, cash flow and margins will increase. Fred gave you our thoughts about 2021. Longer term, I believe the coronavirus event, coupled with the trade disputes we have seen, may cause all of us to review our supply chains. For example, I think this will add to a trend towards local insourcing or reshoring to North America, which, frankly, could be very good for us. In addition to the usual industry challenges in 2019 we dealt with and are continuing to deal with some broader issues, but there have been some positive developments, especially on trade. We are pleased with the signing and pending ratification by Canada of the USMCA, as the updated form of NAFTA is generally termed. We were very busy with a variety of governments and industry participants in the negotiations, and we believe the signed agreement is a good one. With some potential opportunities for North American suppliers such as ourselves because of the North American rules of origin provisions. In terms of broader tariff and trade discussions involving the United States, China and others, there was a lot of negotiating in 2019, but there seem to be some trade stability by year-end. Martinrea has a small presence in China overall, but there is an opportunity there if the risks can be addressed. On a positive note, as we have always stated, challenges present opportunities to nimble, entrepreneurial, lean and resilient companies with great people. And we believe we have shown an ability to take advantage of opportunities over the years. We get stronger through meeting challenges well. Bring it on. Finally, a couple of thoughts about culture. We talk about culture a lot at Martinrea. Why? Because it matters. It matters a lot. It matters to us. But most importantly, it matters to our people here at Martinrea. Over 90% of our employees worldwide report in our employee surveys that they know our vision, mission and principles. That is a telling statistic. The employees were from all of our plants and 2 major corporate offices in 9 countries on 4 continents and included recent hires and those who have been with us for many years. Our culture is having a profound impact on our company and our people and on us. So we take it very seriously. Peter Drucker once said, "Culture eats strategy for breakfast." And we think he is right. I'm not going to repeat our vision, mission and principles. But rest assured, they are all over our company and published documents. I refer you to our report to shareholders we just filed. We will post it on our website. We live these every day. They are not just for show. Not that we don't stop with the vision, mission and to get 10 guiding principles. We have articulated in a cohesive, yet simple, way our company culture comprised of entrepreneurship, lean manufacturing principles and the golden rule philosophy core to our 10 guiding principles. The company has been entrepreneurial in nature since inception, a company that has embraced characteristics of encouraging executives, general managers and all employees to act and think like an owner with a stake in the enterprise, supporting a can-do attitude, promoting an ability and willingness to urgently get things done, acting to avoid unnecessary bureaucracy, developing an ability to learn from mistakes openly and constructively and the trust of working in a team. As a company, we embrace new initiatives every day, and we focus on new products, new technologies, new locations and new ways of doing things consistently. Our strategic investment in NanoXplore, our embracing of new technologies and our acquisitions in 2019 reflect our entrepreneurial character. The company embraces lean thinking as part of its culture, too. Simply stated, the lean thinking way is a focus on eliminating waste in all aspects of the company's business and operations. The elimination of waste allows us to take out unnecessary cost, thereby making us competitive. It enables us to see problems that we can fix in our operations more easily. It allows us to simplify processes. So that we can have safer, cleaner, more efficient and more sustainable workplaces. It is a culture of continuous improvement in whatever we do. Our improving quality and safety and our growth in margins are all products of lean thinking. At the core of our One Martinrea culture is a golden rule philosophy based on treating others the way we want to be treated, with dignity and respect. But more also, it means following our 10 guiding principles in our business and operations and how we deal with our customers, employees, suppliers, stakeholders, which include lenders and shareholders and our communities. Being lean or being entrepreneurial is not enough. These cultural elements overlap and are tied together with our golden rule approach. We make people's lives better in what we do. And we can only do that with a service-oriented approach to our work and our colleagues at work and all those who we deal with in our work. It's not about me, it's about we. At Martinrea, we believe that our culture is and will be a sustainable competitive advantage for the company over the long term. And we believe it has driven the improving financial, safety and quality performance over the past several years. In order to be sustainable for the long term, a company has to be profitable, safe, build great products, take care of its customers and people and have a culture that is embraced by the people. Sustainable companies with great cultures will be around for a long time, regardless of industry changes, new technologies, disputes or potential pandemic issues. We believe we have a company poised to excel over the next decade and beyond, and we and our people are committed to that. We thank all our stakeholders for their support. We will continue to do our best for you in 2020, the next decade and beyond. We will have a great future together. Now it's time for questions. We see we have shareholders, analysts and competitors on the phone, so we may have to be a little careful with our answers, but we'll answer what we can. Thank you all for calling.
[Operator Instructions]Our first question is from Kevin Chiang with CIBC.
Maybe just starting off with a clarification question. It sounds like, I guess, the post-strike volumes from GM came in lighter than you expected in Q4. Does that suggest there's a little bit of a bleed into 2020? Or are these volumes -- or these are volumes that, I guess, we shouldn't expect to materialize at any point in time, really?
Well, I think it's 2 things. One, I believe they probably had built ahead in some anticipation of the strike last year, maybe more so than we recognize. But the outlook right now for their key products is actually still pretty good. Their inventories are relatively low. So what do you call that overhang from '19 or at least a decent outlook for volume this year? I think that the Silverado, the SUV platform that's launching off of it relatively soon and Equinox will continue to do very well this year. So some of that could be paying over from '19 or just that the outlook is very positive right now.
Okay, that's helpful. And if memory serves me correct, your acquisition of Metalsa, I think it's breakeven EBITDA this year, and I think it's a $30 million EBITDA in 2021. Is that still the right way to think about it? And then if that is -- if I have my numbers correct, in the longer term, can you get Metalsa's margins similar to your corporate average, prior to this acquisition? Or is that a glass ceiling for that asset?
Yes, I'll address the first part. So we outlined what our expectations for Metalsa in our December press release. So from that perspective, nothing has changed. So breakeven EBITDA in '20 and a $30 million positive in '21. It still stands from our viewpoint. At this point, we just closed. So we're obviously going to get into a little more detail as we jump in. So that is correct.
And as far as it improving to the level where we're at, I mean, even in our -- inside our own company, we have variations from plant to plant. And I'm sure that, with Metalsa, there'll be some of that. But we don't expect it over a long period of time to drag our average. Certainly, this year and in the next, there'll be some work. But over time, I would expect the plant's performance to progress, just like our plants have in Martinrea Classic.
Okay. And just last one for me, and I appreciate the color on the balance sheet. It's in a great spot. You've obviously been aggressive on the buyback, and you just raised the dividend. And it sounds like you'll be aggressive on the buyback once this call is over. But when I look at what Continental gave last night or this morning for us, a pretty subdued outlook for the auto sector, especially in the first half, given a lot of the stuff you mentioned, coronavirus, just maybe a weakening economy, even if it's temporary, given the outbreak. Like, how do you think of balancing the balance sheet, the buyback, maintaining a strong balance sheet given some of your -- some of these other suppliers seem to have a much more bearish near-term outlook, at least where global auto production looks like? And given some of the comments you made earlier around your capital allocation?
Yes. So I think we'll all take a little piece of your question here. Relative to volumes, certainly, as we said, we're seeing slowdown in certain mixes in Europe. We expect that will continue in China. We expect that to continue to be lower than it had been. And this is kind of outside of the virus because not sure where that whole thing is going to go. But regardless of that, keeping in mind, we're still pretty heavy in North America. Though the Metalsa acquisition gives us a better footprint. I mean you still look at our volume, we're in the high 70s in North America on platforms that are very popular. So I think that regardless of what happens worldwide, North America is going to probably do the best, whether it's going to do as well as it's been doing the last few years [ or not, time ] will tell. But certainly, I think it will perform better than the rest of the world again this year and the platforms that are going to perform are going to be trucks and SUVs. So from that point of view, on our product, we still feel pretty good about it.
So a couple of things. Obviously, we're watching the coronavirus along with everyone else. It's a human issue. We have people in different places, including in China, although, we don't have a big presence, and we're taking all the precautions obviously. We want that to have a good result, and we're monitoring it. And of course, that lends an element of conservatism and caution to everything. Having said that, at some point, this is an industry that's not going away. It's got its challenges that come from time to time over the past 2 or 3 years. I mean we've had apocalyptic comments on trade issues and USMCA and all that type of stuff. I think that we've got to put stuff in perspective here. This is an industry that's not going away. What we think is there's going to be a working through of the coronavirus issue. We do think that the trade issues a lot of people have been rethinking. And we think it's a very good future for regional trade area. So our China plants in China for China. Our North American plants in North America for North America, for the most part. And I think it's a tremendous opportunity for North America in terms of rejigging of supply chains, especially through Mexico. And I think Europe's going to do some rejigging of supply chains as well. And that is perhaps the biggest long-term fallout from what we're going to see here. And I think that could be very healthy for the industry. From our perspective, our focus, we've been through many challenges over the last 18, 19 years, and if you are entrepreneurial, if you're lean, if you're looking for opportunities and so forth, the question on all these things is who handles it best. These people are still going to buy vehicles. People are going to still make parts for vehicles. And at the end of the day, some people in these circumstances are going to be challenged to meet the challenge. And some people are going to be poised to take advantage and grow their business. And that's what we've always tried to do. I think we've done it pretty successfully.
[Operator Instructions] Our next question is from Michael Glen with Raymond James.
Maybe just to start off, Fred, you talked about Asia operating profit maybe normalizing next year. Obviously, margins were very high this year. Can you just give a little -- would it be closer to Europe, closer to North America next year? Is that the sort of what we should be thinking about?
Yes. I think -- I'm not going to get too specific, only a couple of really strong quarters in the Rest of the World. We expect some pricing pressures into '20, some mix differences and, obviously, some volume headwinds, and particularly as it relates to this coronavirus. So I outlined them in my opening remarks. So normalization was always envisioned in that region so it is not necessarily unexpected from our perspective. But you'll start seeing that in Q1 going forward. And in terms of longer term, it's still a very small segment for us. It's evolving, and all these swings quarter-over-quarter tend to be very noticeable. But longer term, when we continue to grow the business, we have some more coming on line. In particular, our aluminum facility, we expect the margin profile probably be more consistent in North America and Europe and potentially even a little higher. So we'll see how that plays out, but it'll be a healthy region for us longer term.
Okay, that's great. And then for CapEx next year, did you guys provide a number? What to expect?
So we were -- prior to the Metalsa acquisition, we are actually projecting to actually be down year-over-year. So we went through a business planning process at the end of last year, and we made some adjustments and so forth. But when you layer in Metalsa, we're going to probably be more consistent year-over-year. So I would say, again, very similar guidance as '19, around $300 million of CapEx.
$300 million. Okay. And then, Pat, when we're thinking when we're looking at your business segments, steel metal forming, fluid management, aluminum components, and we're thinking we see a lot of commentary. GM had a huge day yesterday describing their electric -- fully electric future. When we think of your -- those 3 business segments and what we're hearing about some of the OEMs in terms of the evolution, how -- obviously, there's some product in your mix that might see some pressure. Can you -- how do we think about each segment and where you see gains and maybe some losses as that market evolves?
In our lightweight structures business, which is our largest business and where the Metalsa acquisition will go as well, I think we're going to continue to see that perform well and even better as you go down the EV line, the need for lightweighting becomes even more important because of the distance issues and so forth. Higher use of aluminum potentially mixed with high-strength steels. So that's why we always are talking about joining technologies. And with the purchase we just made with Metalsa, they have some unique joining technologies married with ours. And we think we're going to really advance in our ability to build multi-material product, which we see as the future because an all-aluminum vehicle is too expensive and an all-steel vehicle's a lot less money, but too heavy. So we see a lot more mixing going forward. So I think we'll really see the best growth there. In our aluminum business as a whole, I think we'll do well. Though, I think you'll see a shift away from engine blocks as much more into battery trays and engine or motor housings and more structural parts. And then there's always been a debate about well, what's going to happen to the fluids business? So the fluids business is basically fuel and brake. Don't see a huge impact on brake. We sell brakes lines to Tesla now, and they'll apply in electric vehicles for some time. We are trying to emphasize more on thermal management in our fluids group. We've picked up some new products over time and continue to focus more there. So as the fuel line portion of the business starts to decline, we would anticipate we'll replace that with a lot more thermal management. When you look at a lot of the battery technology, thermal management demands are much higher. So I think the fluids business is a great business. I certainly don't see it dropping off the earth anytime soon. In fact, I see many, many profitable years ahead. Mostly in North America, where, again, we're very heavy with the fluids business. So in any of them, you'll see a change in that segment more. The aluminum and the lightweighting space, I think, you're going to see accelerate. And then our strategy and our investment, the way we're approaching it is we're moving in our lightweight structures group very fast related to EVs and hybrid vehicles, and we're taking it a little slower in our propulsion group, mainly for that reason is understanding where things and how fast they're going to go. There's a lot of energy around, pardon the pun, energy around electric vehicles. But how fast in the volumes, it's still very questionable. And I think we need to be really smart about which ones we focus on and how fast we think they're going to come because the investment levels, as you know, are extremely high. And so far, with maybe the exception of Tesla, nobody's hit the mark on sales. So a lot of work to be done there, and we're going to be smart about it, just like we've been smart in China, frankly, as we go forward.
And we're seeing a lot of companies talk about product. Are you seeing opportunities yourself to participate in some of those EV launches to...
Yes, absolutely. Yes, absolutely. We've got product on electric vehicles now. Some of the bigger programs we won are in China. They're in the future, as Fred referred to. So Geely, we announced that a year or so ago. And we expect that electric vehicles in China will propagate the quickest, so it's a good place to be. We announced -- and this announcement, the EVA II, which is the Daimler EV, it's a global platform. It's going to be built in the United States, and we won some work on that. That's pretty complex, multi-material, meet the unique joining technologies I talked about will be utilized there. So yes. And on the Mach-E that Ford announced, we have some good work on there, and that's a multi-material subframe where we bring steel and hollow aluminum together. That's a very unique process. So we're allowed to add a lot of what this lightweighting strategy is that we're bringing to the table on some of these new products. But again, you got to be choosy about what is the volume really going to be and be smart about how much you're going to invest in that. And so we're, so far, I think, being pretty smart about it.
We have a good chart in our investor presentation, which we'll be posting, which basically shows that our book of business is evolving with the market. So if you look at it just today, we're about 95% ICE platforms, about 5% BEV hybrid platforms. In 5 years, we project about 23% on BEV hybrid platforms based on what we're winning, which follows the market. So at the end of the day, if you're looking at our revenue since you want to be along with the market, you don't want a disproportionate model on electric vehicles when they are only 10% of the market. You don't want 30% of your product on electric vehicles when they're only 10% of the market. So we're actually being pretty careful to follow that, and you've got to follow the real numbers as opposed to the rhetoric.
Okay. And then in the regions in which -- where those vehicles are produced and sold also is very important because the world is going to go, as I said earlier, down the electric road at a much different speed, I believe.
Our next question is from Peter Sklar with BMO Capital Markets.
Pat, could you explain what's going on with these Escape volumes? They've really been down at times. What exactly is going on, on the production of the vehicle?
Well, in the -- there was a slow start up. As you know, part of that was due to some engineering changes that were made, not specifically on our part of the product, but in other areas. So the launch overall was put off until later in the year than originally planned. My understanding is there are some supply issues from another supplier. I don't know which one, but it's inhibiting some of that production. That was compounded, we noticed this right away, when the coronavirus got ugly in China, that was compounded by that. So I think the primary issues, at least at this point, are supply issues that -- and again, influenced by the coronavirus. But yes, we have not been satisfied with what we expected out of that car so far. But again, if you don't have a part, it only takes one. So I know they're working hard at getting those supply lines corrected. Where the virus goes, I guess, we'll wait and see. But our anticipation is that, that volume will come back in the spring of this year.
Okay. And have you been happy with your launch at Shelbyville?
With our launch, yes, I'm really happy with it. It was an all-new line. It's one of our new flex lines, which I've talked a lot about. We can run 4 different models, if you will, of that base vehicle; electric, nonelectric, hybrid, traditional all on the same line. So it's pretty unique. And in fact, I think that line helped us win some other business with some other customers soon after because of its unique design. So yes, I'm pretty happy with it.
Okay. And then the other thing I wanted to ask you about is these new emission regulations that became effective in Europe this year. I'm just wondering if you have any views on how that's going to impact European vehicle production volumes, if at all.
Well, I can't say I'm 100% familiar with what passed where other than one of our customers believes, and it makes some sense. We talked with them last year about what was going on in Europe and the volumes, as they said, simply, we believe a lot of people in Europe are having trouble deciding what to buy. Because the laws have fluctuated in some local areas where a city would say nothing, except electric cars, a new government gets in, and that's what happened in Madrid, in fact, then they let the cars back in again. So do I buy an electric car now and not lose the volume -- value of my diesel and/or gas car or do I go ahead and buy another diesel or a gas car, believing that the electric vehicle is still a long way off. And basically, what some believe is that everybody is just kind of waiting to decide what to do and have a lot of anxiety about their purchase because they don't want the car they have to lose all its value as things go electric. We might see this happen in other parts of the world at some point, when you go from one to the other. But certainly, that would be -- that story makes sense to me. Whether that's true or not, I don't know. But there seems to be pent-up demand in the market, but a lot of anxiety about what to get.
[Operator Instructions] Our next question is from Brian Morrison with TD Securities.
Fred, can you just break down the $400 million of revenue by geographic segment for Metalsa, be it North America and Europe and Rest of World? And then maybe, Pat, can you just talk about the key issues and the restructuring initiatives that have to take place at Metalsa to get it from breakeven to that $30 million target in 2021?
Yes. So it's about 60% in Europe and about 25%, 30% North America, then the rest will be China and South Africa, roughly.
So what was the other half of the question again, please?
Yes. I was just wondering if you might take -- just talk about the issues that are currently taking place in Metalsa. It's got breakeven EBITDA and just the restructuring initiatives. What needs to take place to drive that $30 million over the next year?
Yes, it's really early to get into anything specific because we got it on Monday -- or Sunday -- Monday morning, we basically sent our integration teams in, and we're making that assessment now. And of course, during the due diligence phase, we spent time in the plants, but it's a lot harder to understand what you need to do until you can dig into everything. And so that's what we're doing now. Operationally, just from my observations, I've been at 2 of the 2 major plants. There is a lot of good opportunity to improve the operation, improving material flow. The good news is they've made some wise investments in equipment, the equipment that they had bought over the last 5 years is pretty good. But the layout and the material flow in the plants, I think, has a lot of opportunity that we can have a good influence on. So I think that will be one of our first steps to take a lot of the waste out. And the biggest challenge is going to be Germany. But I think the rest of the plants, I mean, they're a little smaller, will probably come along quicker.
Okay. And then just in terms of your 2020 operating margin. I think in the release it says you expect it to improve from -- to 7.5% this year to the -- and I think that's inclusive of Metalsa. So I think that means your legacy operations should be around 8.25% plus in 2020. Is that correct? And what are the North American volumes that you're assuming in that guide?
Yes. So we based our projections and budgets on IHS. So they're essentially projecting a fairly flat environment in North America next year. So that's kind of the baseline. And I think you're kind of in the ballpark. I mean, I think what dragged the margin in 2019 significantly was the strike and assuming that something like that doesn't happen again in 2020, I mean, that, in itself, will create an uplift year-over-year. So I think you're correct, it would be driven by North America. I think Europe, we're dealing with some headwinds there. So we'll see how that plays out. But there may be some drag there. And also, there's a big chunk of the Metalsa business coming there. And I talked about the Rest of the World already. So I think you're in the ZIP code in your thinking.
And last one, Fred. Maybe just in terms of the tooling sales. I don't know off the top of my head, probably a little over $400 million this year. What are we thinking of through 2020?
Yes, I think next year, it will be somewhat more normal. So if you look historically, we've been somewhere between $200 million and $250 million. So I'm thinking something in the range of $250 million. One caveat there is that's a lot of our customers push out dates and milestones and PPAPs get pushed out. So I'm very cautious with providing firm guidance on there. But something around $250 million, I am not expecting another $400 million year next year. That's for sure. But $250 million, maybe a little bit more, a little bit less, but in that ballpark.
And all being positive get for margins into?
Correct. Yes.
We have no more questions registered at this time. I would now like to turn the meeting back over to Mr. Wildeboer.
Thanks very much, everyone, for us cutting into your dinner time. We thank you for your questions. All of us are available at any time. Feel free to contact us, and that's on the press release in terms of our number and emails. Have a great evening.