Visteon Corporation (VC) Q2 2020 Earnings Report, Transcript and Summary

Good morning. I'm Kris Doyle, Director of Investor Relations for Visteon. Welcome to our earnings call for the second quarter of 2020. Please note, this call is being recorded. [Operator Instructions]. Before we begin this morning's call, I'd like to remind you this presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not guarantees of future results and conditions, but rather are subject to various factors, risks and uncertainties that could cause our actual results to differ materially from those expressed in these statements. Please refer to the page entitled forward-looking information for additional details. Presentation materials for today's call were posted on the Investors section of Visteon's website this morning. Please visit investors.visteon.com to download the material, if you have not already done so. Joining us today are Sachin Lawande, President and Chief Executive Officer; and Jerome Rouquet, Senior Vice President and Chief Financial Officer. We have scheduled the call for 1 hour, and we'll open the lines for your questions after Sachin's and Jerome's remarks. [Operator Instructions]. Again, thank you for joining us. Now I'll turn the call over to Sachin.

Thank you, Kris, and good morning, everyone. Before I start today's presentation, I would like to acknowledge the tremendous effort of our employees in these challenging times. They have been resilient and resourceful in delivering to our customer commitments while simultaneously reducing costs. I would also like to take a minute to reflect on the unexpected passing of David Leiker earlier this month. It was always a pleasure to work with David and I'd come to regard him as a friend. The Visteon team sends our deepest condolences to his family and to his colleagues at Baird. The second quarter was marked by extended vehicle production shutdown in various parts of the world due to the COVID-19 pandemic. With the exception of China, vehicle production in the rest of the world was shut down for over half of the quarter, resulting in global vehicle production to be down 45% year-over-year. Vehicle production at Visteon's customers was down even more at 53% reduction year-over-year. Visteon second quarter sales were $371 million, down about 48% year-over-year, excluding currency and outperforming vehicle production at our customers by about 5 percentage points. The company set a comprehensive action plan at the onset of the pandemic with a focus on 5 key areas: managing cash and liquidity; reducing operational costs; strengthening commercial discipline; aligning supply chain and manufacturing to lower demand; and finally, positioning the company for the future. In the second quarter, we were able to flex operational costs down across the business in response to the reduced sales volume. Our manufacturing costs were reduced by more than 45%, while gross engineering and adjusted SG&A were both down approximately 30%. This was achieved through a combination of temporary salary reduction, adjustment of our footprint from high to low cost, reduction of contractors and other purchase services and through strict control of all operational expenditures. With respect to commercial negotiations with customers, we were able to hold pricing to around 2% of the current quarter sales. We also derisks second half engineering recoveries by finalizing some negotiations with customers earlier than previously anticipated. The strong performance on cost reduction and commercial negotiations resulted in adjusted EBITDA of negative $3 million for the quarter with a decremental year-over-year margin of 15%. The sudden and extended shutdown of manufacturing operations that we experienced in April and May were very challenging from a supply chain perspective. The team did a great job in reducing inventory down to $170 million for the quarter, which is down $10 million compared to Q1. All of our manufacturing plants globally are up and running, and the supply chain is improving with each passing week. Increased focus on customer receivables and reduced CapEx helped mitigate the impact on cash, and adjusted free cash flow was a negative $52 million for the quarter. As a result, our cash balance was $759 million at the end of the second quarter, which gives us ample liquidity to weather the crisis. Our strategy of winning greater share of new business and converting it into revenue through new product launches remained on track in the second quarter. Even with the slowdown of activity, we launched 8 new products, bringing the total count to 21 for the first half. We also won $900 million of new business in the quarter, despite the low activity with OEMs in North America and Europe, bringing the first half total to just over $1.7 billion. In summary, the company performed well in a challenging environment by responding to the reduced sales with strong cost performance without impacting our long-term plans for growth. Turning to Page 3. Automotive production recovered to pre-COVID levels in China by the beginning of the second quarter. But outside of China, return to production was more uneven with OEMs restarting production in Europe in early May and were delayed until early June to restart their production in North America. In Brazil and India, production restarted by the end of May, but at much lower capacity and did not recover much during the quarter. In this uneven production environment, vehicle production at top Visteon customers was down 53% year-over-year, lower than overall industry, which was down about 45%. Visteon sales were down 48%, excluding currency, outperforming vehicle production at our customers by 5 percentage points. This outperformance would have been greater if not for the high implant inventories at our OEMs towards the end of the first quarter. From a regional perspective, Visteon's sales in Americas were down about 70% and in line with the industry as we were impacted by late start of production at key customers in both U.S. and Brazil. In Europe, our sales continued to outperform the industry due to new product launches with multiple customers, including Ford, Renault and PSA. In China, although the market was up 6% year-over-year, vehicle production at our largest customer, SAIC, with joint ventures with GM and VW, was down about 7%. Nonetheless, Visteon sales continued to outperform the market in this region by 9 percentage points on account of the new product launches over the past 4 quarters. I should mention that the high take rates that we experienced with GM in China, in 2019, have now come down to normal levels as the customer has ended the promotional campaign. In rest of Asia, we continue to be in a product transition phase with the roll-off of infotainment at Mazda, which was partially offset by launch of digital clusters at Hyundai and Mazda. In summary, Visteon continued to outperform vehicle production in the second quarter, despite the challenges with the uneven restart of production in different parts of the world. Moving to Page 4. New program launches with customers remained on track in the second quarter, despite the restrictions due to COVID-19. We launched 8 new products with OEMs in the quarter, of which 4 were in Europe, 2 in Americas and 2 in China and bringing the total for the first half to 21 new products. Some of the key launches are shown on the slide, starting with the 12-inch cluster for Toyota in China, our first with this customer and to launch on 2 vehicles in that region. We also launched a 12-inch cluster with Nissan for the new 2020 Rogue compact SUV, which will then be followed by 4 additional vehicles over the next 12 months. We are starting to see all digital clusters come into mass market vehicles like the Rogue and the Ford Focus, and we expect this trend to continue going forward. In addition to clusters, we also launched our first Android-based infotainment system with VW in South America. The first launch was on an all-new SUV, the Nivus in Brazil which will be followed by additional vehicles as a mid-cycle upgrade. This infotainment system offers a few features that are a first for an entry infotainment system for mass market vehicles, such as an App Store with downloadable apps, wireless CarPlay and Android Auto and a large 10-inch display. This launch has put Visteon on the map as an infotainment supplier, and we are now in discussions with multiple OEMs for solutions. We have a very busy second half with about 40 new products planned for launch that will make 2020 a record year for Visteon. About half of these launches are in China with the rest spread across the other regions. The majority of the new launches are for digital clusters, including a 12-inch digital cluster with over-the-air software update capability for the top selling pickup in North America, and another 12-inch digital cluster for a top-of-the-line luxury sedan with a German OEM with enhanced 3D graphics and augmented reality. In China, in addition to multiple digital cluster launches, we also have the first launch of our new SmartCore system that uses Qualcomm silicon and cloud ecosystem from Tencent. And in rest of Asia, we have several launches with Honda, Hyundai and Mazda, mostly for clusters, but also displays and multi-display systems, including a dual 12-inch display system with integrated digital cluster for an OEM in Korea. The 21 launches year-to-date, plus the upcoming launches in the second half, will put Visteon in a good position to continue our better-than-market performance going forward. Moving to Page 5. In the second quarter, as I mentioned earlier, new business activity with OEMs in Europe and North America was slow with the shutdown and restart of production taking most of the attention, but we had a lot of activity in Asia. We are seeing an acceleration in the adoption of the new cockpit solutions in Asia and in China, in particular. We were able to leverage our technology leadership in displays, digital clusters and SmartCore to win significant business in this region in the second quarter. Some of the second quarter new business highlights are shown on this page. The first win on the left of the page is at the China OEM for a multi-display system with an integrated digital cluster in a large 27-inch center information display with horizontal orientation. The second win in the middle of the page is for a 10-inch center information display for a Japanese OEM and will include new features such as narrow borders and in-cell touch capability. Displays in cars continue to be larger and with new capabilities and our expertise and technology leadership in the design and manufacturing of these displays was key to winning this business. The third win was for a SmartCore system with a Chinese OEM that leverages the work we have done for a different OEM also in China. The system offers integrated digital cluster, an Android-based infotainment with cloud-based apps. The system will launch on 7 different models with this OEM and will solidify our position as the leader in cockpit domain controllers in the China market. As these wins indicate, the key trends in cockpit electronics remain strong and continue to drive new business opportunities for Visteon. I'm particularly pleased to see that we're winning high-quality new business in large displays and SmartCore in addition to digital clusters and broadening our product portfolio. Moving to Page 6. We won $900 million in new business in the second quarter, bringing the first half level to $1.7 billion. Due to the shutdown in Europe and North America, most of the wins in the quarter came from Asia. Second quarter wins were evenly distributed across digital clusters, SmartCore and displays. And for the first half, digital clusters make up about half of the new business, followed by infotainment and displays. We also had a couple of significant wins for SmartCore in China this year, which will help us maintain our global lead in this category. As we look ahead to the rest of the year, I expect our performance in the second half to be better than first half as OEMs in Europe and North America restart their activities with respect to new business. Our new opportunity pipeline for the second half is between $8 billion and $9 billion, which is a little lower than in prior years as the industry is still finalizing vehicle cycle plans in response to the crisis. We expect to see continued interest in bringing digital clusters to all vehicle segments, especially for the mainstream B and C segment vehicles. Following the launch of our first Android-based infotainment system with VW in Brazil, we are now seeing more opportunities for this product with other OEMs. We are in discussions with multiple potential customers and even though sales cycles for infotainment tend to be long, we hope to close some of the opportunities this year. With this new infotainment system, our product portfolio is now complete and stronger than it has ever been. As the industry continues on its path of recovery from the depths of the second quarter, I'm confident that we will return to our prior levels of new business wins. Move to Page 7. On this page, I would like to share our thoughts with respect to the outlook for the industry and for Visteon in the second half of this year. The global automotive industry recovered late in the second quarter, with production in June being down 21% year-over-year compared to the 61% drop experienced in April. The outlook for vehicle production for the third and fourth quarters depends on a few factors, the most important being the ongoing crisis due to coronavirus and the resulting impact on global economies as well as the geopolitical uncertainties that have impacted consumer confidence even prior to COVID-19. It is difficult to predict when we will be able to overcome the coronavirus, but it appears unlikely to happen this year, and we may have to live in this environment for the rest of the year. Our discussions with OEMs regarding second half vehicle production lead us to believe that production at Visteon customers may be down by about 15% year-over-year for the second half. This is slightly lower than the forecast for global auto production by IHS. Our outlook assumes that the situation with coronavirus will not worsen beyond what we have already experienced and that the global economies will start to recover from the bottom experienced in the second quarter. We expect Visteon sales to continue to outperform the market in the second half due to the favorable cockpit electronics trends and due to the contribution of new product launches. The best we can do in this uncertain environment is to focus on the factors that we can control and let the market take its course. We will remain focused on controlling costs and execute on the new product launches in the second half of this year, like we have done in the second quarter. Moving to Page 8. In summary, the company executed very well in the face of a challenging business environment. Our second quarter sales were better than the underlying vehicle production at our top customers, making it our fifth successive quarter of market outperformance. The proactive actions we took to preserve cash and reduce operational costs are helping the company weather the crisis and puts us in a good position to eventually emerge stronger and more competitive than before. Despite the challenging environment, we have launched 21 new products and $1.7 billion in new business in the first half of 2020, building the foundation for future growth. In addition to digital clusters and displays, we launched our first Android-based infotainment system with several first-to-market features. It rounds out our product portfolio and puts the company in a great position to take advantage of all the key trends in the industry. Now I would like to turn the call over to Jerome.

Thank you, Sachin, and good morning, everyone. The second quarter was unprecedented with the entire automotive industry outside of China, grinding to a halt before ramping back up in the second half of the quarter. Very early in the crisis, we established a comprehensive action plan to actively preserve cash and aggressively adjust our cost base in response to the dramatic sales volume reduction. As a result of our actions, our balance sheet remains strong. We ended the quarter with $759 million in total cash and $770 million of total debt, representing an $11 million net debt position. We continue to have one of the best balance sheets in the industry with a net debt-to-last 12-month EBITDA ratio of 0.1x and no significant debt maturities before 2024. Our cash actions in Q2 were mostly focused on capital expenditures reductions and working capital management. CapEx was reduced by approximately 40% in the quarter compared to prior year. This reduction was achieved through a combination of initiatives, including equipment we use, negotiations with vendors as well as adjusting spending to new activity levels. We are on track to achieve our CapEx target of $115 million for the full year, which represents a 20% reduction compared to prior year, while still investing to support our new business wins. The second quarter presented numerous supply chain challenges as supplier and customer manufacturing facilities reopened at different times throughout the quarter. Despite these challenges, we were able to reduce inventory by $10 million compared to the first quarter. This reduction was facilitated by the creation early in the crisis of a global sales and supply chain task force managing the constant changes throughout the quarter. Finally, we monitored our receivable balances daily during the quarter to ensure timely collections of our customers' receivable. Our strict cost controls in Q2 allowed us to reduce decremental margins for the quarter to a low 15%. Our manufacturing operations reduced costs by approximately 45%, flexing material costs, reducing working hours and curtailing operating expenses. Gross engineering and adjusted SG&A were both reduced by approximately 30% compared to prior year. This is the result of our temporary salary reduction program, our focus on flexing contractors and purchase services to adjust to lower activity levels, but as well, the benefit of our 2020 restructuring programs combined with our continued focus on cost reduction activities. We were also able to secure engineering recoveries in the second quarter, which we had previously targeted for later in the year, thereby allowing us to substantially derisk the third and fourth quarter recoveries. Finally, we are well underway with our restructuring initiatives announced earlier this year, and we have recorded $37 million of restructuring expenses year-to-date. These programs have, on average, a 1-year payback period and will allow us to reduce salaried headcount by approximately 10% by the end of the year. Combined, all these actions have helped us to not only navigate the global pandemic, but more importantly, to position us to emerge stronger when volumes return. On Page 11, we provide our sales and adjusted EBITDA for Q2 2020 versus 2019. The sales of $371 million in the second quarter decreased $362 million or 48% compared to last year, excluding the impact of currency. In comparison, production volumes at Visteon's key customers declined 53% as the spread of COVID-19 significantly disrupted operations throughout the automotive industry during quarter 2. Adjusted EBITDA was negative $3 million, representing a decrease of $49 million versus prior year. The impact of volume, mix and net new business decreased adjusted EBITDA by $127 million, while annual pricing reduced adjusted EBITDA by $8 million. Pricing represented about 1% of prior year sales and approximately 2% of current year's sales levels near the low end of our historical range. Visteon's cost performance increased adjusted EBITDA by $85 million. Close to 50% of our $85 million reported cost reductions were derived from reductions in net engineering. Gross engineering, excluding exchange declined by approximately 30% year-over-year or $32 million, down to $78 million this year. While engineering recoveries increased approximately 30% year-over-year or $7 million from $26 million last year to $33 million this year, significantly derisking expected recoveries for the full year. Adjusted SG&A was $34 million, an improvement of $15 million compared to prior year, excluding currency. The remaining $31 million of cost savings included material purchase price reductions, value engineering activities, manufacturing efficiencies and the nonrecurrence of 2019 operational challenges. Excluding the nonrecurrence of 2019 operational challenges, decremental margins were at a low 15% for the quarter, illustrating the significant cost reductions implemented during the quarter in all areas of the company. I'd like to build on Sachin's earlier comments and provide some insight into Q3 and the second half of the year. As you would expect, due to the continued COVID-19 pandemic, the environment is still too uncertain to reinstate guidance for the rest of the year, but we do want to share with you how we are thinking about the second half of the year. First, we anticipate industry production volumes will significantly recover in Q3 compared to the depressed levels experienced in Q2, but will remain lower than Q3 2019 levels. As Sachin mentioned earlier, our discussions with OEMs indicate that production at Visteon customers may be down by about 15% year-over-year for the second half. Second, we anticipate that Visteon will continue outperforming the market, driven by favorable industry trends and a high number of product launches. Third, we are now targeting a 20% year-over-year reduction in net engineering expense for the full year. Total gross engineering in the second half of the year will look similar to the total amount of gross engineering in the first half of the year. Although we expect Q3 and Q4 levels to be higher than Q2 as activity levels resume, we expect to see a reduction compared to Q1, driven by both the short-term and structural cost measures we are implementing. Also, unlike previous years, we expect recoveries to be at similar levels in both the first and second halves of the year. In total, this would represent full year decremental margins of approximately 20%, which is a significant improvement from our original expectations a quarter ago, driven the quick and aggressive cost actions we implemented throughout the pandemic. Page 12 provides an overview of our cash and net debt position at the end of the quarter as well as our adjusted free cash flow for the first half of the year. As previously mentioned, we have one of the strongest balance sheets in the industry, ending the quarter with nearly the same level of cash and debt. Net debt to last 12 months of adjusted EBITDA is 0.1x and provides Visteon with a significant amount of flexibility as we navigate through the crisis. First half adjusted free cash flow was negative $66 million, representing a $64 million decrease compared to prior year, mostly driven by the year-over-year decrease in adjusted EBITDA. Trade working capital was a source of cash in the first half of the year of $16 million compared to a source of $35 million in the first half of '19. We closely monitored our receivable balances throughout the quarter and did not see a deterioration in collectibility as we finish the quarter. Our purchasing and supply chain teams have continued to manage the supply chain challenges created by the pandemic. We were able to keep inventory levels flat compared to the end of the year, down $10 million compared to the end of Q1. Capital expenditures decreased by approximately 40% in the quarter compared to last year, representing an 8% decrease in the first half of the year compared to prior year. The decrease in CapEx is a combination of lower activity levels and strict cost controls. Turning to Page 13. Visteon continues to be a compelling long-term investment opportunity. As a pure-play cockpit electronics company, we are well positioned to adapt quickly to the changing environment while ensuring our product portfolio is well-aligned with particular trends in the industry. We continue to lead the cockpit electronics evolution, launching several all-digital clusters in the quarter as well as our first Android-based infotainment solution with several first-to-market features. We have made significant progress in building a competitive cost structure and demonstrated our ability throughout the quarter to quickly flex operating costs to align to lower industry activity. Our strong balance sheet puts us in a great position to emerge stronger once the near-term challenges dissipate. Thank you for your time today. I would now like to open the call for your questions.

[Operator Instructions]. Your first question is from the line of Dan Galves with Wolfe Research.

Just wondering if you could kind of give us a bit more color on how you expect your organic growth in comparison to Visteon's customer volumes to trend into the second half and out into 2021?

Good morning, Dan. I will take this question first, and then I can ask Jerome to also add more color to it. So if you look at the second quarter, we saw a good recovery late in the quarter in June. And as you know, June was down about 20% in terms of production year-over-year. As we look ahead to the second half, there is certainly a lot of uncertainty and we, at this point, are a little more conservative than IHS in terms of the underlying vehicle production estimates, mainly in North America and in China. For example, IHS has Ford flat, I believe, year-over-year for the third quarter. And given the number of new launches, we believe it's a bit prudent to be more conservative there. Also in the fourth quarter, if you look at China, IHS has SGM in China, up 10%, which we think is a bit optimistic. So if you look at the different puts and takes, we think the underlying vehicle production is going to be down 15% year-over-year. Now compared to the first half, there is still going to be a pretty good performance in the second half, somewhere around 20% to 25% in terms of the vehicle production increase. And at the same time, as we have been doing for the last 3, 4 quarters, expect our market outperformance to continue into Q3 and Q4 as well. So let's see, in terms of 2021, right, what -- how the market would look like. There is still some more time to get a better feel for that. But one thing should be clear with the new product launches that we anticipate in the second half, this year is going to be a pretty good year for us from a new product launch perspective. I would expect that market outperformance to continue. Jerome, anything you would like to add?

The only thing I would add is that we are seeing a fairly strong month of July already, which is consistent with the exit rate that we had at the end of June. So as Sachin was saying, we are cautiously optimistic for Q3 at this stage.

Great. And if I could just follow up. It was interesting that you said your product portfolio is now complete with the Android-based infotainment. I believe that's the biggest infotainment, the biggest segment of cockpit electronics from a TAM perspective. Can you talk about your current revenue on infotainment? And what is your ambition in terms of market share in this market over time?

Sure. So if you look at infotainment as a segment in the industry, it clearly is the largest segment. It's approximately half of the market. And then if you look at the Visteon revenue profile, half of our revenues come from clusters, and infotainment is somewhere between 15% to 20% of our revenue. So we have a lot of opportunity for growth. Our current market share is somewhere around 4% of the market, and our aspirations are to double that. And with this new launch and this new technology that we have now released in the market, I believe we have a great opportunity to accomplish that in the coming quarters.

Your next question is from the line of Joseph Spak with RBC.

Clearly, some good cost control in the quarter, and I appreciate, Jerome, your comments on incrementals and decrementals, you go to the back half. But can we be a little bit more explicit about maybe the temporary savings in the quarter, and how those come back? Because clearly, some are not sustainable, but also the timing of which when maybe they can be replaced with some of the more permanent savings and actions you guys have -- are taking?

Yes, sure. So I would say, generally speaking, we were very diligent in Q2 to focus on costs. And we were as well very early in the quarter, focusing on that activity. And it's a few things. It's commercial discipline first, and we'll talk maybe a little bit later about recoveries, but we were able to derisk the rest of the year by accelerating some negotiations with customers and have a fairly decent level of recoveries in Q2 higher than what we've seen in the past. On the cost side, we've got essentially short-term actions and long-term actions, as you said. The short-term actions were first related to the temporary salary reductions that we announced earlier in the quarter, and these will go on into Q3. So you'll have that impact -- favorable impact in Q3, but they will be going away in Q4. We have also some actions that were essentially just related to volume and activity levels being lower, and some of that will come back in Q3 and as well in Q4. What will stick are essentially the restructuring actions that we took again early in Q2, and as I mentioned in my script earlier on, we're very well advanced with a lot of our restructuring actions. We expect headcount to be reduced by 10% by the end of the year. So that will be in a fairly full effect in the second half of the year. We'll have some of that in Q3 and then a pretty significant impact in Q4. So that's how you'll see, in fact, our cost benefits rolling into Q3 and Q4. But if you step back, and if you look at engineering and SG&A, the way we look at it is that Q3 and Q4 will be at similar levels. They'll be higher than Q2 because some of the cost will come back, but they'll still be lower than what we've seen in Q1. And adding Q1 and Q2, and Q3 and Q4, H1 will be very similar to H2 in terms of cost base, SG&A and engineering, again. And that is with higher volumes, as Sachin said. We're expecting to have volumes -- industry volumes, 20% to 25% higher in the second half, and we'll be able to maintain a cost base flat.

That's great color. And second question is just, Sachin, and maybe playing off Dan's question on -- of infotainment. But specifically within China, I saw this week, there was another announcement with Tencent getting involved with automakers. I think this time it's BMW. And I know you have a bunch of initiatives with Tencent. Can you just remind us of how you fit into the picture there as they seem to be getting more involved in the experience within the car? What your contribution and value-add is to those types of initiatives?

Absolutely. So again, if you look at the market in China, you have the 3 large cloud ecosystems, Tencent being one of them. They provide a whole range of services, as you know, that are driven from the cloud. Of late, some of these ecosystems of Tencent, in particular, have been coming into automotive and offering those technologies for integration into -- in vehicle systems. So for us, they are a third-party supplier of technology like many others. Our role is still the same role as before. We are the Tier 1 responsible for integrating these technologies, adding our own IP and then delivering a complete system to the customer. So what specifically, in the case of Tencent that we are offering in the system that we have mentioned in the past as well, includes access to WeChat, access to their voice recognition service that is delivered through the cloud, and then they have a bunch of features. You can think of them as apps that run on the infotainment system with connection to the back end that's powered by Tencent that deliver a host of different connected services. And so what we see in China, unlike today anywhere else in the world, but we expect this to be the longer-term trend, is that these services are coming into the vehicle, and that is driving the demand for increased horsepower in terms of the computational needs to be able to serve these level of features and functions inside the cockpit. So we are seeing really good demand for SmartCore as an underlying technology to power the applications from suppliers like Tencent.

So is your content opportunity different for a system like that in China than maybe providing, I'd say, an Android-based system elsewhere in the world?

Yes, it is. And let me maybe talk about that a little bit more. So if you think about what we have talked about on the call with respect to the new Android-based infotainment launch, that's really addressing the more entry infotainment segment for mass market vehicles, right? And if you look at the current state of the industry, infotainment systems are closed. They do not offer downloadable apps. Displays tend to be small, 7 or 8 inches, especially in entry segments. And so what we have done with that launch is really addressing the opportunity in the rest of the world, which was frankly behind China when it comes to infotainment. And to me, that represents a significant opportunity for Visteon, okay? And that's outside of China. Now in China, it looks very different. China has already and always had a very active infotainment and activity for the last, I would say, decade. And so playing in the entry infotainment segment in China does not make a lot of sense for us. There are a lot of suppliers. The market is pretty competitive. What we see and where we see opportunity is to go up the value chain, especially as the local OEMs, joint ventures or domestic compete with the more premium brands, international brands, they need cockpit electronics that can compete with what the premium brands are offering, and that's what SmartCore enables them to do.

Your next question is from the line of Mark Delaney with Goldman Sachs.

First question was on the engineering recoveries, which I know came in higher than the company was previously expecting, given some of the work you did there in the quarter. Can you help us understand how much was upside versus your original expectation that it was pulled in from the second half? And I think that brings total, if my math is right, to $60 million in the first half, and I believe you guided to $60 million in 2H. Maybe if you could remind us what the $60 million for second half this year, how does that compare to the second half of last year?

Yes. Mark, it's Jerome. So you're right. So far, year-to-date, we've got $60 million, and our expectation is to be close to $60 million as well for the second half of the year. So that's very different to -- compared to what we had last year. Last year, we had about 2/3 of the recoveries, $90 million were in the second half versus, I think, $40 million in the first half of the year. So a very different profile. And our focus has been really to even the recoveries this year, and we've been very active since the beginning of the year. We were a little bit better already in Q1 versus prior year and confirmed that in Q2 as well. So pretty pleased with that. It really allows us to derisk the rest of the year. It gives us well an overall EBITDA profile, which is much more smoother, at least going forward in a normal environment. So that's been really the goal, and so far, it's working pretty well.

That's very helpful context. My second question was around free cash flow for the second half of the year. I realize we're going to have to come up with our own EBITDA assumptions, you gave us some of the important pieces to think about forecasting EBITDA. But beyond EBITDA, maybe you can talk about some of the other puts and takes to free cash flow in the second half of the year in terms of CapEx, working capital, any other charges or tailwinds we should be thinking about?

Yes. Sure. We've talked about EBITDA. In terms of CapEx, we're maintaining our full year forecast of $115 million, which is going to be essentially 20% compared to what we had last year. What it means then for overall adjusted free cash flow for the second half of the year is that we will be positive. We should be very close to breakeven, give or take, for the full year. And that's, obviously, excluding restructuring payments, which are not in our adjusted free cash flow. So that needs to be taken into account, obviously, as you look at cash flow, and we are still maintaining about a $40 million payment for restructuring for the full year for this year. So that should give you as well a net cash or net debt very close to breaking even for the full year. At least, that's the objective.

Your next question is from the line of Emmanuel Rosner with Deutsche Bank.

I was hoping you could provide a little more color on your bookings expectation and your business wins expectations for the second half. Seeing the color on the pipeline of $8 billion to $9 billion is very helpful. Can just remind us in terms of traditional, I guess, market share of this, what's your win rate that you expect to win? And related to this, I think you've spoken recently quite a bit about the opportunity from winning business with refreshers that the automakers do maybe mid-cycle, and how their sort of general interest is in larger displays and some of your other technologies. When would you expect to start seeing some of that into the pipeline or into the new business one?

Yes. Very good. So first of all, our second quarter, we saw very good activity for new business wins in Asia, in China, in particular, despite, as I mentioned, Europe and North America being more or less quiet. And for the full half, our win rate was in the range of 30% to 35%, which is similar to what we have done before. So we see really no difference between our performance this year and prior years. It's just that the level of activity has reduced the opportunity pipeline. Now at the same time, the quality of the wins were actually very good. If you look at the second half, the $900 million was actually evenly distributed across SmartCore, large displays and digital clusters, so some very good wins. And so we are really pleased with how we have performed in the first half. Obviously, the number would have been higher if not for the lack of activity there. But now when we look ahead to the second half, we are seeing activity return to all regions, and as I mentioned, the pipeline looks pretty robust at $8 billion to $9 billion. And I do not expect our performance there to be any different from the first half or prior years in terms of the win rate. So we do expect to do, overall, better in the second half compared to the first half. And as the industry gradually returns back to normal, we should be going back to our earlier levels of annual new business wins. In terms of the second part of the question with respect to more mid-cycle action versus new vehicle models and business wins on those. OEMs in Europe and North America are still in the middle of revisiting their cycle plans. That activity has not concluded as yet. In the meantime, the activity is more focused on some of their more active vehicles or the vehicles that they see more activity and more business on, and we expect investments in those vehicle platforms to continue. We are, by the way, already on some of the better vehicle platforms that are still, even in this environment, seeing a good performance. So that gives me a lot of confidence that as we go forward, our product mix is going to be better than it has been in the past. And then as the OEMs finalize their vehicle cycle plans, we expect 1 of 2 things: One is that there will be some extension opportunity on the launches that we have recently had as the vehicles that we are on would be seeing some extension of life. And we are also seeing the second kind of opportunity where on vehicles we are not on today as a mid-cycle action, bringing some of the digital clusters. And now this entry infotainment system on Android onto those vehicles more as a mid-cycle action. We are starting to see some of those discussions happen now. It is still not kicked up in the level that I would expect, but we are starting to see that activity already. So it is all an optimistic outlook from that perspective for us.

Great to hear. And then my second question, I wonder if you think a little bit more into your customer mix headwinds. Can you just give a little more color around what are the primary factors there? I think you mentioned in the slide, still some Mazda roll-off. I think there is also the Shanghai GM promotion lapping. I guess, any other ones? Are these old issues? Or are there some new ones in terms of customer mix? And from a timing point of view, when can you expect some of these customer mix headwinds get any phaseout?

Yes. So the first point that I would like to make very clear is that all of these issues are what we have discussed before, so there is nothing new. So the Mazda roll-off is continuing. We have said that 2020, we would see the bulk of the roll-offs happen, and so it should be more normal activity going forward after 2020 with Mazda. One thing that I wanted to clarify also that may not have come across very clearly. In the second quarter, on account of the uneven start with some of our OEMs, we saw an impact of that on our revenues. But as we go forward, that would be normalized, and we do not expect to see that impact. And with respect to China, which is the other region where we've had this issue, we have talked about the roll-off of the -- not the roll-off, I should say, but this increase take rates that we experienced last year, which that program being stopped by the OEM, we are not seeing the benefit of that this year. Now with SGM, the other issue that we highlighted was that relative to market, their production was lower. So in that sense, it impacted us. Nonetheless, we still had a better-than-market performance with -- in China, despite all of these issues.

Your next question is from the line of Brian Johnson with Barclays.

Just kind of following up on that. Is there any way to kind of quantify, especially as you kind of go out second half into next year, the impact of backlog versus rolling on and potential risks or opportunities from that versus take rates for more digital cockpit? So in terms of you might be seeing greater take rates in midrange than you're used to. And then offsetting that, I guess that was the last question, but just are there any specific OEMs or platforms that when we model production, we ought to keep our eyes on as of -- as significant headwinds.

Yes. Brian, so let me try to address that. Now if you look at the product mix and take rates, if you go back last couple of years, we have had the product roll-off impact us negatively. And that was largely on account of the mix that we had was not favorable in terms of the trends. As you look at us today, our product portfolio with digital clusters, displays is very well aligned with the trends that we see in the industry, and so we are seeing the positive contribution of the trends in terms of the revenue. Now it would be too early to quantify that and provide you some specific details, but in terms of the way to think about how this should benefit us, the new product launches that we have discussed this year, right, clearly are going to be a big factor in our better-than-market performance next year onwards. And so if you look at what those products look like, of the 60 that we are launching this year, more than half are digital clusters. And we are seeing digital clusters come down into mass market vehicles, like the example that we gave on the presentation, Nissan Rogue, which is a compact SUV, now comes with a 12-inch cluster in some of the trims. So we expect to see more pressure competitively on other OEMs that's going to drive that kind of a mix. And so if you look at the OEMs, and you know who our top customers are, you can see how this is going to play out over the next few years. In terms of the headwinds, the only one that I would watch out for going forward here that something that we need to still understand better would be Nissan. Their troubles have been quite public, and we need to understand the impact of whatever their plans are on our revenues. They still are a large customer of Visteon today.

Okay. And just following up on the take rate. As you put together your revenue bookings forecast, what kind of take rates are you assuming when you do get a platform for digital cluster? And have you been able to track the assumptions that you put in versus the actual take rates? And is there -- what I'm fishing for, is there opportunity that there could be upside as this trend towards mid and lower range take rates improve? So it's on the LE model, not just the Platinum model and so forth?

Yes, Brian. So the current assumptions that we're making are based on exactly what the OEMs are giving us as the volume for the award. We are not making any assumptions on top of that as to what the take rates are. So for most of our products, the option is not determined by the end consumer. It's actually determined by the OEM in terms of which trims would take that particular product. So it's pretty well understood by them at least planning time as to what the level of volume would be. Having said that, we have had discussions now, where they've -- some of them have come back to us and have asked for increased volume, both in Europe as well as in North America of digital clusters, as they see that the take rates of that particular trims are increasing, and they want to bring that into lower trims. It's too early to give you much more insight at this point in time in terms of the actual impact of that, but without a doubt, there is a clear positive trend in terms of interest take rates of digital products that should be a tailwind for our revenues going forward.

Your next question is from the line of Steven Fox with Fox Advisors.

A couple of questions, if I could. First of all, in terms of your discussions with your customers, you mentioned the 21 new programs ramping. How did that number compare versus your original thinking pre-COVID? How many have been sort of pushed out to next year or maybe delayed indefinitely? And then secondly, just in terms of how the industry could shift away from maybe some new models towards higher take rates on your technology, mid-cycle upgrades, what would sort of your lead times be for seeing that order come back to your production and shipping, if we can get a feel for that?

Sure. So when we started at the beginning of the year, we had about 65 programs that we're launching, and of those, 60 will actually make the cut this year. Some are that were in already in the fourth quarter are being pushed out to next year. So we have not seen a significant delay on account of the OEM shifting their plans. Whatever has happened has happened largely within the year. So most of the launches were back-end loaded, and that's what we are seeing this year as well. So the way I would characterize that is, we have seen in year delays on account of all of the COVID-related restrictions that have caused people to replan some of the activities. We have not seen any significant pushout into the next year, the 4 or 5 that I mentioned, which were earlier scheduled for the fourth quarter and now into next year. In terms of the second part of your question, we are starting to see some of the more short cycling or -- not short cycling, but mid-cycle action, I should say, impact already in our discussions with OEMs. One of the interesting points that I can share with you is, of the $1.7 billion in new business wins that we've had in the first half, majority -- more than 80% of that is actually launching under 2 years. So typically, what that tells you is that it's launching on existing vehicles because it takes them longer than 1.5 years to design and build all new vehicle. So we are starting to see that, and I would like to see a little more time before we can call that a significant trend. But it's good to see that our products, the digital products, are the ones that people want to see on even existing vehicles, and that's the trend that we have been talking about as being favorable to Visteon. So that I expect to continue into second half, but as I said, it's too early to call that out any more than what I've shared with you today.

And this concludes our earnings call for the second quarter of 2020. Thank you for participating in today's call and your ongoing interest in Visteon. If you have any follow-up questions, please contact me directly. Thank you.

This concludes Visteon's Second Quarter 2020 Earnings Call. You may now disconnect.