Earnings Call Transcript - MGA Q4 2020

Operator, Operator

Greetings and welcome to the Q4 2020 Results and 2021 Outlook Conference Call. As a reminder, this conference is being recorded Friday, February 19, 2021. I would now like to turn the conference over to Mr. Louis Tonelli, VP, Investor Relations. Please go ahead, sir.

Louis Tonelli, VP, Investor Relations

Thanks, everyone, and welcome to our conference call covering our 2020 results as well as our ‘21 outlook. Joining me today are Swamy Kotagiri and Vince Galifi. Yesterday, our Board of Directors met and approved our financial results for 2020 as well as our financial outlook. We issued a press release this morning outlining each of these. You will find the press release, today’s conference call webcast, the slide presentation to go along with the call, and our updated quarterly financial review all in the Investor Relations section of our website at magna.com. Before we get started, just as a reminder, the discussion today may contain forward-looking information or forward-looking statements within the meaning of applicable securities legislation. Such statements involve certain risks, assumptions, and uncertainties, which may cause the company’s actual or future results and performance to be materially different from those expressed or implied in these statements. Please refer to today’s press release for a complete description of our Safe Harbor disclaimer. Please also refer to today’s reminder slide included in the deck related to our commentary today. This morning, we will cover our 2020 highlights and our Q4 results. We will then provide our ‘21 outlook and lastly, run through our go-forward financial strategy. And with that, I will pass it over to Swamy.

Swamy Kotagiri, CEO

Thank you, Louis and good morning everyone. I am excited to be speaking with all of you again, especially in my new role as CEO. Before I start, I would like to thank Don, who has been a great leader and mentor to me, helping me prepare for this succession for a number of years, leading to a smooth transition. Today, I will recap 2020, comment on our results, and briefly cover our positioning in the industry. When we think about 2020, the first few things that come to mind are COVID-19, a difficult and life-changing year, each of which I know we can all relate to. However, I am extremely proud of the way we have navigated through the pandemic and the outstanding rebound our operations had in the second half of the year. You are going to hear a lot of information today. But bottom line, we were able to recover quickly. No one has been immune to the impacts of COVID, including the severe declines in industry production experienced in the first half of the year. However, production volumes started to recover at the end of the second quarter and accelerated in Q4 across our key markets, leading to very strong operating performance for the quarter. Relative to Q4 2019, sales increased by 12%, and our adjusted EBIT margin expanded by 410 basis points. Our adjusted EPS more than doubled to a record $2.83, and we generated $1.7 billion of free cash flow. We also grew our dividend for the 11th straight year. Vince will share more details around our performance, but I wanted to highlight that these positive results are a testament to our employees, who have executed in the midst of challenging circumstances throughout the year. Keeping our employees safe throughout the pandemic has been and will continue to be our top priority. The stories of our employees’ resilience this past year have amazed me. They executed near flawlessly in the midst of unprecedented challenges, volunteered to help deliver PPE and other supplies to frontline workers, and went above and beyond to support our communities. Magna has been recognized four consecutive years with Fortune’s Most Admired Companies and Forbes’ Best Employers Awards. In 2020, we took necessary restructuring actions that will lead to $200 million of recurring cost savings annually. Our team also managed the shutdown and ramp-up of over 300 facilities due to the pandemic. Our focus on operational excellence and innovation led to customer recognition. Just last year, we received 97 customer awards, including a record 6 awards from GM, the most given to any supplier in a single year. Although sales for the full year fell due to large declines in vehicle production, we had a strong recovery in the second half of the year, with sales growing 5% year-over-year. We also managed to outgrow the market in 2020 by 4% and achieved that outgrowth in each of our major regions: North America, Europe, and Asia. Finally, I would like to highlight our innovation. We continue to expand our collaboration with a growing ecosystem of companies, working with some of the best minds in technological advancements to accelerate time to market for our innovative products. Our new battery tray program in Body and Exteriors, our new ClearView digital vision system in Power & Vision, and our proprietary pre-form technology in Seating are all examples of how we are leading in innovation. Magna’s composite space frame liftgate reinforcement solution, which debuted on the Toyota Supra, earned a 2020 Automotive News PACE Award. This award marks Magna’s fourth PACE Award in the last 6 years, reflecting how our solutions align with secular industry trends and our commitment to innovation, which continued despite the challenges posed by COVID in 2020. We maintained our R&D spend. With that, Vince, I will pass it off to you.

Vince Galifi, CFO

Thank you, Swamy and good morning. I hope everyone is staying safe and healthy. I am going to do a shorter version of our quarterly review, including on our segments to allow more time for our outlook. More detail is included in our appendix. 2020, of course, was significantly impacted by COVID-19. Sales declined 17% for the year. However, on a Magna weighted basis, our sales performed 4% better than production for the year. This continues the trend that we have seen at Magna for many years. And considering the dramatic decline in sales for the year, we posted an impressive 5.1% adjusted EBIT margin. 2020 was, in many ways, a tale of two halves. The first half was severely impacted by the pandemic. Sales were down 37%, and in the second quarter, we posted our first operating loss since The Great Recession of 2009. However, across the company, we took steps to reduce discretionary and structural costs as well as capital, which helped us set up for a return to strong performance when the industry began to recover in the second half of the year. Let me briefly cover the fourth quarter. Total sales were $10.6 billion, an increase of $1.2 billion over the fourth quarter of 2019. This represents 6% weighted growth over the market for the quarter. Our sales were positively impacted by new program launches, the negative impact of the labor strike at GM in 2019, currency translation, which was about a $285 million tailwind, higher vehicle production, and increased assembly sales. Adjusted EBITDA increased 86% to $1.1 billion. Our adjusted EBIT margin also increased by over 400 basis points to 10.4% in Q4. The increase in margin mainly reflects pull-through on higher sales, improved operational performance, the labor strike of GM in 2019, and lower ADAS costs, including as a result of our exiting our Lyft partnership at the end of 2019. Each of our segments generated better adjusted EBIT, both percent of sales and dollars compared to last year. Net income attributable to Magna increased by over $400 million to $851 million, mainly reflecting the higher EBIT, partially offset by higher interest expense and higher income tax expense, and diluted EPS more than doubled to a record $2.83 for the quarter compared to $1.41 last year. During the fourth quarter of 2020, free cash flow amounted to $1.7 billion compared to $1.1 billion last year. This increase reflected our higher earnings as well as $186 million in increased cash from working capital. We expect to see working capital return to more normal levels in 2021. Growing the dividend remains a priority at Magna. We maintained our dividend during last year’s COVID crisis when a number of our peers cut their dividend. And yesterday, our Board approved an 8% increase in our quarterly dividend to $0.43 a share, reflecting our strong results in the second half of 2020 and our solid outlook. We have increased dividends per share at a CAGR of 13% going back to 2010. And now, I will pass it over to Swamy for a few introductory comments prior to getting into the specifics of our outlook.

Swamy Kotagiri, CEO

Before we look ahead to 2021 and beyond, I wanted to take a step back and share some thoughts on what makes Magna unique and why we are well-positioned for the industry changes. Our story really starts with our business model. While our business spans individual product areas all the way to complete vehicles, we are one company that is a top three player in most of the areas where we compete. We take a system-level approach that allows us to think like an automaker and optimize solutions. Our building block technology strategy meets the different customer needs with scalable, modular, and easy-to-integrate configurations. We are deliberate and disciplined in our actions. We enhanced cash generation through our world-class manufacturing initiative. We continue to invest and drive innovation, particularly in high growth areas as you have heard in our past calls. Magna’s performance is made possible by the DNA of the company, which comprises our people, the entrepreneurial culture, and the deep expertise in manufacturing that allows us to consistently exceed customer expectations. Our capabilities and disciplined execution together enable a unique competitive position in mobility for Magna. Linking our unique approach with our alignment to the secular trends is what gives me confidence in Magna’s future. We continue to advance mobility with a sharp eye on the needs of people while also doing the right things for the planet. On electrification, we continue to enhance our portfolio of e-Powertrain products. Our joint venture with LG adds important building blocks to further strengthen our position while allowing us to participate in the fast-growing global market for electrified powertrain components. Our core business has the product range to support customers along the transition towards full EVs, and our portfolio continues to win content on upcoming EVs across all our capabilities. By 2023, 50% of our production units are expected to be on EV models. On autonomy, we offer a full range of ADAS capabilities, including complete systems. We were recently awarded the full ADAS stack on the Fisker Ocean, demonstrating the depth and breadth of our capabilities, and we expect ADAS sales to grow at about 20% on average per year over the 2023 period. We continue to invest to develop cutting-edge ADAS solutions. Our JV with BJEV is launching a full electric vehicle, the first of four variants. Our ongoing collaboration with Fisker demonstrates our unique ability to support a new entrant with systems, full vehicle engineering, and manufacturing capabilities. This is just a snapshot of how we are well-positioned to take advantage of the secular trends in the industry. Now, let’s shift gears to talk about our business outlook for 2021. Before Vince takes you through the details, the overall message I want to emphasize is that I am really excited about our outlook. We believe we have a plan in place that will allow us to continue our leadership position in the sector. Our business continues to grow, and you should have confidence in our outlook as over 90% of our 2023 sales are already booked. Margins are expected to expand in each of our outlook. We continue to invest for the future, including about $600 million annually in engineering spend before customer recoveries in the megatrend areas. In our Power & Vision segment, engineering spend in 2020 represented around 5.5% of sales. Lastly, forecast free cash flow generation from our business remains strong. This should allow us to invest for growth and return capital to shareholders. With that, let me hand it over to Vince.

Vince Galifi, CFO

Thanks again, Swamy. Our outlook reflects increased vehicle production in each of our key regions from the lows of 2020. In North America and Europe, our two largest markets, volumes in 2023 remain at or below levels experienced in 2019. With respect to the semiconductor shortage, we see near-term disruptions to OEM production. However, at this point, any shortage is expected to be made up by the end of 2021. We assume exchange rates in our outlook will approximate recent rates. This reflects a weaker average U.S. dollar relative to 2020, which positively impacts our reported sales going forward. As I review our outlook, I will provide insight into some of the drivers of sales growth going forward for margins, given the unusual nature of 2020. I will roll from 2019, which we believe is a more comparable full year starting point. Before I do, let me briefly comment on our actions to simplify the legal structure of our three GETRAG joint ventures. In China, before the end of 2020, we disposed of our interest in its Dongfeng GETRAG joint venture, which had unconsolidated sales of less than $100 million last year, and we obtained a financial controlling interest in our joint venture with Jiangling, which we call GJT. We also entered into an agreement with Ford to dissolve our GETRAG for transmissions joint venture based in Europe. As a result, in 2021, we will begin to consolidate the results of the GJT business and their Bordeaux facility. This impacts both our sales and margins as we gain sales at a lower than average margin and lose equity income. We expect consolidated sales to grow by 10% to 12% on average per year out to 2023, reaching $43 billion and potentially as high as $45.5 billion. The growth is driven by higher vehicle production, content growth, foreign exchange, and the acquisition of Honglizhixin. In addition, we expect significant sales growth from unconsolidated joint ventures over the next few years, including from our complete vehicle manufacturing JV, an integrated e-drive JV base in China, as well as our LG e-Powertrain joint venture expected to close in the second quarter of this year. We expect our consolidated margin to expand in 2021 and again out to 2023. Relative to 2019, our ‘21 margin benefits from world-class manufacturing initiatives and restructuring benefits, trending to normalized levels of ADAS engineering costs, the labor strike at GM in 2019, and license income. These are expected to be partially offset by higher engineering costs for electrification and new mobility, lower equity income, and the consolidation of the GETRAG entities. We expect additional margin expansion to 2023 driven by contributions from higher sales, further world-class manufacturing initiatives and restructuring benefits, and higher equity income. Early last year, we provided a consolidated margin outlook for 2022 in the range of 7.6% to 8%. While we are not providing a 2022 outlook today, we expect to be in that range despite lower vehicle production in both Europe and China. We hope to see many of you in April at our investor event, where we will go into more detail around how our unique positioning and strategy is aligned to the secular trends and ability to drive value. Thanks for your attention. We would now be happy to answer your questions.

Operator, Operator

The first question comes from John Murphy from Bank of America. Please go ahead.

John Murphy, Analyst

Good morning, guys and congratulations Swamy on leading this call. It’s a great call. As we look at Slide 28, there is a lot of moving parts, Vince as you have kind of alluded with the shifts in the GETRAG JVs. But it looks like this 10% to 12% CAGR would indicate sort of at the midpoint about 7.5% growth above market just doing some simple math. But with the sort of other moving parts around the JVs that might not be quite correct, but I am just trying to understand if that is correct and what we should be thinking about growth above market, Vince?

Vince Galifi, CFO

Yes. Well, we have been talking about continued growth over market. I am just trying to find one page that kind of stripped out organic – or sorry, acquisitions and FX to give you what organic growth is. If you have got that number handy.

Louis Tonelli, VP, Investor Relations

Yes. If you look at our expectations in the ‘20 to ‘23 timeframe, it would imply 1% to 3% outgrowth – weighted outgrowth over that period. And I would say that some of that impact comes from complete vehicles, which is impacting us by about 1%.

John Murphy, Analyst

Okay, that’s helpful. Yes, this must be some new parts that are – that make it a little bit different. To follow up on that, on Slide 33, when you are talking about capital allocation, there is this 35% to 40% that is for incremental investments and share repurchases. I am just curious, Vince, as you think about this, a lot of the auto tech smaller companies have become very expensive. Obviously, with the SPAC boom, there is a tremendous amount of interest here. I’m just curious. As you go out there and do your due diligence on trying to find good investments, are you running into much higher valuations? And does this kind of preclude you maybe from making external investments and really more focusing on organic and share buybacks?

Vince Galifi, CFO

Well, John, that’s an interesting question. Certainly, over the last little while, we have seen some valuation increases, especially for some of these startups, in a pretty significant way. Our strategy hasn’t changed at all; obviously, invest organically. We have a really good business. And when I say invest organically, that’s more than just brick-and-mortar. It’s investing in engineering and building that core capability, developing – Swamy would always talk about the building blocks that we can provide a complete system solution to a customer. Given our unique position across the company, like we have shown with Fisker, I think we have a real advantage. But having said all that, John, we still look at some of the newer technologies out there to complement and add to our capabilities. And when evaluating technology, some of the key factors are if I wanted to try to do this on my own, what’s the cost, what’s the time to get this completed, what’s the risk associated with that? There may be something else that’s already 30% or 40% completed, and you can look at that and say, well, that makes so much sense financially. We continue to focus on the megatrend areas, which is a big focus for our organization. I expect, John, as time goes on, we are going to continue to look at M&A transactions that help build our capabilities.

Swamy Kotagiri, CEO

Yes, good morning, John. This is Swamy. Just to add to Vince’s comments, in the past, we have talked about as a part of our technology mining process, where we identify what we believe are important going forward for the car of the future. Through our scanning process, we have been able to work through universities, research institutions, and startups at a very early phase, establishing a symbiotic relationship that goes both ways. We can bring in discipline, design for manufacturing, and scale while they work through SPACs with their development. This process also helps us to address the necessities for the future of vehicles. This is one way we are looking at tech without waiting for it to become already proliferated.

John Murphy, Analyst

Okay, that’s helpful. Lastly, on the complete vehicle segment discussion, you mentioned higher earnings on engineering sales. I’m just curious over time, despite complete vehicle, however you want to classify it, there seems to be a growing opportunity as you are getting more of these startups, in the Fisker example, is there a chance that you would see engineering sales that might carry much higher margins? I’m just curious how big a part of the product can become in your complete vehicle segment and what kind of opportunities do you see there?

Swamy Kotagiri, CEO

From a full vehicle capability perspective, John, we think of it as going together. When new entrants or existing customers come to us, they want to leverage our overall capability, which includes understanding the system interfaces and bringing all the systems together while looking at design for manufacturing. So that part of engineering is usually the initial step toward the discussions that often leads to the systems of Magna being supplied or the assembly of the full vehicles, or in some cases both as we see with Fisker. We believe our engineering capability is an enabler, and we foresee this going hand-in-hand.

John Murphy, Analyst

Okay, thank you very much.

Operator, Operator

Our next question comes from the line of Itay Michaeli from Citigroup. Please go ahead.

Itay Michaeli, Analyst

Great, thanks. Good morning everyone and congratulations. Just a question, obviously, strong 10.4% margin in the fourth quarter, it looks like on just over $42 billion of annualized revenue. As we think ahead, just want to maybe go through a bridge of what would prevent you from repeating that type of margin performance at a comparable level of revenue in the future? Maybe just talk about the puts and takes of the bridge going forward, perhaps investments you are making and so forth?

Vince Galifi, CFO

Yes, I talked about in my comments that 2020 is really not a good basis of comparison for the other years. When I look inside the organization, I analyze the kind of margin run-rate in the second half of 2020 and how that relates to 2021. In the second half, our EBIT margins were at about 9.5%. There are about 30 basis points of government support programs that positively impacted our margins in the second half. The impact wasn’t significant on the full year because we incurred costs in the first half and then recovered in the second half and that positive impact amounted to about 30 basis points. The consolidation of the track entities is adding sales but at a lower margin than Magna’s average. When running the numbers and examining our guidance, there is a significant gap from my perspective. We likely face some year-end small items and other adjustments, which won’t recur next year and we expect lower equity income in 2021 versus the second half of 2020, even excluding entities that won’t contribute. The cadence of volumes this year will not match that of the second half of last year, and we expect to fund regular expenses that may arise from recovering operationally. While we have done a good job of controlling costs, it’s unrealistic to expect to run 2021 like we did the second half of 2020. We expect some travel and discretionary items that previously couldn’t happen to happen this year, contributing to increased costs and a reduced overall margin going forward.

Itay Michaeli, Analyst

That’s very helpful, Vince. Appreciate all that color. Maybe a quick follow-up on the slide, I think it’s 54 on the ADAS CAGR of 19% to 23%. Is that still consistent with the roughly $900 million of revenue you are expecting for 2023? I think last year at the Investor Day or is that an improvement? Maybe you can just talk a little bit about what you are seeing on the ADAS sourcing and booking side?

Vince Galifi, CFO

So, Itay, we ended the year again with 2019 as the reference point. We spoke about 2019 with around $550 million, which when looking at a 20% CAGR gets you just under $1 billion in ‘23, which is ahead of our prior expectations. I look at our bookings this year; we had strong business planning here and exceeded our expectations overall in that area.

Swamy Kotagiri, CEO

Yes, Itay, just to add, we believe the building block strategy has helped us establish a leadership position in cameras, leapfrog technology in radar, and bring solid-state LIDAR to production. We booked a lot of business in 2020, and as I mentioned before, expect a 20% CAGR over the outlook period. We expect to see almost 80% of our 2023 expected sales already booked.

Itay Michaeli, Analyst

Perfect. That’s great to hear. Thanks again, everybody.

Operator, Operator

The next question comes from the line of Chris McNally from Evercore ISI. Your line is open.

Chris McNally, Analyst

Thanks, Vince. I am sure there will be some questions on the strength in margins. So we could pass over those. And maybe just two questions, Swamy, on auto tech. The first is on lightweighting and body. It doesn’t get a lot of attention, but the typical body content per vehicle is maybe $1,000 per car, but we are kind of curious about next-gen body solutions for electric vehicles for lightweighting to save money with battery costs. Could you go through maybe some of the potential content per vehicle if someone was really to take all the options that Magna body was able to provide?

Swamy Kotagiri, CEO

Yes, good morning Chris. Great questions. Looking at lightweighting in the past has been driven by key reasons, one being increasing battery range, which is going to be a balancing act as battery costs continue to go down. So the premium cost versus lightweighting comes into question. The other factor has been the weight distribution of the vehicle and how components like the shock towers and rails are redesigned to achieve better weight distribution. As we consider the architecture of the vehicle, our ability to look at different variants of steel, aluminum, and other materials is crucial. Our process tools enable us to adapt our offerings without constraint based on various OEM needs. We believe this is a new addressable market for us from a Body and Exteriors viewpoint, and we have already received significant awards from customers for battery trays.

Chris McNally, Analyst

Swamy, could I push for maybe some numbers? I mean, is it sort of a 20% to 30% uptick opportunity for investments in body and lightweighting composites? Can you give an order of magnitude and if spending that extra $1,000 on body and lightweighting, you can get the payback in longer range or lower battery cost, just trying to think in terms of the most next-gen EVs?

Swamy Kotagiri, CEO

If you look at our forecast around processes and what’s happening in the upcoming vehicle structures, particularly in '23-'25, we foresee a potential increase in the 15% range; however, if battery costs reach around $100, that could improve further.

Chris McNally, Analyst

Perfect. One more question on Magna Steyr, we have seen this uptick in margins. As you press forward with new partnerships, is this new level of margin, around 4% or 5% plus, the target for negotiations mid-teens ROIC, or are you willing to work with new customers at lower margins for a much larger book of business?

Vince Galifi, CFO

Chris, first, it's essential to consider how margins are computed. Is it a value-added contract, or is it for a full vehicle sold back to the customer? In the case of Fisker, we currently expect a value-added contract. That's a critical aspect of our pricing model. We're focusing on ensuring we see an appropriate return on our investments and ultimately achieving favorable margins.

Swamy Kotagiri, CEO

Yes, and to add to that, we’ve seen Magna Steyr’s margins moving up. The margin numbers now reflect a better representational figure subject to mix adjustments rather than our previous runtime numbers. We’ve seen quite a focused effort on engineering and manufacturing which contributed positively to our margin numbers, and we foresee that trend to continue.

Chris McNally, Analyst

That’s great. And just one more if I could ask what it would take to proactively build a North American facility for Steyr. The customer demand seems to be there. It typically takes a few contracts of size. Curious if you’ve had any updated thoughts?

Vince Galifi, CFO

Yes, no update there. We are prepared to invest in North America when it makes sense, similar to our investment in China. However, it will depend on the right business mix. There’s a need to measure and quantify the investment’s associated risks adequately. Our focus remains on solidifying margins while continuing to evaluate our overall investments.

Swamy Kotagiri, CEO

We currently have a capacity of about 180,000 units per year in our JV in China, that gives us some flexibility depending on the mix of business opportunities. However, decisions need to consider many variables including production mix.

Chris McNally, Analyst

That’s really encouraging. Thanks, guys.

Operator, Operator

The next question comes from the line of Ryan Brinkman from JPMorgan. Your line is open.

Ryan Brinkman, Analyst

Great, thanks. Could you discuss in a bit more detail your joint venture with LG Electronics? How would you compare your integrated e-drive system capabilities following the closing of the JV relative to the competition? Would you say that your planned suite of electrification offerings is now complete or does it make sense to consider offering batteries or forming more direct ties with battery manufacturers?

Swamy Kotagiri, CEO

Yes, good morning, Ryan. Our building block strategy has been essential in addressing e-drive system integration capabilities. We are excited to have LG as a partner, as it complements our offerings in e-motors and inverters. We believe this partnership strengthens our position in a rapidly evolving market. We continuously evaluate additional technology opportunities that may enhance our capabilities and remain open to further strategic partnerships.

Vince Galifi, CFO

I want to highlight that we’re not starting from zero with our JV. The joint venture has an established revenue base in '19 of about $150 million and is expected to show robust growth over the next several years. By combining our forces with LG, we should unlock additional growth opportunities.

Ryan Brinkman, Analyst

Very helpful. Thank you. Lastly, regarding speculation around potential Apple car, what’s your ability to manufacture battery electric vehicles or supply newer manufacturers? Can you discuss other startups showing interest, non-BJEV companies in China? And what’s your current capacity and spare capacity in China?

Swamy Kotagiri, CEO

We have said that we continue to have discussions with various new entrants and established customers on various platforms. We have a capacity in our JV in China of 150,000 units, and we have the flexibility in our agreements to consider opportunities beyond our current partnerships. We are open to pursuing significant opportunities based on the right business case.

Ryan Brinkman, Analyst

Great, thank you.

Operator, Operator

Our next question comes from the line of Mark Neville from Scotia Capital. Your line is open.

Mark Neville, Analyst

Hey, good morning, guys. Congrats on the quarter. Just first, to square away the conversation on margins. I understand you’re telling us the starting point is, call it, 8.9%, and the guidance for next year is somewhat lower at around 7.3%, with several discrete items explaining the difference. Is that sort of a fair characterization?

Vince Galifi, CFO

Yes. To clarify that 8.9%, we must keep in mind the positive impact from government support programs and the consolidation of GETRAG entities. Those actions will have an impact as we move forward. Additionally, customer volumes and historical costs will factor in significantly.

Mark Neville, Analyst

Okay. And regarding your CapEx guidance for the next few years of $1.6 billion, does that contemplate any capacity build for completed vehicle?

Vince Galifi, CFO

Yes. I cannot detail specific investments in specific segments. However, there will be capital allocated across all business units to align with program launches as necessary. Remember that we also have other significant investment areas related to engineering, as mentioned, emphasizing our focus on the future.

Mark Neville, Analyst

Understood. And lastly, any thoughts when you may look to buy back shares?

Vince Galifi, CFO

Yes, looking at our balance sheet at the end of the year, we ended with plenty of cash. From my perspective, we have more cash than what I would like to handle, and some could go towards paying down debt. Should conditions allow, we will consider buying back shares over 2021, depending on opportunities.

Mark Neville, Analyst

Alright, thanks. Appreciate it.

Operator, Operator

The next question comes from the line of Dan Levy from Credit Suisse. Please go ahead.

Dan Levy, Analyst

Hey, good morning and thank you for taking the question. Wanted to start with a question on the outlook, specifically revenue for complete vehicles. You’re forecasting revenue to be flat, and actually down slightly compared to 2019 averages. So can you help us understand the dynamics driving this? There seems to be significant upside in the complete vehicle space.

Vince Galifi, CFO

Dan, we have talked about Fisker coming on board, with plans to launch that business by the end of 2022. It makes more sense to anticipate a more normal impact on revenue starting into 2023. However, our projections assume that the new contracts will largely be value-added contracts, not fully priced ones, where material costs are passed through. We also expect some programs close to their end of life to drop off in volume, contributing negatively to sales overall.

Swamy Kotagiri, CEO

As we ramp up in China, it is important to note that although volumes will rise, you won’t see that reflected in consolidated sales. So there is a clear path for growth.

Dan Levy, Analyst

Okay, thank you. And what’s your perspective on how much of your portfolio will be positively impacted by EV?

Swamy Kotagiri, CEO

When considering our portfolio, the full vehicle capability is certainly significant along with the PNB, which will be shaped by EV architecture. Some will inevitably change how the product lines are designed. For example, our powertrain contribution is about 80% of our business, but we’ve noted that EVs predominantly affect the front of vehicles and thus the demand for certain systems will rise. This combination leads to an estimated growth in content opportunities for components as manufacturers transition to all-electric systems.

Dan Levy, Analyst

Great, thank you very much.

Operator, Operator

The next question comes from the line of Peter Sklar from BMO Capital Markets. Your line is open.

Peter Sklar, Analyst

Thanks. Good morning. Vince, I wanted to go back on your comment about the chip shortage and how you incorporated that into the forecast. So it seems that any lost volume as a result of the chip shortage, you anticipate it will be made up by the end of the year. So, net-net, the chip shortage has had no impact on your guidance for 2021, albeit with a timing shift, is that correct?

Vince Galifi, CFO

Yes. That’s correct, Peter. We haven’t disrupted ships to our customers and have managed production accordingly, but we are continuing to track that closely. Customers may face some plant shutdowns, but we expect overall units to overlap as the year progresses, so we don't foresee a large impact on our overall guidance.

Peter Sklar, Analyst

Thanks. My second question is regarding segment reporting and the strong margins in the bodies and exteriors group. I am wondering if you can point to any specific factors that contributed to that segment specifically?

Vince Galifi, CFO

Sure, Peter. It’s important to evaluate the performance year-over-year. In Q4 of last year, there was the GM strike which affected results. With year-on-year comparisons, we’ve been improving and executing better, and I expect that trend to continue. Higher volumes have also aided pull-through in the last quarter, contributing to a favorable margin.

Swamy Kotagiri, CEO

Yes, particularly our top programs in the BES segment were strong, with significant contributions from new vehicle launches like SUVs and a solid performance in our Daimler business.

Peter Sklar, Analyst

Thanks. Just one last question I may, for Swamy. With Ford and GM’s announcements last week, it seems like the movement to vehicle electrification has accelerated. Do you think there is substance to those announcements, or is it just more perception? Has this caused you to reassess any of your strategy?

Swamy Kotagiri, CEO

I think it definitely is accelerating, although whether it’s a sprint or not is subjective. We’ve been developing our strategy toward offering powertrain balance for years and believe our presence in the market paired with LG’s capabilities will yield positive opportunities. Thanks again for your interest.

Operator, Operator

That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.