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Axalta Coating Systems Ltd. announced its financial results for the first quarter ended March 31, 2020 and provided an update regarding the impact of the coronavirus pandemic on its business, employees, customers and shareholders as well as Axalta’s current and planned management of such impacts.
“Our hearts go out to all those affected by the coronavirus globally and specifically in the local communities where our employees and customers live, work and raise their families,” said Robert W. Bryant, president and CEO of Axalta. “We continue to focus first on protecting their health, safety and well-being. In support of designated essential customer activities, our manufacturing sites continue to meet customer demand with operating procedures implemented to maintain social distancing and increased sanitizing procedures. Our supply chain remains stable, and we are mitigating potential risks in close coordination with our suppliers. Nonetheless, there have been notable demand impacts in countries impacted by COVID-19, with the majority of our customers experiencing demand declines, with the possibility of a phased recovery beginning gradually in coming weeks.”
Axalta’s management has taken and continues to take immediate actions to address COVID-19-related demand impacts. These included significant reductions in discretionary costs, as well as elimination of temporary labor, employee furloughs and work hour reductions across their businesses. Axalta has also instituted temporary salary reductions for eligible employees globally, including a 20% salary reduction for senior management and a 20% reduction in the cash compensation for their Board of Directors. In addition, the company is focused on maximizing cash flow and liquidity and has reduced capital expenditures versus prior plans as well as taking further steps to drive working capital efficiency during this period.
“This is an unprecedented business climate, and Axalta is taking aggressive steps to adjust our cost structure in real time with expected demand changes to ensure that we preserve our balance sheet strength and ultimately emerge from this crisis in a position of strength,” said Bryant. “In our response planning, we have considered our employees needs, the long-term health of the business, maximizing long-term shareholder value and the requirements of our diverse customer base.
“Axalta is structurally well positioned to adjust to demand disruptions given our highly variable cost structure, the actions we are taking to incrementally adjust fixed costs and our strong balance sheet. We have previously noted that we entered this demand downturn with a strong liquidity position, and this remains the case today.
“We are also very proud to be working in support of our employees and communities in the direct effort to mitigate the coronavirus spread. Since March, we have been working to support the safety, health and well-being of hospital professionals, first responders, and our employees. We are putting our manufacturing capabilities and supply inventories to work in order to offer products that will make a difference where they are needed most. These efforts include the production of thousands of gallons of hand sanitizer at many of our global sites to be donated to local hospitals and first responders. They also include the donation of personal protective equipment (PPE) such as N95 face masks, coveralls and seat covers to hospitals and medical professionals in numerous countries where we operate.”
Added Axalta Chief Financial Officer Sean Lannon, “The first quarter was clearly impacted by significant demand disruptions that we believe resulted from COVID-19, but we took early actions to adjust our cost structure and maximize cash flow to coincide with customer demand declines in each region. We continue to execute on planned actions with a keen focus on maximizing balance sheet strength and liquidity to avoid more substantial impacts near-term while also positioning the company to take advantage of recovery when that happens.”
“Axalta’s first quarter results clearly reflected some impact from the COVID-19 pandemic, notably in China through much of the quarter and also from other regions largely beginning in March,” said Bryant. “While challenging to isolate these impacts, we estimate approximately $90 million in net sales impact and $40 million in Adjusted EBIT impact from the virus effects relative to our business plan going into the year. January and February results, prior to the COVID-19 impact, were tracking in line with expectations.
“As we announced on March 31, we also concluded our strategic review and have actively refocused our energy entirely on managing through the COVID-19 pandemic. We are confident in our long-term growth opportunity as a business and look forward to elaborating on that opportunity in more detail once we get beyond the pandemic.”