Viasystems Group Management Discusses Q4 2012 Results - Earnings Call Transcript

Feb.15.13 | About: Viasystems Group, (VIAS)

Viasystems Group (NASDAQ:VIAS)

Q4 2012 Earnings Call

February 15, 2013 11:00 am ET

Executives

Kelly E. Wetzler - Vice President of Corporate Development and Communications

David M. Sindelar - Chief Executive Officer, Director and Member of Executive Committee

Gerald G. Sax - Chief Financial Officer and Senior Vice President

Analysts

Jiwon Lee - Sidoti & Company, LLC

Tony Venturino

Matthew Sheerin - Stifel, Nicolaus & Co., Inc., Research Division

Franklin Jarman - Goldman Sachs Group Inc., Research Division

Jeffrey Harlib - Barclays Capital, Research Division

Operator

Good day, ladies and gentlemen, and welcome to the Viasystems Group's Fourth Quarter 2012 Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to introduce Kelly Wetzler, senior VP, Corporate Development. Ms. Wetzler, you may begin.

Kelly E. Wetzler

Thank you, Ben. I'd like to welcome everyone to the Viasystems' investor conference call for the fourth quarter of 2012. If you need a copy of today's earnings press release, you'll find it at viasystems.com. We've also prepared some slides, which you will find on our website. Our presenters today are Viasystems' Chief Executive Officer, David Sindelar; and our Chief Financial Officer, Jerry Sax.

In the course of our discussion, we are likely to make forward-looking statements. I wish to remind you that any forward-looking information we provide is given in reliance upon the Safe Harbor provisions of the Securities Litigation Reform Act of 1995.

The comments we will make today are management's best judgment based on information currently available. Our actual results could differ materially from any forward-looking statements that we might make. The company does not intend to update this information to reflect developments after today and disclaims any legal obligation to do so.

Please review today's press release and the recent SEC filings for a more complete discussion of factors that could have an impact on the company's actual results. Some of our discussion today will include non-GAAP measures, in particular, adjusted EBITDA and adjusted earnings per share. These non-GAAP measures are reconciled with our GAAP results in today's press release and in our slide presentation.

Management believes these measures are useful for analytical purposes and to assist in comparing results over time and across companies. But I remind you that adjusted EBITDA and adjusted EPS exclude certain material items and are not a replacement for the reported results under Generally Accepted Accounting Principles.

I'll now turn the call over to our CEO, Dave Sindelar.

David M. Sindelar

Thanks, Kelly, and good morning, everyone. As usual, I'll begin by covering some highlights about our fourth quarter and I will comment on what we're seeing in each of our end markets. Following my comments, Jerry will then discuss the financial results for the quarter and then we'll open it up for Q&A.

If we seem a little bit disjointed today, it's because Kelly, Jerry, and I are both in -- all 3 of us are in different locations, so let me apologize in advance if our Q&A responses are not as smooth as usual.

I'll start my comments by referring to Slide 4 of today's presentation deck. We now have 2 full quarters of operations of the combined Viasystems and DDi businesses. As we highlighted in our press release this morning, by year end, we had achieved $10 million expected run rate of cost savings, the 2 business are working well together and I'm pleased with the results that the addition -- results of that addition to Viasystems.

At the end of January, we preannounced our estimated fourth quarter sales, so that we could talk openly about the recent trends when we presented at Stifel, Nicolaus Technology Conference last week.

As you saw in this morning's release, we confirmed those estimates with no changes. Our reported $274 million of sales was adversely impacted in part by the typical yearend seasonality, but the usual seasonal downturn was exaggerated this year by the September fire in our Guangzhou PCB factory, which I'll talk about more in a couple of minutes.

The quarter was also impacted by the expected but unfavorable lower demand trends for the wind energy products.

I'm not here to say that the 20% margin is an acceptable level going forward, but I have to tell you that I'm pretty happy with the results for the fourth quarter, given the low sales and the transition activities occurring across our business. After we get past the first quarter 2013, I'm looking for our margins to return to our historical levels. Adjusted EBITDA, $29 million and adjusted EPS of $0.40 loss for the quarter did not reflect add-backs of the inefficient -- inefficiency costs incurred during the recovery of the Guangzhou fire. Again, as I look to the last quarters of 2013, I expect to see results improve to at least our historical levels.

Turning to Slide 5. I remind you that we ceased production in our Huizhou or HZ factory during the third quarter. But I now want to give you an update on the project. We transitioned production activities to our other sites in China and we successfully completed the wind down and closure of the HZ site during the fourth quarter within our projected cost for that project. The property has been handed over to the landlord for their commercial residential redevelopment.

As I noted during my comments on the previous slide, the most significant activities in the quarter were related to our recovery from the September fire in our Guangzhou factory. We had initially expected that we -- that much of the affected equipment could be cleaned and repaired. However, through consultation with the equipment vendors, we determined that repair could not ensure performance of the equipment up to the standards required for high-technology products.

Replacement of equipment added to the lead time of the recovery, which forced customers to resort to second sources in the near term. However, the equipment replacements put us in a better long-term position to meet our customer technological requirements. And as of the end of January, all processes are back up and running.

Moving to Slide 6. You will see our typical sales trend analysis for each of our end markets. Before I comment on each market individually, I think it's important to point out that our Guangzhou factory has historically served all of our end markets except Mil/Aero. And you will see that Mil/Aero is the only market that grew sequentially for us in the fourth quarter.

Our Automotive sales were impacted by both our inability to ship from Guangzhou and a general softening of demand at the end of the year, primarily in Europe. Our HZ plant that was closed during the third quarter served primarily automotive plant, so I suspect that the closure of that site had some effect on the fourth quarter trend as well.

As you look at the prior year comparison for Automotive, I'll remind you that we enjoyed a spike of demand in the fourth quarter of 2011, when a competitor's plant in Thailand was flooded. As we look forward to 2013, I think our Automotive end market provides some of our best opportunity for growth.

You'll also note that the largest sequential decline was in our I&I end market, which was not only affected by the Guangzhou fire, but also by decline in demand of the wind energy products manufactured primarily by our E-M Solutions assembly business. Not only was timing of wind energy demand impacted by the lapse of domestic tax credit, but at the same time, our largest wind energy customer began to execute a strategy to bring manufacturing back in-house, into their own operations. So our share of their demand will be reduced in 2013 compared to 2012. We're obviously working hard to backfill that capacity in 2013, new opportunities with other customers, as well as sustained demand for a broad-base of existing customers.

Computer Datacom has been a growing end market for us over the past several quarters and after the Chinese New Year holiday. With the recovery in the Guangzhou not complete, we'd expect return to growth over the balance of 2013. Telecom remains a spotty end market for us. Where we seek to be in the right place at the right time with a solid base of key players in the end market, continued demand for bandwidth and speed suggest new equipment will always be needed. But in many cases, we see the new technology cannibalizing our legacy products.

We expect a lot of churn in part numbers but I do not see -- do not look for a significant growth in overall sales in this end market. I think we would expect somewhere in the 2% to 3% -- excuse me, 3% to 5%. I continue to believe that the Mil/Aero end market is ripe for us to win market share. However, the opportunity to be -- that opportunity appears to be simply a way to avoid reduced military spending as budget cuts affect our end customer buying pattern. I'm not convinced that anyone knows how sequestration will play out over the next several weeks and months, but we're keeping our eyes intently focused on this topic.

With that, I'll turn it back over to Jerry so he can discuss the financial statements.

Gerald G. Sax

Thanks, Dave, and the good morning, everyone. I'll begin my comments on Slide 7 of the presentation materials or the first table included in this morning's press release. That table compares our results year-over-year and sequentially. Now the net sales or historical periods here are actual rather than pro forma figures that Dave covered. So you'll note that the year-over-year comparison reflects top line growth as reported.

As Dave mentioned, our gross margin for the quarter was 20%. In our press release this morning and on Slide 5 that Dave covered earlier, we indicated an estimated range of $7 million to $9 million of lost margin in the quarter, which we ultimately hope to recover as part of the business interruption insurance claim, but that will take some time.

Our Assembly margin in the final quarter of 2012 was also at an historical low point due to the quick drop of energy demand that Dave highlighted in his comments as well.

As we indicated on our last call last quarter, we anticipated the effects of those 2 issues, as well as normal seasonality. And obviously, we took actions to contain costs as much as possible.

Following the DDi acquisition, we projected about $28 million of normalized quarterly SG&A costs, excluding non-cash stock comp expenses.

Our comparable fourth quarter spend was about $26 million. And as of now, I expect to stay in that range of $26 million to $27 million per quarter as we move into 2013, which is a bit better than what we had anticipated right after the acquisition.

Restructuring expense of $1 million in the fourth quarter resulted in just under the $20 million full year amount we had projected at the time of the DDi acquisition. Dave already mentioned that our adjusted EBITDA was $29 million and that our adjusted EPS was a loss of $0.40 in the quarter. And as Kelly pointed out in her introductory remarks, we've got reconciliation of those metrics to their GAAP counterparts in the supplemental slides of today's presentation and in the earnings release.

Our nonoperating income and expense items including income taxes were all in line with expectations for the quarter. And I don't think they warrant any additional comment at this point.

Slide 8 reflects our year end balance sheet. And again, here, there are only minor changes from our previous quarter, so I'll not spend any time on this call to repeat the changes from what was pre-acquisition year end balance sheet last year.

Moving on then to Slide 9. If you compare this to last quarter's report, you'll find that operating activities generated about $7 million of cash in the final quarter of 2012. And here, let me remind you that one of the most significant uses of our operating cash in the fourth quarter was our $21.7 million semiannual interest payment on the new 2019 notes that we issued in connection with the DDi acquisition.

Moving down a little bit to the cash used from investing activities. The only meaningful activity in the quarter was for capital expenditures. And here, I want to highlight that out of the $27 million of CapEx that we spent in the fourth quarter, as we noted in this morning's press release, about $17 million was dedicated to special products, including the plant relocations and the Guangzhou fire among others. That leaves about $10 million of recurring or maintenance spend in the quarter. Substantially, all of the cash flows from financing activities on this slide happened in prior quarters, so I'm not going to repeat any of those commentary on that activity at this time. You can see that the net effect of a very busy year for us was an increase of cash of about $3.5 million for the year.

With that, I'll give control of the call back to Dave again.

David M. Sindelar

Great. Thanks, Jerry. We'll open it up now for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of Jiwon Lee from Sidoti & Company.

Jiwon Lee - Sidoti & Company, LLC

I just wanted to ask a little bit about how the order is trending so far in the first quarter? And if you could sort of kind of highlight your expectations from your end markets a little bit, you mentioned the expectations for the wind energy and the telecom, but how should we be looking for some of the growth opportunities to pan out this year?

David M. Sindelar

Sure. As we, I think, in the last conference call and a little bit earlier, we kind of indicated that the fourth quarter of 2012, that we saw a general overall market weakening, and it was pretty much across most of the markets. So quite frankly, we expected to enter 2013 a little bit weaker, not only because not from a demand standpoint but from a production standpoint since Guangzhou was not fully up and running until the mid to end of January. So we will expect to see the first quarter come out weak, not only because of the production but because of the Chinese New Year, production in Guangzhou and Chinese New Year, and then continue to see that buildup through the second quarter to get kind of back to our run rates kind of mid second quarter, first part of third quarter. So that's kind of how I see our revenue going. Now from a demand standpoint, we have seen -- and we're all of about 45 days into a year, so it's always kind of hard to come up with a firm prediction of what the year's going to be. But we have seen some firming of the overall order book pretty much across all markets, kind of with the exception of the industrial and instrumentation where the wind power is at, and that was such a big customer, it's going to take a while for us to kind of build that back up to the previous run rates.

Jiwon Lee - Sidoti & Company, LLC

Typically, if we are thinking about the Automotive market, David, what's that prospect looking like?

David M. Sindelar

We saw in our -- towards the end of the third quarter, fourth quarter, with the shutdown of our HZ facility, the slowing of kind of the auto demand or the kind of concern of what's going on in Europe. We saw a pretty significant pullback. As we entered the year, we're seeing that demand come back. But again, since Guangzhou was in fact, produce boards across all the market, we'd expect that to take at least the first, if not part of the second quarter, to kind of come back full stream. I think, overall, and I'm still, as I mentioned in my opening comments, the effects of sequestration, I think, depending on what happens and who knows, U.S. government may kick the can or whatever they're going to do with that. But without a dramatic effect from sequestration, I would expect kind of most all of our markets to grow in that, 4%, 5%, 6%. And as we get into the second half, we should see the bounce back of kind of getting back to full production.

Jiwon Lee - Sidoti & Company, LLC

Okay. And then the operating side of things, they're, cost-wise, seem relatively under control. But if the revenue kind of stepped back up to near $300 million, where does the gross margin go?

David M. Sindelar

Yes, and I'll let Jerry talk a little bit about that but I think, historically, we've said that we're kind of in the, say, 20%, 22% to 24%, 25% gross margins. And I do have to tell you, and I kind of maybe was a little not as firm on it because we do probably a worse job of patting ourselves on the back. But to have all the noise and activity that was going on in the fourth quarter and still maintain the 20% gross margin, I was pretty proud of the chain and the efforts there. So that was a fair amount of effort work. But Jerry, do you want add anything there?

Gerald G. Sax

Yes. I would just add that in the first quarter, with Chinese New Year and all the sort of natural disruptions that happened in our business seasonally, I'm not looking for a lot of change compared to what we reported for the fourth quarter. But as Dave highlighted in his prepared comments, we do look to get back into that range that Dave just talked about in the lower 20s on an ongoing basis, as we progress through the year.

Jiwon Lee - Sidoti & Company, LLC

Okay, great. And lastly for Jerry. The CapEx goal, is there any numbers for 2013? And where you expect to dedicate most of the resources?

Gerald G. Sax

We've got some continuing projects related to the relocations. In particular, in North America, you may recall that prior to the acquisition of DDi, they had acquired a new facility to move the Anaheim operations out of a multi-rooftop leased facility into a single rooftop owned facility. We've not yet accomplished that move. We've had some CapEx on that in 2012. And to finish that project, we'll see some spend dedicated to that in North America in the first half of 2013. We've got some finishing to do on the expansion activities in China that were related to relocating the Huizhou factory. And we've got kind of the recurring themes that we invest in technology and systems and other things. At the end of the day, 2013 could end up looking a lot like 2012 in terms of total CapEx. But as we talked about in the past, we continue to manage the CapEx very closely as we see market trends. If we see continued opportunities for growth, obviously, we end up on the high-end of the CapEx spend. If we see markets pull back, if sequestration and other things happen, obviously, we're going to invest less and limit what we're putting into capital.

Operator

[Operator Instructions] Our next question is from the line of Tony Venturino from Federated Investors.

Tony Venturino

Just following up on the CapEx question. You guys had laid out a few years ago, kind of a multiyear expansion plan and there's a lot that's happened in between there. And I'm just curious, kind of if how far along that plan is and where you stand in that and what we can expect for the next few years?

David M. Sindelar

Yes. I think we're kind of in line with the expansion. We still have -- a lot of the, say, growth opportunities, we see it going forward as we got general growth across all the markets. And I think there's a big growth opportunity in the Automotive side. For one, is when the electronics and automotive continues to grow. We haven't, for a number of different reasons, been a big player in the Japanese automobile market and we're starting to make inroads there. So for the next, I'd say, 2 to 3 years, I think we have enough bricks and mortar in our existing facilities to just need to add equipment. So the other capital that we're going to need as we move forward is the continued kind of increase in technology from thinner lines and spaces. So I think we're pretty much in line with those activities. We have -- and as we continue to go, the plan we had 2 years ago that was prior to the Merix assets and the plan we had 9 months ago was before we had the DDi assets. So in that regard, they're changing and shifting a little bit, but I think we're pretty much online and operating at kind of in the same path as we were before. Jerry, do you have any other comments?

Gerald G. Sax

No, I think that is a good summary of how we're looking at things now.

Tony Venturino

Okay. And Jerry, you said it was $10 million for Q4 for maintenance. Is that -- I mean, is $40 million a good annual maintenance number?

Gerald G. Sax

Yes, I continue to think -- and as we work to integrate the DDi operations, it probably changes modestly, but somewhere in that $40 million, $50 million, $60 million range, somewhat dependent on what is China doing with their water management laws and everything, but kind of that $40 million to $60 million range is a good maintenance or recurring spend.

Tony Venturino

And then if I could switch. Dave, talking about the wind customer, have you said the size of this loss? Have you quantified that?

David M. Sindelar

Jerry, I'm not sure if we've actually given a specific number out.

Gerald G. Sax

We have not.

David M. Sindelar

It was a big customer for us. And I think based on the timing of the new programs coming in, new customers coming in, we could see as much as probably a 10% decline in the E-M Solutions sales year-over-year. And again, it's a lot based on timing and different things. But I would not currently expect to see E-M Solutions grow 2012 to 2013, just as we backfill the lost market share.

Tony Venturino

And is the goal to backfill that with existing wind customers or just any customer in general? Just trying to understand if how's the kind of the opportunity there?

David M. Sindelar

Yes, no. There's the -- the assets that we have are pretty unexchangeable -- interchangeable with any other customers. So we're out chasing telecom customers, computer customers, industrial applications. And so, it's kind of the -- the back fill is across the board.

Tony Venturino

And then, I guess, how would you peg your success rate at being able to backfill that? I mean, how much opportunity is out there in the market?

David M. Sindelar

We put in -- obviously, we've been chasing, trying to grow the E-M Solutions business for quite a while. And we're kind of redoubling our efforts, we're adding some specific E-M Solution type salespeople. And I think my general sense of it is that for the last 30 to 60 days, we're starting to see those efforts pay off. So until you actually get them in-house, it's kind of hard to count your chickens before the eggs hatch but we are getting a lot of opportunities. At least at the moment, I'm pretty optimistic we're going to be able to backfill it. Now again, there is a long lead time between getting an order, getting it qualified and getting it up and running. So as I mentioned, I wouldn't expect us to show growth in 2013, but I think there's a lot of positive momentum that's going on.

Tony Venturino

And if you weren't able to get that, would you have some sort of restructuring where you could take that capacity offline?

David M. Sindelar

We have already -- since we were aware of the reduction, we've already reduced our headcount because that's really kind of the more variable cost that we have. But in our -- a lot of this business came out of our Shanghai operations and we reduced -- we've already reduced our headcount 25% to 30%. So we have already taken those actions with the belief that when the business comes back, we can rehire or train new people to do the work.

Operator

Our next question comes from the line of Matthew Sheerin from Stifel, Nicolaus.

Matthew Sheerin - Stifel, Nicolaus & Co., Inc., Research Division

Just following up on the last question regarding that Assembly business. I know that the margins, the gross margin in the Assembly business are significantly lower than the PCB business. And if that remains then it sounds like you're talking about more of a back-end loaded year in terms of growth opportunity, at least sequentially, for the Assembly business. So shouldn't you see a better gross margin in the next couple of quarters just on mix with the assembly business at call it 12% to 14% of sales versus 18%, 19% a year ago?

David M. Sindelar

Jerry, do you want to answer that one?

Gerald G. Sax

Matt, you're right. We will see a little bit of mix improvement from the higher concentration of PCB sales. But again, I look for that to start developing after the first quarter. And I think I mentioned to you at the Technology Conference as well, we also expect a little bit of uptick from the higher concentration of quick-turn operations that we enjoy with the DDi acquisition.

Matthew Sheerin - Stifel, Nicolaus & Co., Inc., Research Division

Okay, with that -- that's the PCB business though, right?

Gerald G. Sax

It is.

Matthew Sheerin - Stifel, Nicolaus & Co., Inc., Research Division

Okay. And in terms of the new -- the non wind power energy customers that you're looking at booking, is the margin profile of those types of businesses similar to the wind power business, on the assembly side?

David M. Sindelar

I think, generally speaking, they're close as you might imagine any time you go out, you'd get business, they're not going to be exact. So it all depends on kind of the complexity. The complexity of the wind power operations was, on a scale of 1 to 10, it was probably an 8, 9, because it was a full integration and test. And in a lot of case, we shipped right directly to the job site. So it's just really kind of inside the realm, it will be close but I think the wind power is probably on the higher end of our margins scale, not dramatically.

Matthew Sheerin - Stifel, Nicolaus & Co., Inc., Research Division

Okay, great. And then on the Automotive business, trying to figure out the customers that you lost in the quarter due to the Guangzhou fire, and I know that a lot of them obviously are second sourcing at some of your competitors. In terms of looking at your bookings pipeline, are you starting to see some of those customers come back, looking to the June quarter?

David M. Sindelar

Yes. And just to make sure, there might be a minor distinction. There are very few of our automotive customers today that don't have a product dual source. So we're sole source on very few products and that's just the nature of the business. So it was really kind of just a minor shift. And so -- but we are seeing a pickup of -- pick back up of those -- of the orders. So the good news is the bulk of our Automotive side sales came out of our Zhongshan [ph] facility, which we had been adding capacity to throughout all 2012. And so while it was obviously an exercise of making sure we met all the demand, most of the pressure was more on the telecom, computer datacom, and industrial customers. And so that's where -- that's kind of where our effort is to try to make sure that we get those customers back.

Matthew Sheerin - Stifel, Nicolaus & Co., Inc., Research Division

Okay. So most of the weakness in Auto was primarily just demand-related because of the softening in Europe?

David M. Sindelar

Yes. I think it was really kind of 2 things. One, demand-related. And we kind of felt that Europe was the biggest piece of that. And the other piece was really the rest of the world. As we got in towards November, December, I think everybody got pretty conservative. And we saw the orders kind of drop off. Big piece was Europe. The other piece to it was is that as we were shutting down our HZ facility, we wanted to make sure that we didn't -- and our customers wanted to make sure that they didn't have a breakdown in production as we were shifting from HZ to our other facilities. And my guess is -- and it's really kind of hard to specifically identify. But my guess is that kind of in the June, July, August and September timeframe, they probably made sure they had enough inventory so that they probably overbought just make sure that, that transition went as smoothly as it did.

Matthew Sheerin - Stifel, Nicolaus & Co., Inc., Research Division

Okay, that's helpful. Just a couple of more questions. One on the industrial business, that was weak obviously because of that energy business on the assembly side. But x that business, how does that industrial business look from a customer standpoint and a demand standpoint?

David M. Sindelar

It's a pretty vibrant market for us. It tends to be -- as opposed to the Automotive side, where it's $100 billion type boards, on the industrial side it's more relative to China demand and China volumes, it's smaller demand, which our Guangzhou facility is set up to do. But it has pretty solid customer base and supportive customer base. Some of the things that we did while Guangzhou was down is that we shifted some production into Zhongshan [ph] and some production into our HY facility. But we also -- to make sure we met customer demand, we actually were producing some boards out of United States, just to make sure that we met our customers' requirements. Now Jerry mentioned, I had mentioned, that those costs are in the fourth quarter. I mean, in a lot of cases, we decided to make sales at a negative margin just to make sure customers were -- supply was kept up. So it's -- I think we have a good relationship and a good customer service on those industrial accounts.

Matthew Sheerin - Stifel, Nicolaus & Co., Inc., Research Division

Great. And lastly, Dave, just a bigger picture question for you, you've been in this business a long time. We've seen a consolidation over the last 3 or 4 years. Certainly, Viasystems has been a consolidator with at least 2 very big acquisitions. What's your sense on continued consolidation trends in the industry, overall industry capacity and sort of the state of the print circuit board industry as you see it?

David M. Sindelar

Anytime you have a market that is $50 billion, $60 billion in total size, and there isn't a customer or isn't a supplier that has more than 5% of that market, one would think that the whole industry is ripe for consolidation, given what all the other industries in the world have done. So it would not surprise me that there is continued consolidation. I think the other interesting thing about the print circuit board industry is that they're safer in the United States, there are only probably 2 print circuit board producers that have sales of over -- U.S. produced sales of over $200 million, and there's probably another 250 suppliers underneath that and they range, I think, one of the numbers I saw was there's 240 or so manufacturers have less than $10 million worth of revenue. As technology continues, I just can't see how those smaller players will keep up with the technology. So one of the things that we think is an opportunity for us is as the technology overtakes those smaller players, that we could have some market share gains. So I think we're going to see another round of either consolidation or we're going to have -- we're going to see some of the smaller players just throw the towel in and say, I can't keep up with the capital requirements.

Operator

Our next question comes from the line of Frank Jarman of Goldman Sachs.

Franklin Jarman - Goldman Sachs Group Inc., Research Division

Three questions. I guess, first, just with regards to how we should think about working capital going forward. As you ramp back up post the fire, how should we think about working capital and inventory build?

David M. Sindelar

Jerry, you want to tackle that one?

Gerald G. Sax

Sure. Frank, I think, our working capital metrics, the days of receivables, the days of payables and the inventory days stay in a very tight band even from quarter to quarter. But obviously, as we grow, we do look to invest a little bit in working capital. I think we have kind of a net 30 days, 30 to 35 days of working capital employed. So kind of math says, if you're going to grow from one period to the next, you're going to invest a little bit. I look for -- I kind of plan in periods of expansion to invest approximately $15 million annually in working capital. Obviously, that changes in a cyclical environment but I sort of plan for that annually.

Franklin Jarman - Goldman Sachs Group Inc., Research Division

Okay, that's helpful. And just with regards to the E-M Solutions impact from the wind power loss. I just want to make sure I understand. I think, you guys indicated that you could see a 10% decline in E-M Solutions, so it's roughly like a $20 million headwind or so. Is that about right?

David M. Sindelar

Yes, I think, Jerry can chime in after I'm -- I think, with all the other positive momentum and things that are going on, I think that, that would probably be the downside right now for 2013. The wind power -- and again, we've got estimates of where we think it's going to go, where it could or couldn't. But with kind of the growth momentum that we have in place plus the loss, I think that, that's kind of a conservative look at 2013.

Franklin Jarman - Goldman Sachs Group Inc., Research Division

Okay, that's very helpful. And then, I guess, the last question I had was just to dig in to the outlook for 1Q a little bit more. I know you guys said that you expect revenues to be in line with normal seasonality which is down a tad. But can you just provide some more granularity around monthly performance because I would presume that revenues were below seasonality in January, with the impact of the fire. So is your guidance implying that we'll see better than normal seasonality in the February and March months of this quarter? And as I extrapolate further, does that potentially mean that we could see better than seasonality in 2Q and beyond?

David M. Sindelar

Jerry, you want to take a swing at that and I'll follow-up?

Gerald G. Sax

Sure. Frank, as I look at our year-over-year seasonality, I typically look for first quarter to be lower than fourth quarter, marginally, but lower. This time, I do not expect that. Obviously, we're going to be in a better position from an overall capacity standpoint, not having or having recovered or resumed our operations in Guangzhou. So you've got the normal downturn offset by the additional capacity availability. I hesitate to talk about month-to-month, particularly when Chinese New Year is just wrapping up now, but I definitely don't expect lower than the fourth quarter. But I don't expect significantly higher at this point.

Operator

Our next question comes from the line of Jeff Harlib of Barclays.

Jeffrey Harlib - Barclays Capital, Research Division

Can you talk about PCB pricing trends across your business? And then also, material cost trends, as well as inflation you're seeing in China?

David M. Sindelar

Sure. We've seen probably now for 12 months or so, fairly stable pricing. Again, you may have one product, one customer that for whatever reason is not aggressive with price and shift and share around. But generally speaking, we've seen a pretty consistent pricing for the last 12 months or so. We were pretty aggressive in mid '11 to the end of '11 pricing. And that really follows the trend on materials for us. And so when we see a pretty stable material market, we have pretty stable prices. When prices go down, we tend to reduce our prices. When prices go up, we try to get our price up as well. So as we sit here today, we don't see a big shift. And again, if the markets get real hot, we will obviously see some of the commodity prices go up and we'll see some of our raw materials go up. As it relates to cost in China, we are now, what I like to refer to, a little bit in the silly season, the Chinese government tends to, somewhere 15 to 45 days after Chinese New Year, have the increase in minimum wage, which kind of goes across the board for the factory workers. We expect to see fairly substantial, especially considering if you look at it from a U.S. or Western world base, we'd see some pretty substantial minimum wage increases. Kind of with that said, you have to keep in mind what the base is. And today, the base of a Chinese factory worker in minimum wage, minimum -- standard 40 hours a week is probably a little less than $200 a month. But we would expect to see and we do expect to see somewhere at the end of February, March timeframe, we'll see minimum wage in all the regions that we have plants be increased. And it could be as high as 15%, 20%, which is, percentage-wise, a lot. But I think as you compute into the dollar amount, it's not nearly as much as you would expect from a U.S. factory. And again, we expect that, that labor inflation is going to continue at least for the next 3 to 5 years. So you have to either keep it, you have to plan for it through cost reductions and more efficiencies in automation or you have to figure what you need to do out from a pricing standpoint. But the good news is it's affecting everybody. And when China represents 50% to 60% of the PCB production around the world, it's not something that only we have to deal with.

Jeffrey Harlib - Barclays Capital, Research Division

Okay. And just on the CapEx, you said CapEx similar to last year. So in addition to the $40 million to $60 million in sort of a similar amount, you get to your $100 million to $110 million for the other, the new -- the plant move and some of the other initiatives you talked about?

Gerald G. Sax

Yes, that's what we're looking at now. Obviously, as I mentioned, things can change with market conditions. But what we're seeing today, we're ready to spend that.

Operator

That does conclude our question-and-answer session. And I'd like to turn the call back over to Mr. David Sindelar for any closing remarks.

David M. Sindelar

Great. Thank you very much and thank you, everybody, for participating today. As we mentioned, the fourth quarter with the fire and everything that was going on was a challenge. But I think we are -- you have to look for the silver lining in every cloud. And I think we're extremely well-positioned to have a pretty good 2013. So I look forward to talking to you after the first quarter results are released. Thanks. Bye.

Operator

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program and you may all disconnect. Have a great rest of the day.

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