What James mentioned about EV is not a big part of our business, is if you look at today, our revenues profile, EV has not been a big part of our revenue space. Would that be? And it depends on some of these customers whether they wham up to the expected volume and when would they wham up. So there’s something in the backlog in the pipeline in the future yet to see. But as James mentioned, we are not going to count on that one basket. Right. So we continue to diversify our revenues. So in terms of productivities, we did follow through of our cost reduction initiatives. This year we met our own internal targets about the cost reduction. But at the same time, we mentioned that in the past, some of the gross cost reduction will be used to offset some headwinds that we have.
Inflation still continue, particularly in labor and others. So yes, we would continue like to see margin expansion as you described. And I think we’re on the same boat. And as James mentioned. So this will be again our focus front end center, the Vehicle Solutions business. Optimizing the margin will be our top priority in addition to our Electrical Systems growth. Thanks for your feedback, we appreciate it.
Steven Martin: All right, thank you.
James Ray: Steve. Thanks again. I really appreciate your comments. And I see the business in a similar fashion. There are operational excellence things we can do across our functions to improve the stickiness of our cost reductions. And we also have a lot more structure and process rigor we can put in place to ensure that the cost reductions are sustainable and not necessarily one time. So I see that as an opportunity for margin expansion, both on the material, the operation side, as well as some of our business processes and customer relationships as it relates to debits, delivery, quality, things like that, that don’t excite our customers. And that is my priority. So without our customers and without their confidence, we can’t continue to grow this top line. So that is a very top priority in my mind.
Steven Martin: Yes. But keep in mind, top line with no profitability doesn’t do any of us any good.
James Ray: I totally agree with you. And that’s why we’re going to focus on the process rigor and operational excellence across all of our functions, not just in the manufacturing.
Steven Martin: All right. I hope you succeed.
Andy Cheung: Thank you, Steve.
James Ray: Thanks, Steve.
Operator: [Operator Instructions] Next is a follow up from John at Sidoti. Please go ahead.
John Franzreb: Yes, just in your comments about diversifying the end markets in order to foster growth, can you just talk a little bit about how you expect to do that? You need to add sales personnel. What’s the pathway to entering new end markets?
James Ray: There are a couple of different ways, John. One is to bring sales and engineering people into the organization, to that have experience and contacts and credibility in those segments. There are also opportunities for what I would say is cross selling our white space where we have a major customer in one of our businesses, but we’re not penetrating it with all of our product lines. And that’s probably a bigger opportunity than doing it organically with hiring. And on the hiring side, we look at this from a talent management perspective and making sure we have the right people with the right skill sets. Some of what we do in restructuring is part of that rotation to make sure we have the right people with the right skill sets and the right experience.
So we have seen traction over the past year and some of our sales funnel looking into this year, what we’re quoting in these various segments that are new, we also have a value proposition where we’re successful in one segment with one OEM that gives us a stronger right to play and right to win in that particular segment. So we are in flight as far as building momentum outside of Class 8 truck segments, as well as continuing to expand outside of construction and agriculture as well.
John Franzreb: Okay, got it. And just some updated thoughts on two items, I guess. One, on debt repayment in the year ahead, and two, what’s the CapEx budget, especially in light of the continued ramping of the new facilities and the startup of the third.
Andy Cheung: Yes. So from a CapEx standpoint, we expect $25 million to $30 million in 2024. And you can see long-term we will normally target a range between 2% to 3% of sales. That’s kind of been our trend and we expect that going forward when it comes to debt pay down. So we will minimally pay down somewhere around $15 million next year as part of our amortization. And in the past we talk about that, we’ll continue to do that. And then when we see excess cash, then our first priority will continue to be funding our organic growth and food, the CapEx and other working capital, et cetera. And then we’ll have some options as excess cash becomes available for further debt pay down or potential M&A at that point. We’ll share more as we get into closer into the year and we’ll share more about our cash flow expectation.
John Franzreb: Okay, fair enough. Thank you, Andy. Thank you, James.
James Ray: Thank you.
Andy Cheung: Thank you.
Operator: Next question is from Steve Emerson at Emerson Investment Group. Please go ahead, Steve.
Steve Emerson: Thank you, gentlemen. I noticed that admin went from around $22 million to call it $34 million, up 50%. How much of this is a cash expense increase.
Andy Cheung: For this quarter I would say, you could call it maybe 60 to two-thirds of it is cash. So and I explained in the cost in the past, this year there is a bit higher SG&A increase because if you compare to last year, it was a year that we literally didn’t pay our incentive comp from a bonus standpoint. So that’s a big part of the SG&A increase this year. And that is actually right now, has not been cash impacted yet because we haven’t paid the actual bonus. So a big part of that is due to that. The U.S. will be mostly cash.
Steve Emerson: In view of the downbeat forecast this year, I find incentive compensation equal to call it 40% bump in G&A highly inappropriate.
Andy Cheung: And that was, I think we’re referring back to a 2023 versus the 2022.
Steve Emerson: I do hear you. Thank you.
Operator: Thank you. Next question will be from Andrew Brickman at Altair. Please go ahead, Andrew.
Andrew Brickman: Yes. Hi, gentlemen. One question I have is if I look at the appendix of the chart you sent out or the slides you sent out, it breaks down the profitability from an operating income standpoint by business unit. And as I look at that, I have some familiarity with the vehicle systems business, and I believe that’s still a just in time business. And highly, there’s a lot of work that goes into those components. 3.1%, which this is showing as of the end of the year. It just doesn’t seem like the right return for a business that requires the infrastructure that, that business requires and the investment in capital and working capital. So I’m just wondering of your thoughts on that.
Andy Cheung: Yes. So clearly, if you just look at the return on sales in Q4 alone, it’s not what we were expecting longer term. Look, there’s two reasons. One Q4 historically been a very small revenues quarter. And as you mentioned, with the infrastructure, there is a certain degree of fixed costs in the business. Small revenues quarter always impacting our ROS. And then also, as James mentioned in the call earlier, we were impacted by a customer strike during the quarter. So it impacted almost 10% of the revenues of that segment in the quarter. So and that is obviously difficult for us to adjust fixed costs during the quarter to accommodate for that. So that also impacted the margin of that business. I think longer term, your point is valid. So have a mid to high single digit return on that business from a margin standpoint will be probably more appropriate than a low single digit margin.
Andrew Brickman: Yes, I mean I guess I just follow up by saying I don’t know if we ever analyze it from the customer standpoint, but I know for our big customers we save them a lot of money by being just in time right when they need it. Low inventory. I continue to say there could be increasing return. Even the 7.3 isn’t as strong relative to some of your other businesses for the year, but point taken. Thank you for taking my question.
Andy Cheung: Thank you for your feedback. Thank you.
Operator: Thank you. And at this time we have no other questions registered. Please proceed.
James Ray: Thank you all for joining today’s call. While 2023 was a strong year for the company, I’m even more excited for the opportunities that lie ahead for CVG. We remain encouraged by our business outlook and we look forward to continuing to execute our long-term growth strategy. Have a great day.
Operator: Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending, and at this time we do ask that you please disconnect.
