Alcoa Corporation Common Stock

Q4 2021 Earnings Conference Call

1/19/2022

spk_0: that afternoon and welcome to the alcoa corporation fourth quarter two thousand and twenty one earnings presentation and conference call all participants will be and listen only mode should you need assistance please signal a conference specialist by pressing the star team followed by zero after today's presentation there will be an opportunity to ask questions to ask a question you may press star than one on your touchstone phone to withdraw your question please press stars then to please note this event is being recorded i would now like to turn the conference over to james dwyer vice president of investor relations please go ahead
spk_1: thank you and good day everyone i'm joined today by roy harvey oh cool corporation president and chief executive officer and william or plunger executive vice president and chief financial officer will take your questions after comments by roy and bill
spk_2: as a reminder today's discussion will contain forward looking statements relating to future events and expectations that are subject to various sanctions and cabbie us
spk_1: factors that may cause the company's actual results to differ materially from his statements are included in today's presentation and in our se si filings in addition we have included some non get financial measures in this presentation reconciliations to the most directly comparable gap financial measures can be found in the appendix to today's presentation any reference in our discussion today to either the means adjusted he's done finally as previously announced the earnings release and slide presentation are available on our website
spk_3: with that here's roy thank you gym and thanks to everyone for joining up whole two thousand twenty one was truly transformative year for alcoa during work and dedication of employees across the globe we're now in our best financial shape ever our accomplishments which span across our business will help propel us forward with our vision to reinvent the aluminum industry for a sustainable future for bill covers a result in detail i want to quickly highlight a few items first our most important focus is always on safety which is embedded in our alcoa values to act with integrity operate with excellence care for people and lead with courage and every one of those values have a an application that helps to support and improve our safety importantly we will never put production for profit ahead of human life last year we had no fatalities but we did experience some serious injuries we recognize that our systems and processes must be consistently applied and regularly reviewed to prevent injuries we never rest comfortably when it comes to safety we must and will remain vigilant next turning to some of our results we had a quarterly net loss to the restructuring charges that bill will detail meanwhile a quarterly adjusted net income increased twenty one percent from the prior quarter studying a quarterly record for a company at four hundred and seventy five million dollars adjusted he the docks good a special items was eight hundred and ninety six million dollars in the fourth quarter we also paid ninety million dollars in cash dividends or first as a corporation this action to made two thousand twenty one an important year as the initiation of our dividend program indicates the strength of our company and our view of future performance to the cycle in the fourth quarter we off rise and additional stock buyback program and repurchased three point two million shares we generated nearly a billion dollars from the sale of noncore assets in two thousand twenty one including two hundred and forty million dollars from the rockdale texas site in the fourth quarter we've also continued to make good progress on the review of are operating portfolio we've now addressed roughly seventy five percent of the one point five million metric tons of global smelting capacity that we said we'd evaluate for significant improvement curtailment closures were divestiture importantly we have significantly reduced or deposition during the year our adjusted proportion on debt was one point one billion dollars on december thirty first two thousand and twenty one and improvement from three point four billion dollars from year and two thousand and twenty and on pensions or remaining us qualified pension plans are fully funded we a new it ties additional portions of our us plans be risking a balance sheet while ensuring that pensioners and beneficiaries received payments from highly rated insurance companies we are now well positioned for the future where aluminum will become an even more important material aluminum has always been a sustainable choice and metals and we're ready to make it even more attracted to a greeting world with technology advancements that will help us realize our vision progress toward our net zero ambition and create an even more sustainable aluminum company and industry finally we're excited to see it all come together with many positive fundamentals in our markets we expect the aluminum market to be stronger and for long now let me ask bill to go through our to for and for your results
spk_4: thanks right
spk_2: our fourth quarter income statement reflects both solid underlying earnings in a very dizzy set of strategic action we recorded a net loss attributable to alcohol corporation have three hundred ninety two million dollars but excluding special items we recorded quarterly adjusted net income attributable to alcohol corporation of four hundred and seventy five million dollars or highest since becoming a standalone company in an increase of eighty four million dollars from the prior quarter
spk_4: positive market fundamentals are expected in a rabbit is and adjusted ebitda excluding special items at three point three billion dollars revenues were up two hundred and thirty one million dollars or seven for sense closely on higher aluminum and aluminum prices
spk_2: revenues were up nine hundred forty eight million dollars or forty percent from the same period last year
spk_4: adjusted ebitda was up one hundred and sixty eight million dollars to eight hundred and ninety six million dollars sequentially and up five hundred and thirty five million dollars or hundred and forty eight percent compared to last year
spk_2: what a full year basis revenues were up thirty one percent to twelve point one five billion dollars net income the treated wood alcohol change from a net loss of one hundred and seventy million dollars to net income a four hundred and twenty nine million dollars and adjusted ebitda increased one hundred and forty percent from one point one five million to two point
spk_4: seven six billion
spk_2: provide a little more detail about the quarter the bottom of the page shows a bridge from fourth quarter gap a net loss to adjusted net income special items net it to negative eight hundred and sixty seven million dollars and included noncash charges for pension a new innovations the wenatchee smelter closure the sand cyprian smelter curtailment as well as the positive impacts as non core asset sales primarily the rockdale site sale
spk_4: now let's review adjusted ebitda in more detail
spk_2: ira luminous and metal prices as well as increased aluminum shipments drills the one hundred and sixty eight million dollar increase in adjusted ebitda excluding special items while partial offsets came from our energy and raw material prices in other impacts increase costs and cyprian primarily energy related or pa ashley offset by one time that credits recognized and brazil
spk_4: looking at the segments oxide segment adjusted ebitda more than doubled to forty nine million dollars on lower production costs favorable shipments and the annual true up of mine least royalties
spk_2: alumina save money but does jumped two hundred and forty percent to five hundred and three million dollars on higher index pricing and lower production costs with partial offsets from the next customer shipments and are caustic in energy costs lower production costs almost completely offset higher costs it costs
spk_4: aluminum was the most profitable segment again that's quarter there's still a high level you better declines to five hundred and twenty three million dollars as hard metal prices for more than offset by higher cost of alumina energy raw materials and production costs highlights included higher shipments and quebec and
spk_2: yard or as well as increase product premiums and shipments shifting to regions with higher premiums the sequential aluminum segment impact of the sand cyprian situation with sixty two million dollars in other and was partially offset by brazilian that credits below the segments line fire alumina prices cause increased in or segment eliminations creating a negative one hundred and twenty million dollar impact now let's look at impacts in our cashless the left side of the slide shows the drivers as a sequential increase in cash on the balance sheet which increased from one point four six billion dollars into one point nine two billion including the hundred and ten million overstretching cash primarily related to the sense that brain for talmud the roughly half billion dollar cash increase came from strong a the odd as well as an encore asset sales partially offset by capital returns the stockholders capital expenditures and increase working capital and the right side of the slide on a full your basis sources the cas or four point two billion dollars and uses three point nine billion dollars the largest cash source was adjusted ebitda excluding special items of two point eight billion dollars while non core asset sales generated nine hundred sixty six million dollars
spk_4: combination of debt offering proceeds and debt redemptions with the net reduction of eight hundred and one million dollars
spk_2: other major cash users were increase working capital of six hundred ninety nine million dollars six hundred and eleven million dollars for pension and opec funding which includes a five hundred million dollar discretionary pension contribution in the second quarter capital expenditures three hundred ninety million dollars in capital returned star stockholders of one hundred and sixty nine million dollars
spk_5: looking another key metrics
spk_2: return on equity increased to thirty three point four percent for fiscal twenty twenty one four year twenty twenty one free cash flow less not net non controlling interest distributions was three hundred and thirty six million dollars and includes the second quarters five hundred million dollar pension funding free cash flow less
spk_4: and the i was positive three hundred and eighty seven million dollars in the fourth quarter
spk_2: eight working capital was flat sequentially at twenty nine days we did have approximately three days on say will impact some sense brain inventory build but this is offset by other reduction and days of them the tory on and and favorable receivables collections
spk_4: on a year over year basis days working capital capitalise up nine days as higher sales disproportionately decreased days table
spk_2: both twenty twenty one and twenty twenty year and working capital it's include the impact of the worker strikes at san cypriot with flocked over fifty thousand metric tons of metal shipments and represents approximately three days working capital weeks that to work through the sansa brain inventory built over the next eight months with unrestricted cash at one point eight billion dollars are key leverage metric proportional adjusted net debt is one point one billion and net debt is now that cache of twelve million dollars as the final comment on the quarter here's a deeper dive on t pension actions we took in november and december in november december i'll quote transfer to groups of us pension liabilities totaling one point five billion dollars to a theme a new body and life company pricing was very competitive we used a portion of our free funding ballots to me contribution requirements so no cash contribution was required
spk_4: a poor book the non cash charge of eight hundred and forty eight million dollars to recognize suffered losses that would have been realized over the term of those transferred obligations
spk_2: are you us pension liabilities has changed substantially in the last year and twenty twenty one a gross us pension liability decreased from four point five billion dollars to two point six billion dollars and the number of a new attempts decreased from twenty nine thousand to fourteen thousand lowering our cause pension related risk
spk_4: us qualified sanctions are now fully funded
spk_2: that's enough looking in the rearview mirror now let's look forward to twenty twenty two or twenty twenty two outlook includes modest year over year increase is expected and bauxite and alumina shipments in aluminum shipments a slight decrease projected reflects the impact of the twenty twenty one work rolling know sale and the net impact of the twenty twenty two restarts et al umar
spk_4: important one as well as the curtailment a sense if britain
spk_2: he needed die impacts outside the segments transformation spending is expected to be approximately seventy five million dollars on increased project spending and other corporate expenses expected to decline to on one hundred and forty million dollars hello the a bit arline depreciation and interest expense or both expected to decline and non operating pension and open expanse will increase due to the impact of the twenty twenty one and motivations the net impact of three line items is favorable thirty seven million dollars looking at cashless required pension and health have funding is expected to decline sixty two million dollars to approximately seventy five million dollars return seeking capital expenditures are expected to increase to approximately seventy five million dollars sustaining capital is expected to increase to approximately four hundred and fifty million dollars on spending for or this routine minute as well as impoundments and rescue filtration spending primarily in brazil a significant change from twenty twenty one as expected in the payment of approximately three hundred and twenty five million dollars of prior year in some taxes a result of higher twenty twenty one taxable earnings in canada and australia finally environmental and arrow spending is expected to increase forty two million dollars to approximately one hundred and sixty million at standing a to remediate close locations
spk_4: for the first quarter of twenty twenty two as outlined in the appendix at current price levels we expect adjusted ebitda and adjusted net income to be similar to the fourth quarter of twenty twenty one expected metal index price benefits will roughly offset the raw materials and energy challenges and improvement from to
spk_2: portfolio actions and sales contract pricing are expected to mitigate other seasonal changes and said was let me turn it back to right
spk_3: as mill noted the aluminum segment have a significant role in our overall profitability in two thousand twenty one the average ella me aluminum prices surged to it's highest level and more than a decade and pricing today is higher than the average levels we experienced in two thousand twenty one on the supply side important fundamentals have taken shape in china which is the world's largest producer of aluminum in two thousand twenty one the country curtailed more than two million tons of annualized capacity to the both power shortages in the enforcement of policies related to energy and the environment these supply dynamics are not only occurring in china increases in market power prices in europe have led to a series of smelter cuts there that i will discuss in more detail on the next hide on the demand side we expect annual global demand for primary aluminum to increase this year between two and three percent relative the two thousand twenty one demand in two thousand twenty one had already he clinched the pre pandemic levels of two thousand and nineteen we continue to see positive gdp and industrial production across most of the world's leading economies which supports continued annualized growth in aluminum demand across all major and you sectors aluminum prices have been supported by supply constraints know inventory levels and high transportation costs from a commercial perspective the shortages of some specific outgoing materials key to our value added products have also eased someone from the tightest points in the fourth quarter on sales much of our volume for value add aluminum products is sold in annual contracts and negotiations with customers resulted in favorable pricing we expect higher premiums relisted to two thousand and twenty one and continued demand for any remaining open volume we continue to benefit from our position as a domestic supply or to the deficit market in north america and europe where regional premiums remain high on overall market dynamics the factors supporting higher aluminum prices represent fundamental structural changes that we believe will remain in place over the next decade supported by a drive towards more sustainable solutions the global pushed to reduce carbon emissions is a boon for aluminum demand at a time when supply constraints are becoming more prevalent particularly in china with policy goals at target reductions in total carbon emissions and a focus on energy efficiency china has made a commitment to cap their primary aluminum smelting capacity and forty five million metric tons of annualized capacity which leaves little room for any net production growth we expect china will remain a net importer of primary aluminum in the aluminum market pricing remains higher relative to two thousand and twenty one's average but supply constraints in primary aluminum production have reduced demand also some of the disruptions in supply at x china refineries in two thousand and twenty one have either recovered or are in the process of being resolved our position in the aluminum market remains strong and advantaged we are the world's largest producer of third party not a great alumina outside of china and our refining system uses less caustic soda per ton of aluminum produced and it is optimized for an integrated bauxite supply we are also proud to have a global the flying system with the industry's lowest carbon intensity can really only refiner to sell tickets source a low carbon alumina brand that allows an aluminium smelters to reduce it's carbon emissions simply by switching to this product in our view our refining system and are unique product of from provides a sustainable advantage in a rapidly evolving world next i'd like to take a deeper look at the aluminum market the average view from analyst says that two thousand and twenty one ended with close to a one million metric tons global deficit and another deficit of approximately one point four million metric tons is expected in two thousand twenty two all of this is happening at a time when inventories are at their lowest level in a decade looking at inventory levels from a days of consumption perspective inventories returned to a low point of fifty two days of consumption at the end of two thousand and twenty one if the deficit projections for two thousand and twenty two holes we expect infant could think to a new low of forty four days of consumption by the end of two thousand twenty two despite deficit market conditions in inventory that low levels we are continuing to see supply constraints to the challenge is related to power and the emphasis on sustainable production an interesting case study lies in the latest market dynamics in europe in this important aluminum market average spot power rates increased between two hundred and four hundred percent between january and december of two thousand and twenty one driving cuts and smelt and capacity across europe this chart shows in dark blue the countries where smelting capacity has been reduced to the power issues we estimate these cuts have impacted between six hundred and seven hundred thousand tons of annualised capacity which represents around fifteen percent of europe's operating capacity this demonstrates the pressure that aluminium smelters will increasingly face during the transition from fossil fuels to more renewables and as i mentioned earlier the structural changes driven by decarbonization should give low carbon operators like alcoa a sustained competitive advantage in the future however we want without our own challenges as it relates to power prices and spain and i'd like to next recap the news we issued at the end of two thousand and twenty one related to the sun cyprian smelter as we discussed previously on his earnings cause we've been working to find a solution to the unfavorable energy prices for our sensibly on smelter even with the positive ships with seen in aluminum pricing the smelter has continued to lose money primarily because of the exorbitant energy prices and spain the price of electricity their hit an all time high late last year averaging approximately two hundred and forty euros per megawatt hour in the month of december on december twenty ninth two thousand and twenty one we signed an agreement with the workers representatives that sums up the on to temporarily curtail the smelter for two years to can
spk_6: troll our losses
spk_3: we will use that time to find an energy solutions by a long term power purchase agreements with committed to restart the smelter in january of two thousand and twenty four we started the curtailment process earlier this month and expect all molten metal production from the smelter will cease by the end of this month with the agreement we expect annual net losses between twenty to twenty five million dollars both this year and and twenty twenty three while the situation is not ideal it was important for everyone to have clarity on the losses and importantly to have a clear timeline to resolve the issues and define a date to restart with new power
spk_7: arrangements
spk_3: we will continue to operate the cast out during the smelters curtailment using accumulated inventory that could not be shipped during the strike action the agreement with the workers representatives ended the strike which also had negative effect on our refinery there is certainly much to be done during the two year period but we look forward to working toward a more successful sensibly on smelter next as i mentioned at the beginning of our call our achievements across two thousand and twenty one truly showcase our efforts toward becoming a more streamlined efficient and high performing to minority focus company for the past five years we have worked on improving our foundation financially operational lee and strategically now we are ready for the future we are embracing opportunities to reinvent how we operate innovating for long term impact in challenging the status quo these accomplishments reflect our companies over arching purpose to turn raw potential into real progress this purpose combined with our alcoa values serve as our foundation it helps guide every goal we sat decision we make action we take and the strategy we implement i'd like to highlight only a few of the many accomplishments listed on the slide from a commercial standpoint we have the industry's most comprehensive sweet of low carbon products in our sustain a family last year we sold our first commercial shipments of equal source alumina the industry's only low carbon smelter grade aluminum also we sold our low carbon economy aluminum for the wheels on the audi t tron gg electric sports car the wheels use both equal loom aluminum and metal from our ellis's joint venture a revolutionary technology that eliminates all direct greenhouse gas emissions from the smelting process in our operations we continue to make important advancements and i'd like to recognize just a few in australia our huntley bauxite mine had a very strong year and nearly matched it's two thousand and nineteen record for dry metric tons in alumina aquanaut a refinery in australia had its best ever annual production in two thousand twenty one in norway we had a record mountain production that motion and record villa production at least in canada all three of the operations and callback are now certified to the aluminum stewardship initiative and set annual meeting production record finally in brazil the are you more refinery recovered from the bauxite ship a motor damage and set a quarterly production record in the fourth quarter on our portfolio we've made very good progress in addressing our production capacity to create a set of cost competitive and sustainable operating assets our vision to reinvent the aluminum industry for a sustainable future really helps to define our next challenge to innovate and create low carbon solutions that our world needs and to solve some of our industry's most pressing challenges that included here in our future oriented research and development projects which have the potential to not only transform the industry but dr important value for our investors in a carbon can see drained world we are addressing these challenges with cost competitiveness in mind we need to solve for low carbon that also for low cost and know capital and finally on this slide we had numerous financial accomplishments in the year which provide a much stronger foundation for alco it's future but to be successful we must build on the positive momentum so next i'll discuss a few of the items on our list for this new year in two thousand twenty two we will focus on safely completing the full smelter restarted are you more in brazil and the restart have some modest additional capacity at the portland smelter in australia as i mentioned we are also actively working on the energy situation at to be on in brazil we will be implementing some and portland capital projects which include the mine move rigidities box i crusher for process you called us we are working on the installation of press filtration for bauxite residue bringing technology to brazil that we first adapted that to western australian refineries finally we will continue to investigate additional pension and to activation actions to reduce risk as market conditions allow at the same time we are focused on new technologies we share this information it are invested in november if you've not have the chance to do that material with kept it archived on the investors section of our website i would like to briefly revisit some of this today due to it's importance and how it aligns with our purpose and vision we're at a time when the world needs more sustainable solutions and alcoa is well positioned to make a positive difference and drive value we are addressing these challenges with a commodity cost conscious mindset supported by operational and technical experience the technology road map which includes alice's as stray a technology and the refinery of the future provide a path to help reach our net zero ambition which we announced last october the projects also have the potential to further differentiate alcoa and drive stockholder value our refinery of the future redesign and our alice's zero carbon smelting technology or research and development projects that not only aim to reduce costs and improve efficiency that also target complete reduction of greenhouse gas generation from their respective production processes this year our alice's joint venture will begin detailed planning for it's supply chain including the production of the proprietary anode cathode materials that are critical to the carbon free smelting process that was first developed at the alcoa technical center also work is underway for additional commercial sized testing next year at four hundred and fifty kilometers with the current development pathway the j the aims to have technology available for installation from two thousand and twenty four allowing potential adopters to produce carbon free aluminum approximately two years later another exciting aren't the project is our a stray a process we are working to ramp up this innovation which can purify aluminum scrap to levels that far exceed the commercial grade quality of metal produced from the smelter as the world needs more aluminum the technology can leverage the vast quantities of low value automotive scrap we can use this material as a feed source to create high purity aluminum that can be converted for premium and use applications such as aerospace the technology is currently working at bench scale and we plan to develop a pilot demonstration facility next year with engineering and design were taking place
spk_8: this year
spk_3: net our refinery of the future project bundles numerous technologies and process improvements to eliminate emissions while also developing beneficial applications for bauxite residue from an emissions standpoint the refinery of the future will involve to primary innovations we're working to develop mechanical vapor recompression which has financial support from the australian government and electric kelso nation adapting mechanical vapor we compression to refining could replace all fossil fuel energy consumed in our boilers allowing refineries to operate from renewable electricity kelso nation is the final stage in the refining process where alumina hydrate crystals are heated to remove water molecules converting that process to renewable energy rather than fossil fuels would allow all of the steam generated by the council owners to be captured and we used which would also significantly reduce water next we announced last year the beginning of a joint development project related to the market for high purity aluminum or h b a a non metallurgical aluminum hp a is used for items like lithium ion batteries and energy efficient ellie the lighting applications and other sapphire glass products it's market expecting to grow do with the need for low carbon solutions and transportation and other sectors the first pilot trials have so far produced average purity levels that a line with what is expected in the hp a market finally you'll see on the far rice of this slide our estimates for future capital to support these projects importantly there are several stage gates for each of them which are still in the arm he says and full project funding is not yet the proved to be implemented each one must provide expected stockholder returns next with so much financial progress i want to revisit the capital allocation framework which we simplified late last year you'll notice there are some important similarities from our prior framework we will continue for example to focus on a strong balance sheets through the cycle which includes both are cash and our net debt for addition next we will continue to allocate capital dollars to both sustain and improve our operations this year we've increased our sustaining capital to four hundred and fifty million dollars up from three hundred and fifty six million dollars the prior year this change is given mostly by the planned mine move that you to take and improvements to some
spk_9: and pounds
spk_3: below the line on the charts for value creation we have three elements listed in no specific order of priority returning cash to stockholders transforming the portfolio and positioning for growth i'm returning cash to stockholders we initiated a first cash dividend in the fourth quarter totaling nineteen million dollars at ten cents per share we also closed down into for a prior to hundred million dollar buyback authorization we purchasing three point two million shares we currently have an onion used five hundred million dollar buyback program available next on strengthening the portfolio to our transformation process it's important to emphasize again that we have options to mitigate closure costs the sales of noncore assets for example in two thousand and twenty one helped to offset costs associated with closer actions on the portfolio transformation as noted earlier with now address roughly seventy five percent of our one point five million metric tons of smelting capacity as we're just now passed the two year mark on the five year program which we first announced in october of two thousand and nineteen the tally includes the to your curtailment and future we powering it sensibly on the curtailment of and telco in permanent closure of when actually both in the united states before we start now underway at all you mind brazil and the repowering at portland aluminum in australia including we starting a bit more capacity finally on the slide our capital allocation includes position or company for growth with a key time frame in two thousand and twenty four as we develop and implement technology innovation after progressing through appropriate stage gates
spk_10: the summer
spk_3: two thousand twenty one provided an opportunity to demonstrate the work we've been doing across our business in our second alcoa employees across the globe and made a difference with focused on the fundamentals as a commodity based company strengthening our foundation for a brighter future in two thousand and twenty one it all came together we made our highest ever adjusted net income we also saw strong possibility from our aluminum segment with robust market pricing we expect stronger markets to continue to the positive changes in the aluminum industry including meaningful supply constraints and china next week positioned alcoa to have strength through the market cycles which supported our decision to provide the capital returns we announced for the fourth quarter finally after the challenges the industry has faced over the prior decade it's a very good time to be in the upstream aluminum that we had the right company as the right time one where the industry's fundamentals are changing the importance of excellence and environmental social and government standards of coming to the fourth right this is a change that benefits or company now and in the future thank you once again for your trust in our company as we work to drive value for the future and without bail and i are eager to take your questions operator food we have on the line
spk_0: we will now can the question and answer session to ask a question he may press star find one on your touchstone sound if you are using speaker phone please take up the handset before pressing the keys to withdraw your question please pass stars then kill when called upon please limit yourself to two questions as such question today can spend the satish testing our son with deutsche bank
spk_11: the or hi good morning or thanks for the as grieving state thanks for take my questions my first question as on the aluminum shipman guidance for two thousand twenty two the two point five to two point six million ten guidance appears to be a little bit light of can you provide some what color given the vegas moving parts are understand that there would be lowered warriors from san cyprian but that the should be offset by did he start of alma mater and had orleans from portland what recalling should be lola that it's it's it's you'd just be one quarter impact given it was devastated in april of last year so any kind of control like please thank you
spk_2: but he said they get hit on all the major moving parts we had work in the first quarter last year
spk_4: we will get
spk_12: the
spk_2: said cyprian smelter curtailed after within the next week or so so we all have eleven months of shipments there
spk_4: and then we are ramping up some small amount of production at portland and that starts in the third quarter and goes into fourth quarter
spk_2: and then some production and in our umar but i think you've hit on all the major items
spk_11: i'm so just to be get the the the for like to five hundred thousand decline and the annual volumes of does it include any lower third party purchases for the your eyes data is that the reason for the are larger than expected decline
spk_2: well as are there maybe some smaller amounts of by resell but that's not the major driver
spk_11: okay okay thank you and my second question is on the overall guidance for the first got off the don't want a top of the i just want to clarify if the guidance takes into consideration the potential to also and intersegment elam nations which was one hundred twenty million headwind and fourth quarter
spk_2: it does take into that that into account so it takes and the two things related to illumina pricing we have lower alumina pricing currently than what we had in the fourth quarter or we will have a reversal of that in or segment
spk_4: cook watson this case so we'll add that birth are salsa
spk_13: like identical to go to prison
spk_14: thanks a dish
spk_0: i next question can send kinda tanner switch off research
spk_15: get a happy new year and extravagant you can and i can meal as peter and one cat caf the stats and high level you know looking across your portfolio as we just heard and and looking at what's remaining and i you said you're still the an evaluation of their set friends and he still has a number as us assets that are certain i was just wondering if you know and klein said believe it after alamein portland and you're happy with your that center as it's still possible them physicists at work in mussina west
spk_3: yeah i'll i'll handle that when pin that you know where we're always looking at what we choose to operate in solid says you know if you we'd look at what's happening in the current environment we project that out as well and so both summer from a restart side and we do have some curtailed capacity but also from the the prefer the capacity for potential curve patel minutes or divestitures etc you know it's it's a it's an active processed and it also connects over ten then and we talked about this before it connects with trying to repower these facilities to look for ways in order to invest to strengthen them to build up partnerships so i think that the right answer to your question is that yeah we're all we're always looking in our portfolio turn to try and decide how we can drive towards the first quarter number one and then number to make sure that we're meeting our our decarbonization targets and and driving towards net zero and twenty fifty which obviously as a good portion away on but we need to be active the were
spk_16: on that now
spk_15: and it's the second question is really brought her about census around in particular so first off you had said it would be about one hundred million hit the fourth quarter i was wondering if that materialized on there's some discussion of the wind power options for a sense of them had seen in the media that you'd son tentatively agreed to wondering if that a viable option if he can discuss sad and the local media also had some reports of a one hundred million catholics investment has since images is a different to get a lot more color and the ramifications of sense of free and and how to think about a consulate
spk_2: the gym the let me take the the first and the third and then boy to the throughout the wind power question we had projected i believe around eighty five million dollars sequential either the impact from sense of we saw around seventy five million dollars of sequential negative impacts from san cyprian that's around sixty five million dollars in the smelter and approximately twelve million dollars i years of seventy seven in in the refinery from a from a that that the strike there
spk_4: so we did see essentially what we thought as far as a cast situation goes we had projected around one hundred million dollars of the capital that would be were held up and working capital and given the fact that we had around fifty thousand metric tons of for shipments that didn't go it was it was at least one hundred million dollars of working capital that tied up at the end of days at the end of the year as far as the hundred million dollars of catholics we'd have committed to one hundred and three million dollars of restricted cash in that breaks down that we can made it to around sixty eight million dollars of capital stand at the at the facility over the next couple of years and thirty five million dollars of restart costs so you'll see that on our balance sheet that's actually hell does restricted cash
spk_2: because we've committed to stand that over the next couple of years as we prepare for a restart
spk_3: why do you want to take the wind our questions yeah in so just stepping back and looking at the the deal that we haven't tend to bring on you know i think it's it's a good outcome because it gives us some some clarity through what is a pretty incredible dislocation and energy prices in europe and very specifically in spain and so our our sort of the most important next step was to reach this curtailment because it cuts off those losses which is which is what bill described very well i'm so now we're already starting to mobilize and look towards this capital spend that we've committed to on but more importantly for that committed restart january first two thousand twenty four i'm were lucky in for energy contracts that can stretch out for longer and can take away the that energy price risk and those of course tend to be linked to potential renewables projects and in in this case that you had mentioned wind power on those are pre agreements or am i use so they're the first step in this process i'm they are indicative of moving in the right direction and so i think it's a we need to how policy and that the regional government the shouldn't are connected with the national government policy on how to build those renewable power on opportunities and then connected to ten cypriot on which is what allows us to have this in this step change improvement in energy price that we could entertain and in june first two thousand twenty four so the important thing yes is that we're reaching curtailment which means we're no longer consuming what is incredibly high priced energy and of the same time working to make sense cyprian as competitive as we possibly can for that restart january first two thousand twenty four
spk_0: and then of
spk_17: i next question comes san carlos stamp out with morgan stanley
spk_18: no thank you very much something you guys first question just to remain fancy brands is a for hot for how long do you speak to use the his dog springer them is about promoting primary metals to the you go to have their and wondered what is the on how you wouldn't run the cost housing units
spk_2: feedstock it after you ruined the down those losing the tories
spk_4: so we we anticipate term using that inventory over the next eight to nine months carlos
spk_18: and then after that we will bring in cold metal and he saw if i may ask bill the will you with would you be buying these from their bodies are you would you be bringing it from us or the european his mentors
spk_2: over a glass european and businesses i think will do whatever logistically makes the most censor carlos i i don't i don't necessarily have an answer for for where will be getting that metal after the the ten months but we will continue to run the castles
spk_18: i understood it's i mean if you could come into is there any other commons that you can add to the the a piece of increase the you stick to benefit the profitability of the burma mental to broom the is melting
spk_3: is melting abrasion these years
spk_19: yeah i can i can give you some quality the comments you know i think when when we look at the markets and in these markets tend to be driven in north america particularly on an annual basis so we've moved through that annual contracting period in europe they tend to be redefined on a quarterly basis and so you do see some changes as the your progress is and then are
spk_3: are the available capacity that we have or capacity that we can build and in add to our portfolio over the course of the year than we can take advantage of of what are typically very good spot prices and so for us it is when we have sort of that a contractor to north america particularly we were seeing a lot of strength and continue to see a lot of strength on it is a deficit market in in north america right now on there is a clear demand upsurge in across all of our different products from so it was a very good time to be going out there for those animal contracts and in i would argue it's the same in europe as well and will likely become even tighter given all have different european for talents that we're seeing so just on a qualitative basis i think it is there is a hit the definite move upwards on on value added premium
spk_18: in general i'm and words worse driving and driving to make sure that we can produce as much as much as we possibly can have these value added the value out of products
spk_20: well and in a dozen when when the we see that a heating your european else is the same mostly in the first quarter i'm he's conscious resetting jack generally over he said it throughout the year mother for south of the year
spk_3: donated actually as early else there are typically typically there is that a january and again you you see sort of the north america and read that in january and then you'll see the the european that will have the quarterly driven changes in price and mental happen on for each quarter so it's not it's not it's not as simple as one one impact and and doesn't change it also can change depending on
spk_2: what the product mix looks like itself an ability one add to that
spk_4: that they are the only thing i that carlos is in the guidance that we've provided or we've included the fact that there is a pricing resets in the first quarter and we will see to pricing benefits in the first quarter that the first is the higher value add premiums across the aluminum segments and the second it's a non rico
spk_18: current of the negative pricing that you see in the illuminati segment in the fourth quarter as aluminum prices came down in the fourth quarter we have some block pricing that gets reprice to enter and that was a negative and the fourth quarter and so that won't recur in the first
spk_0: i thank you very much of the ambulance on the best bet
spk_21: carlos
spk_2: our next questions on some emily chain with goldman sachs
spk_15: and eighty nine down
spk_22: actually she grandsons some saw the progressiveness portfolio strategy
spk_3: and my son's question is just around on the sidelines that not yet sanctions the h p a carjacking honey twenty two twenty three three am i guess at one point during the yeah should we expect the same update on on was just an additional that will be deployed on and i'm like how close are we to reach out to read see my difference age sas the from from an eight p a perspective emily and i appreciate appreciate the question you know this is this is an active research and development project in fact there's probably are a lot more a lot more information that you're getting because of the joint venture partner because how important this is to their their on going business in so over the course of of twenty twenty two will see advancements in what is right now our a relatively small scale application to make sure that actually works and then coming into the end of this year is when will be actually starting to to design and consider whether we move forward without larger project
spk_2: and so i think there will be more information coming out as two thousand and twenty two continued forward on a in i would just reiterate the fact that for projects like this that or aren't in the are in the face and it's it's no different for a stray into a certain extent alice has all the other well as this is further along here we go to the stage gate to make sure that way
spk_15: you choose to invest capital were doing in a project that will be very that will be successful that we've been able to to eliminate the technological rest but at the same time also have very good shareholder returns so we need both the market size but more importantly cost side the come in where we want to
spk_4: sanctuary sense that's really clear my second question is just around on the capital allocation pay such you're not leverage is while the royal prime targets cash balances well above the previous one billion dollar target is talked about in the past how should we think about what the right level of is on the balance sheet and that's what that could mean for you know how capital returns could look at route from twenty two let me go are also got one right emily as as you lose a t you've seen over the last five years that are cash balances have fluctuated there there's been times where we've been below the one billion dollar targets and and as of today was clearly above so one billion dollar target
spk_2: with that in mind we initiated a dividend in the fourth quarter we bought back from roughly one hundred and fifty million dollars worth of shares in the fourth quarter we have a further five hundred million dollar authorization that we can execute in and twenty twenty two
spk_4: and so as we look at all of saw all of that information lisa
spk_2: developed the that day revised capital allocation framework it'll be focused on three things returning cash to shareholders repositioning the portfolio and positioning for girls in the future you seen that the repositioning with portfolio actually does cost us the money so we are in the sand cyprian situation
spk_23: lee committed one hundred and three million dollars
spk_4: of capital to restart that facility
spk_24: but sir
spk_25: the so we've we've had that we've got the are you more restart that would that will cost are some so that so what's going into the thinking behind the that the capital allocation program
spk_0: tada thinking
spk_26: exactly
spk_27: i next question and some michael black with jp morgan
spk_26: maybe just to follow center on the by dark you needed for hundred and sixty million for q and house we seek but the pacers buybacks
spk_4: tweets
spk_2: just generally your thoughts on dividend increases vs buybacks
spk_4: yeah we really don't have any any guidance to michael on
spk_2: how quickly will execute upon the the future buyback it will be based on as we see cash coming in and the market situation as we consider the that the question around dividend vs buybacks said the dividend would set as an additional dividend and and i should before we rushed to talk about are potentially increasing the that and we just paid our first evident in the fourth quarter after five years of being an independent company so we set that dividend at a level that we thought we could be comfortable through the cycle
spk_26: so as we consider the future use
spk_28: a excess free cash flow will be balancing the dividends vs additional buybacks
spk_2: it's also and as or listen to the cause i could you maybe go into some of the key items on the raw materials side
spk_4: how you see this is of cost
spk_2: ah our dresser the first quarter specifically the the cost situation on raw materials it's very fluid so we haven't provided a full year guidance
spk_4: of the raw material situation to big costs drivers on raw materials see the first is caustic and and the second it's carbon products those were adding up to the about fifty million dollars of sequential order
spk_2: a negative impact
spk_29: so that's what that's included in the guidance that we've provided
spk_30: but to fifty million dollars combined between between cost again and carbon products
spk_0: you very much
spk_31: it's michael
spk_32: next question comes from challenge in law's us with john to mothers very independent research
spk_31: thank you very much for the last twenty slides for specially slide thirty one thirty four of my question of all sure two to three percent to mangroves estimate for this year world auto sales micro two or three times or four times that ship availability easy sales at much typically are all rufus you hundred percent different markets the dev chand is growing with displacement of two bottles and different facets the world's european most recent micro by more than three percent which markets to you expect them to be cannibalized priced out building construction electrical uses internal combustion
spk_3: other markets square ways of there's many segments are going to grow more the to the three percent
spk_33: dear john let me let me trying to provide a little little extra information that might be helpful in you know i'm not sure i would talk too much about cannibalization simply because while we are enjoying positive aluminum prices in in certainly like it when it's above three thousand dollars an hour
spk_3: we're seeing a lot of that same type of commodity price inflation across and of the competing metals as well and so i'm sure if it's so much cannibalization as some weakness that we see and in the markets as they're sitting today i'm from to let me take one one quick example and transferred or their construction growth inside of china as you watched some of the fiscal measures that they've taken in the tightening of some of the credit that's something that tends to drive a flatter construction market and that's how we were looking at this up until it up up until this point now that fiscal policy can change you can see more money going under construction and so that that could drive a much a but more vibrant market i'm from from the chinese that point it really is around the construction site and instead said availability of credit so if we see that turning around and i think you could you could start to argue which is which think where you're going with this that a man could be stronger i'm from the poem the rest of the world standpoint know you have a a very strong two thousand and twenty one this very sharp rebound i'm i think we continue to see good strength going forwards i'm we're seeing strength across all the different markets and and again
spk_34: patients the place where where we have seen we have seen those positives you've got the chip sorted was sort of comes in and and put a little bit of uncertainty around how much that actually will be driven forward it but in the end i think it's so we had a really strong twenty twenty one i'm going to continue to build on that so
spk_35: rank and we're going to continue to see that aluminum is used across the board pretty much in all these efforts markets
spk_0: thank you
spk_36: thanks john
spk_18: honest question comes from lucas types with be finally securities
spk_3: he good evening congratulations on a great year and tom thanks for taking my question i out wanted to circle back on your smelting footprint for my first question maybe put a different twist on it i looking at a global power markets i eat think the u s smelters have become relatively more competitive but that it's also were out in a sense of brand new i'm capacity still located how do you think about these assets and could make sense to to restart some of that capacity look at so it's a it's a really good question in it's also pretty complex answer because energy is his first and foremost one of the most important decisions when you come to a restart a were come into a brown fielder were greenfield sunday down the road on a and it's absolutely true that in the us you have access to power on the the second question that nationally comes is when you have access to well priced power what does the power source is it renewable versus of is or is it a fossil fuel is wow these are relatively recent developments you know we are certainly an absolutely moving towards renewable simply because it takes away from the that carbon risk and in with our commitments to go to net zero by to town one and fifty i'm we need to have a clear pathway for how to decarbonise our our portfolio said decarbonization and and power source sort of the second consideration on the other piece though is and perhaps this is the one that affects the us more is the technology itself and so when you look at some of the the newer smelter that we happened to be operating in modern a great example of what is our most recent investment your dollars well i'm when you compare it with some of that idled facilities that we have in the us and
spk_36: you can look at the intaglio in the pacific northwest or will naturally on that the fact that the technologies really don't compare the tend to be significantly more or less efficient and much more requiring on of hands on labor and and difficult jobs to do and very difficult jobs to actually find people that one and one work there
spk_18: be there long enough to really become very very good very profession operators and so we we look across all those different dimensions as we think about any kind of restart potential on energy very important that and we have to look at that the technologies and how that would then sit down against all of our environmental goals
spk_33: thank you very much for that perspective and i had to unfortunately want to take it to for my second question to geopolitics for a second term
spk_3: if the if tensions increase between russia and ukraine which could the implications for the global aluminum and aluminum markets be thank you very much for your perspective on that oh my goodness lucas that's a that's a big question in i i think how i would little my comments is to say that those those types of tensions can have a very broad impacts they can have brought tax on supply and this theory much depends on on that if there were to be some kind of some kind of aggression the howard the different european countries how the different global countries going to react to that and so you and because because of where some of the supply comes from aluminum i'm that can very quickly impact the supply that's coming on it also has an impact on the supply side because of the energy prices inside of europe and because i'm so much of that power what happened the natural gas particularly is going to impact what's happening in europe were already
spk_36: seeing this broad curtailment because were energy prices are today imagine if the tensions increase if you start to see less availability of natural gas prices could go up even further and you could start see even more of the supply impact happening in europe and potentially elsewhere because of knock on impacts on and then just more generally that the ten
spk_0: so for disruption for conflict and could in the end impact the demand that you're seeing as well i'm in this is more of an indirect impact that could be something that i that could be an outcome again really project and for and just sticking through what some of the risk of the
spk_37: i very much appreciate your perspective some best of luck and hope you have a great twenty twenty two x lucas
spk_26: a final question felt i'm sandy desert academy or announcements bnl capital markets
spk_4: like great thanks for sitting in here i just have a couple of clicks clarification questions at this point
spk_2: i was running the just quantify the yomiuri the da benefit that value x hunter and the value that causes for twenty twenty two and and it's so slow through basically yeah i have quarterly basis of the pro prorated equal each quarter doesn't you know change as the your progress is and first lesson
spk_4: you can't quantify will add a qualified the year over year yet david but i can give you an idea of the sequential quarter benefit
spk_37: the sequential quarter benefits between the higher value add free meals and the block pricing in the alumina business that won't break her is around seventy five million dollars and you can see that the fighting and illumina was around thirty million dollar negatives in the fourth quarter
spk_4: so that would put the guy like peace at around forty forty five million dollars on us quench quarter basis so so significance
spk_2: okay that's helpful thanks for that and then just apply for thing as in the i i've began misses madame that that it can be to a little bit more about the details on that front of five million dollar you know touch of tax payments from prior years yes it's very very simple you even calling us long enough to know that a in the case of australia
spk_4: you typically pay taxes cash taxes
spk_37: the following year based on earnings from the prior year so out of that three hundred and twenty million dollars approximately thirty five forty percent of that is in australia the other pieces that is in canada in that said the earnings and the canadian smelters
spk_38: grew significantly towards the end of last year specifically in the fourth quarter so that's all over into the first quarter and then there's a piece of that's the in in europe to the exact same reason so cash taxes in the smelting system typically as a little bit of a lag from when you make the earnings to when you actually pay the
spk_0: cash out and given the fact that we made very strong earnings in the fourth quarter in both canada and in some of the european countries we pay that out this year
spk_3: okay great appreciate the the extra detail thanks a lot like thanks david
spk_0: this concludes our question and answer sessions i'd like to turn the call back over to write harvey sony closing remarks
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