Q4 2019 Earnings Call
Good morning, everyone and welcome to United States Steel Corporation fourth quarter for year 2019 earnings Conference call and webcast I was reminded today's call is being recorded.
I'll now hand, the call over to Ken Lewis, Joe Imagine Investor Relations. Please go ahead.
Thank you and good morning, we appreciate your continued interest in U.S.
And welcome you to our fourth quarter and full year earnings call.
On the called me. This morning, we'll be U.S., you'll president and CEO David Byrne.
Senior Vice President CFO , Christy Breeze, and senior Vice President and Chief strategy and development Officer Rich grew up.
After the close of business yesterday, we posted earnings release and earnings presentation under the investors section of our website.
Today's call will walk through the wet gas select flights and our fourth quarter and full year results. The way in slides for today's call. It can be found on our website.
Before we start learning remind you that some information provided during today's call may include forward looking statements that are based on certain assumptions indoor subject to a number of risks and uncertainties.
Described in resi see violence and actual future results may vary materially.
Forward looking statements in the press release that we issued yesterday along with our remarks today are made on today and we undertake no duty to update 'em <unk> actual events unfold.
I would now like to turn the conference call you I feel president CEO , Jay burnt will begin today's presentation on slide four.
Thank you Kevin Good morning, everyone and thank you for your interest in U.S. deal. We are pleased to update you wait on our progress since we last spoke in November .
2019 with here, we set the company on a new strategic path, we announced and closed on a series of investments that uniquely position our company to bring the best in both the integrated and mini mill steelmaking technologies to the market for our customers for our employees for our stockholders.
We are enthusiastic about our strategy and have a quite confidence about how we are executing.
Have market's been challenging over the last several quarters yeah.
But we are confident that things are improving as we turn the page 2020, we're confident in our view that the market has hit bottom. We are confident that our focus on cash management industry, leading cash conversion cycle and opportunistic capital market activities have positioned us well for continued.
Execution.
And finally, we're confident in our U.S. deal team because we achieved significant breakthroughs together in 2019.
Let me begin today's call with our strategic performance on page five.
Starts with our safety performance and we set a record in 2019 all time, that's the days away from work performance and no days away at Europe or tubular.
We strengthened customer relationships.
With an increasing focus on providing value added solutions.
Here are a few examples.
In automotive we have been shipping our X gene three material for key safety components on the G. Gladiator that launched last year.
And we are helping other automotive customers design X gene three into their vehicles that are launching later this year with even more next year and tubular we developed a new innovative connection which improved customer efficiency and secured additional monthly volume from a large rig operator.
In the most active oil basin in the United States.
We announced significant investments in best in both technology, including our minority investment in Big River steel and our investment in state of the art enlist past the enrolling at our lowest cost mill at Mon Valley.
We raised $1.1 billion of incremental capital that gives us optionality for nimble execution, we achieved $75 million of run rate fixed cost reductions and haven't line of sight to delivering our 200 million targeted.
A year ahead of plan.
We announced a business smart approach to achieving our 2030 greenhouse gas emission intensity reduction target aligned with the investments, we're making in our best in both strategy.
And we significantly improved the funded status of our pension and OPEB plans, reducing our liabilities and extending the timeline for potential mandatory contributions to the plan. These are significant achievements and corridor by corridor and year by year, we're transitioning the business.
Let's turn to slide six.
Looking to 2020, we believe markets in the U.S. have hit a bottom our flat rolled order book is healthy and customer interactions ingest demand should be solid, we're particularly optimistic about construction activity, which has shown strong demand and typically weak seasonal periods.
Motive market remains strong as inventory levels entered the year low and recent industry publications suggests build schedules should increase in 2020.
Inventory levels at service centers are also at levels that suggest 2020 buying activity should increase.
We are beginning when he 20 with a lowest month on hand to start the year since 2014.
In Europe , improving prices are beginning to increase market sentiment distributors and service centers have low inventories and steel production comes across Europe .
A better balance supply with demand still we're starting at a very low base and raw material prices remain high relative to steel prices in the region.
Walter our preliminary signs of improving conditions at this time, we expect our iden blast furnace to remain offline in 2020.
While market conditions remain uncertain for our tubular segment, we're excited to complete the electric arc furnace at Fairfield. This year, the electric arc furnace, what we up and running in the second half of the year and will provide the rounds substrate to our seamless pipe Mills. We believe this will allow us to respond more nimbly.
To continued market volatility in this segment.
Turning to page seven.
Our keys to execution are aligned with our strategy remain nimble and preserve optionality.
Advance strategic projects and transition the footprint as we demonstrate its successfully executing our strategy requires flexibility.
Our current capital spending budget for 2020 remains at 875 million with 50% of the budget dedicated to our highest priority strategic investments in.
In addition, the incremental capital that we raised in our strong liquidity position gives us the flexibility and optionality to access additional capital on an opportunistic basis. We're also exploring opportunities to divest non core assets, including highly attractive properties in our.
Real estate portfolio.
Turning to our strategic projects.
Big River Amendment names, our top strategic priority and we continue to be encouraged by their progress.
Big River reports phase two a expansion is progressing ahead of schedule and is on budget.
Our collaboration with the Big River team is also off to a great start and has so far validating the logic of our investment as our complementary assets and bring new opportunities to consumers of steel. Thank you to the entire river team for approaching our partner.
Ship when the same passion that you're using to build your company and for your commitment to safety.
We also continue to progress our investment in endless casting enrolling and cogeneration facilities at the Mon Valley in 2020.
We have completed our detailed engineering and have identified two modifications to the scope of our investment.
We amended the environmental permit applications to include a new label metallurgy facility in order to ensure the Mon valley can produce the projected volume of advanced high strength steels, while maintaining its highly competitive cost structure and operating inefficiencies.
In addition, we also updated our expected capital costs of the cogeneration facility that we will build and clarity we remain committed to delivering the improved environmental performance across the Mon Valley.
We now expect that total investment to be approximately $1.5 billion.
But as you would expect we've adjusted our overall project portfolio to ensure the increase in this project costs does not result, any incremental cash requirements for the business.
And of course, as I said Capex for 2020 remains at $875 million.
The expected benefits of the project remain unchanged.
275 million and run rate EBITDA benefits, including a $35 per tonne structural cost improvement from better yield and enhanced operating efficiency.
Differentiated product capabilities, including gauge and with combination not available today in the United States.
Fit for purpose attributes such as providing this deal for our industry, leading X gene three advanced high strength steel.
Increased optionality across our flat rolled footprint, so all operations run more efficiently.
And significantly improved environmental what the construction of the complimentary cogeneration facility at our Claritin works. We are truly excited by this high tech low cost highest capability endless Pasadena and rolling mill in Mon Valley.
As we mentioned earlier this year, we will complete our yep investment at our Fairfield tubular operation well also began shipping substrate to the new advanced high strength steel CG L at protests.
As we announced on December 19th we will begin transitioning our footprint as we plan to indefinitely idle a significant portion of our great Lakes works beginning in April .
We have been working with our customers to ensure a smooth transition as we source their steel needs from other facilities within our North American footprint.
Before I hand, it over to Christy I want to reemphasize my commitment and excitement for the future view a steel the turnaround of U.S. deal is well under way I'm confident we're comping focused on the right priorities in the right markets with the right people to create the right value for our stockholders.
Futures bright and I'm confident our progress will continue in 2020 Christie.
Thanks, Dave.
Good morning, everyone I'm excited to be participating on today's call in my new role as CFO I look forward to meeting many of you over the next several months.
Let's turn to slide eight.
Adjusted EBITDA for the quarter was 4 million or approximately 30 million above our guidance issued on December 19th.
Our flat rolled operations performed well at the end of the year and exceeded our expectations on shipments and cost management. This was the major driver behind or better than expected fourth quarter results as expected our flat rolled fourth quarter results for lower versus the third quarter.
Flow through of lower steel selling price in the back half of 2019 accounted for over half of the quarter over quarter EBITDA change.
Our European segment also saw lower selling prices impact their results. This was offset by a combination of lower iron ore costs and onetime items.
Cumulative segment continued to be impacted by market conditions, including continued high levels of imports.
In the quarter, we maintained our intense focus on cash management, we released $400 million of working capital and ended the year with nearly 750 million of cash on the balance sheet.
It's now go to slide nine.
We continue to be positioned well against our balance sheet priorities, our cash balance of 750 million and total liquidity of nearly 2.3 billion is well above our minimum targets over the investment horizon as Dave mentioned, we remain flexible to support the continued execution ever.
Strategy incremental capital, we raised last year, and our 2020 capital spending target of 875 million provides us with the optionality to access markets Opportunistically.
The capital we've raised so far has come from efficient sources and has been complimentary to our existing capital structure and debt maturity profile. Our goal is to maintain this flexibility with any future capital raises.
Before I turn it back today I want to touch on our current view of the first quarter on slide 10.
We currently expect the first quarter to be the trough for the year and anticipate our first quarter results to be similar to the fourth quarter.
Let me quickly cover a few key points.
Like every year, we expect the seasonality of our mining operations to be a headwind for the flat rolled segment due to winter weather and the restrictions placed on the Sue Alex.
Mining operations, you're not ship pellets to our blast furnaces in the United States or to our third party customers and winter.
The Lux close by mid January and they do not reopen until mid March later.
Well, our mining operation still produce pellets. During this period, we opportunistically execute planned outages during the winter to position our mining operations to run more efficiently. The remainder of the year. We currently anticipate steel shipments in the first quarter to be down in our flat rolled and European segment's first quarter.
It will also include a quarter's impact of our portion a big River steels, depreciation and amortization and net interest expense.
As we outlined in our earnings presentation posted yesterday afternoon Big River expects their 2020 depreciation amortization to total approximately 150 million and their net interest expense to be approximately 95 million.
When you partner with the newest and most technologically advanced mill in the U.S. higher levels of depreciation and amortization and interest or not and inspectors as they ramp up production scale.
I'll now turn it back over to that.
Thank you Christine, let's turn to slide 11.
We are confidently executing the strategy we laid out for you in 2019, we have the team in place to be successful and I couldn't be more excited to get to the future State 2019 was an important year for our company. We moved the company Ford and set the foundation for continued strategic execution.
Turning 20, we'll see the start our bar you have at tubular.
The state of the yard advanced high strength steel CGM that protest and continued steady progress on our best of both strategy.
Kevin lets move to today.
You, Dave we ask that each of you. Please limit yourself to one question a follow up so everyone has the opportunity to ask a question.
Operator can you please queue line for questions.
Certainly thank you.
Hi, guys reminder, if you'd like to registry question because press. The one followed by the four on your telephone you were here three teleprompter Ignatia requests question has been asked her to draw your restoration and this one for by this route.
One moment please for first question.
And we'll proceed with our first question on the line for Matthew Korn from Goldman Sachs credit.
Hey, good morning, everyone first to market questions, Dave you outlined some of the reasons Thats.
Lets you believe that we're at a bottoming of the market some of the Destocking wound down.
Go over what's your lead times currently our across products, maybe versus a couple of months ago versus last year, some things that make your purchase.
Yes. Thanks. Thanks for the question appreciate that and I guess first I'd say, our view is that market conditions are stabilizing in the vendor lined demand is solid we.
We are hearing from our customers and the support I guess I'd say is in the numbers.
Lead times are strong at.
5.6 weeks and Thats two weeks more than a year ago.
On service centers year over year inventories are below historical norms and give us confidence that normal buying patterns will continue our melt black backlog remains healthy and frankly, our conversations with customers suggested healthy demand.
In expected key segments like automotive appliance and construction.
It looks good.
But I will I don't want to give anybody in the wrong impression about the first quarter.
I would just want to go back to this as we all know this is typically our weakest quarter due to seasonality issues with mining and the potential for weather impacts and this year is not expected to be different do we expect flattish results in the first quarter.
Versus the fourth quarter. So so just to be clear again.
The first quarter should mark the trough.
And be similar to the fourth quarter of 2019 and results are expected to improve through throughout the year and maybe Chris do you want to add anything to that okay.
Well, let me add a few more details on the current full year expectations.
We are expecting to ship 10 million tons to third parties in 2020 from flat rolled and this takes into account indefinite idling of a significant portion of great Lakes works that's planned to begin in the second quarter.
We are also plan to take a 48 day outage at Gary works number four blast furnace in April so we'll be building up inventory in front of that in the first quarter in Europe , we're seeing some signs of line, but we're very off but that's also very low base.
So that's why we're continuing to expect to have one blast furnace offline in Europe in 2020 and to ship 3.2 million tons.
Our tubular segment is expected to ship about 900000 tons in 2020.
The biggest difference between 2020 in 2019 shipments for that business is number one E.R.W. mill and that's going to be running for full year end 2020.
And this line was restarted in the late second quarter 2019, and its expanded our suite of products for our tubular customers.
Great I appreciate all that detail on the operation side, Let me, let me follow up a little bit in terms of pricing.
As best as you can't characterize it how should we be thinking about your effects.
Oh, the contract price negotiation disappear so for the past here, how should we think about that you've been going into the next quarter.
And thinking about the effects on the flat rolled side. Thanks.
Yes. So thanks. This is Kevin so related to fix a fixed price contracts, obviously won't you won't get into too many details about.
The results of those were very pleased where there was ended up given market conditions during a time to negotiation, but one of the things that we've really been focused on it is you know creating more of a staggered approach. The negotiations on these fixed price contracts that we've been attempting to smooth the negotiation periods with our or with the with the Oems to enter into.
These fixed rate contract with US we were seeing good success on that front I'm not sure at home take some volatility out of the year over year changes in fixed price contracts speaking more broadly to pricing I think there a couple of key dynamics that we're paying attention to in the marketplace.
The first is related to scrap and I think there's a market sentiment is soft sideways on scrap in our view that did not atypical in February if you actually look back over the last night, you know 10 years or so.
February its rapid blow January scrap and non on last 10 years.
Coincidently, we're not went nutley HRC prices have increased six out of those 10 years. If you will get a February versus January . So we don't necessarily believe that just because you might have a soft sideways on scrap that not means a HRC prices are vulnerable as we move forward in the first corner.
We continue to believe the demand will eventually be the catalyst for prices and then if you look at spread versus kind of the downstream products were clearly a bit extended or about 230 bucks a ton spread.
We look at Dot wars as attributable to the strong demand for downstream products as David Christy both alluded to in auto construction appliance et cetera. So we think that speaks to the health in the marketplace as lead times extend an order entry rates remain strong. So we look at all not a supportive of higher HRC prices moving forward and if you look at some of the.
That's the multiple publication do you see a wide range of prices being quoted right now so we're optimistic that the pricing environment continuing to improve.
Thank you very much will proceed to our next question on the line and delight, our David Gagliano from BMO capital markets already ahead.
Okay. Great. Thanks, just the first of all just a quick follow up on that last answer just if you know for modeling purposes in the first quarter should we expect to the are realized prices and flat roll to be up or down versus the fourth quarter. That's the follow up question.
Okay, let's say on a quarter over quarter basis, we're looking at a relatively flattish average selling prices and our wireless segment.
You know previously was indicated the plant I think was.
The tap into the debt capital markets has that expanded into considering tapping into the or not considering into tapping into the equity capital markets as well.
Well.
This is Dave first first I'd say.
So given where our position is the with the model liquidity that we have today and the optionality that we want to have to the.
Opportunistic.
We feel like we're in pretty good shape. So it's not that we have to go in halftone markets in 2020, but we certainly could if things present themselves in a positive way for us to move ahead and get a total solution to make sure that we can put in place our best of bold strategy, but we're.
Going to be appropriately patient and we'll look at all opportunities to access the markets. You'll also recall that back in October with our announcement of Big River, we highlighted that we had the opportunity to monetize pellets in.
Minnesota, and so we're looking at that possibility as well as real estate assets and other opportunities that can you give us the required cash flow and to deliver on our best of both strategies.
No I'd say, we're in really good shape right now because we already took a lot of activities already said a lot of things to get ready.
No we decreased our capital from 952 in a 75 inspected spend for 2020, we've already secured 1.1 billion in the fourth quarter of 2019.
We have good looks strong liquidity, yeah, one we have minimum target of liquidity of 1.5 right now we're at 2.2 cash so a 500 and we have 750 on the balance sheet. So.
There are pretty strong position to bill to be opportunistic as far as financing and the capital raise particularly not needing to raise capital in 2020.
Thank you very much will persist for our next question on the line assemble I know Seth Rosenfeld from Exane. Please go ahead.
Good morning, Thank you for taking my questions.
A couple of questions on the European business. Please trying to better understand the gain that you reported in Q3 on your Seo to costs can you help us better understand what drove that benefit in Q4, and how that compares to the guide and frankly, the 35 million improvement in a 2020 year over year are those the same factors with regard to carve.
In emission credits or will they be different over those two period well start there. Please.
Sure. So this is Kevin so when you look at 2020 in the favorable change you mentioned related to see a two credits at 35 million versus 2019, as you're well aware you need to purchase a CEO to accredits above and beyond your you are a lot your doesn't it allotment in under a three blast furnace configuration in Europe , we we'd be required to purchase and COO.
Credits externally.
Under our two blast furnace configuration.
Obviously using less Seo two credits and that's what's driving the favorable change year over year.
And in Europe , you did see some onetime items in the European segment in the fourth quarter related to electricity rebate not as a kind of a typical year end process with this lock in government related to electricity. So we called that out because it was something that was different versus the third quarter and more.
The one time events, so I'm not should cover the majority of the onetime events that you saw as well as the expectations on Seo two credits for next year.
Thank you very much proceeds her next question on the line from the line of Karl Blunden with Goldman Sachs right ahead.
Hi, Good morning, guys. Thanks, so much for the time you mentioned the Capex increase at Mon Valley is there are the specifics you can share about the cadence of Capex and whether that increase leads to an uplift or an increase in the expected EBITDA uplift that you had in mind when you initially announced the plan.
Okay, Yeah, Hey, Carl this is Kevin I'm. Good morning, Ah, We look if we think about the distribution of the Capex over the next few years related to the and Wisconsin enrolling a cogeneration facility investment as Dave mentioned earlier for 2020, there's no change to 875 million of Capex, which included about 175.
The 200 million for this particular project. So no change this year in the scope of the project looking forward to 21 at 22, Oh, we expect those to be the two largest years of capex with 2021 being a little bit larger than 2022, obviously as we ramp up engineering and construction, we will have or high slows us.
And on this project in 2021.
And then a little bit in 2023, as we complete things, but the timeline really is unchanged with first steel being in 2022.
The 275 million of EBITDA remains intact. If you think about second I want not at our Mon Valley facility, we view that as a way to make sure that we're maintaining the efficiency and low cost structure as we expect demand from our customers. The grow from this differentiated product. So it's really something that we introduced into the permitting and this.
Go up in order to ensure that that facility remains a you know top core tile in the U.S.
And then the increase in spending the Cogen was really related to make making sure. We hit those environmental benefits that were working so hard to achieve it across them on dollar. So 275, new Internet is intact and as Dave mentioned, we're extremely excited about the capability differentiation as long as going to bring in the market and no we're going to be able to solve a lot of really great.
Problems for our customers and provide them with a lot of value. Our customers are excited about this when we meet with them and we're certainly excited about it because ultimately we believe this will be the most capable mill.
In North America will be able to produce coils up to 76 inches wide engages as in has 0.0 to three inches thick.
Think about that that's the equivalent to the thickness of six human heres stacked on top of each other we're incredibly excited about the possibilities of this and that fits in so well with their best of both strategy coupled with the work that's being completed this year at Probetec. We believe we have a winner and with this extra capex of 1.5.
<unk> billion remember this is an internal rate of return of at least 15% over the investment horizon without increasing capital elsewhere, because were more flexible more more nimble and we can do puts and takes because of the revitalization of asset program has improved our operations. So they can we can be more flexible we.
We are excited about the endless Cassie and enrolling line at Mon Valley.
Thank you very much well get turned next question on the life and before we proceed once again I was reminded to register for your question compressed a one for by before I knew telephone keypad.
Our next question a lot from Matthew fields with Bank of America right ahead.
Hi, everyone. Just wanted to follow up on on some modeling question and then a a bigger picture one please.
So.
And your comments about one Q results similar to for Q. You also said sort of one Q shipments will be down sequentially and flat rolled and in Europe and realized prices will be flat to fourq, you and flat rolled.
So to does that mean kind of were think I know you don't want to give EBITDA guidance, but but EBITDA Q1 similar to Fourq, you are even even potentially worse with fewer shipments and flat pricing.
Well. So I think this is Kevin so I think on the description of the quarter related to shipments and prices is really what why were well why we believe the first quarter will be similar to fourth quarter. So obviously, that's we've taken into consideration.
And our latest look in the quarter, but you're right. You know, we expect shipments to be down attached in the first quarter in both lot Road and Europe and I just had average selling prices remain flattish in block so I'm not sure help calibrate.
You are around our latest expectations from first quarter.
Thank you very much Ruposi turn next question on the line some the line Alex hacking with Citi. Please go ahead.
Yeah. Good good good morning, everyone and congrats on the new a safety record that you set last year and in terms.
Sure.
In terms of questions. I guess first question would just be or what do you expect for working capital. This year and that was so important source of funds last year and then secondly.
With steel prices at current levels.
Given your Capex program, where do you think that you would end the year in terms of met that thank you.
This is Dave first.
Christie's new as CFO and I want to thank her for the leadership in this space.
Weekly cadence that business rhythm on the cash calls that include not just our financial folks, but our operators our sales and operations planning teams enabled us to be able to have this really strong finish with the release of 400 million in working capital. This last year. So thank you for that what's in store for us here in 2020.
Well. Thank you Dave Thanks, Yeah, we do but a very intense focus on working capital here.
[noise] I actually lead a team where it's a cross functional team made up of not just accounting people, but sales and operations and planning.
Operations people pork cure, but people you know, where we're focused on reducing working capital every single week would clear targets and actions and the fourth quarter result was a result of that there were several specific inventory projects that came in a and delivered that $400 million and.
Also we got contributions and inventory in the tubular business and the U.S.S.K. business class a global team looking forward to 2020.
We are expecting to build inventory in the first quarter and getting ready for the blast furnace number four at Garry is going to go down for 48 days starting in April for a planned outage. So we will be building inventory in front of that.
But then during the year, we'll be taking out inventory and we and other working capital overall working capital will be a slight improvement in 2020, we will continue to decrease working capital slight improvement for 2020.
And related to our your question around not down I think we're going to get into what we think our net debt levels, maybe at the end of year I'm, obviously, that's going to be dictated by.
He activities, we choose to making the capital markets. So more to come on out at a later time that we probably work in those details now.
Thank you very much well get turned next question on the line from John Tumazos from John Tumazos.
Very independent research go ahead.
Thank you very much.
Over the years the corporation as idled a few platts [noise].
Because you.
Give us a little rundown of the particular states, where you'll be selling real estate I recall over the years there were a fast tracks Connie on Ohio or half a Jefferson County, Alabama.
There's a lot of ground around the company. Please.
Sure John Good morning, Scott, we do have quite an attractive portfolio of real estate, obviously as we've operated throughout the country for for many many years. We've acquired some real estate told me just go through maybe a few onno handed over to rich provide some more strategic context, but I think there are few that were particularly eggs.
Cited about if we think about our Keystone industrial poor complex in the eastern part of Pennsylvania.
We attracted a piece of industrial real estate with some very unique attributes that drive a lot of value.
For for Austin and potential buyer. So we're excited about the opportunities related not property there are others across the the U.S. as you mentioned in Alabama, where we have more residential.
And on industrial commercial developments that could be a value. So we're going wide eyes wide open as Dave mentioned, we're continuously focused on value and finding sources of funds to support the continued execution of strategy and when we look at the real estate portfolio, we see the potential for value and it's something we'll continue to explore so.
Richard you any additional color that yeah. This is rich I mean also we've been.
Trying for some time to find the right buyer for ourselves our former southwards location outside Chicago. So I mean, that's an incredibly attractive piece of real estate almost 500 acres right on like Michigan.
I've other properties, where we've we've had mills in the past they tend to be very attractive from a.
Industrial redevelopment perspective, because you've got real you've got a utilities already fluent in.
Generally you know.
In an urban or near urban location. So there are any number of properties across our footprint, where they can be redevelop for as Kevin said in some cases, we have greenfield properties like in Alabama, where we are a large now landholder Jefferson County outside Birmingham.
On our own real residential real estate development Theres, a lot of other opportunities there as well. So we're looking for the best on are those properties as we sort of focus on our core assets.
Thank you proceed to our next question the life from Chris Terry from Deutsche Bank go right ahead.
Oh, I guess I'm just a quick question for me just a follow up on classes. So opportunities just wondering if you give a little bit more color on on the on old business overseas and changes there from somebody that is.
Region.
Is there are opportunities there to think about divesting actual capacity or are you talking more about so opportunities, but you still aren't just just wanted to give some tom on and just laid out some more details on that thanks.
Sure. This is rich I think you know as far as a timeline or that's really depends on market opportunities who's a who the buyer who's who's interested.
Dave said, when we announced a big River, we're looking at efforts to monetize our pellets those to be any kind of efforts you know and you out you outlined a few we can we can continue to sell into the merchant market or we could look for.
Actual sale of assets through a new owner or we could look good in terms is as we become an operator. So there's lots of different opportunities. There you know I'm not going to get into timelines because really that that's something we're focused on doing it but we've got to find the right partners for any opportunity there.
Okay. Thank you and then just.
[music].
From an accounting side.
Gives a presentation from your sorry slide 24, when you step through the flat roll Division.
Negative non team.
Leading.
Including de lever can you just talked it could you speak up I'm, having trouble hearing you could just back that up a bit seen that again, you said page 24.
And then repeat what you said a little louder. Please.
[noise], sorry did you catch it.
No doctors would you mind cannot hear anything there start over we heard page 24, Oh, sorry, Okay. Slide 24, there's a there's a waterfall chart just on the flat roll Division and there's a negative 19 million in the other category I'm. Just wondering just wanted to check the that non to middle part.
That would be the big River numbers as we understand it.
Can you just talked through that little bit we just wanted to check and you've got what you're going to report going forward <unk> would go in that category. Thanks.
Sure No progress so the 19 million on favorable change you are seeing on page 24. The earnings presentation is not related at all to you a big River steel not is actually a change in electricity and natural gas energy costs within the segment as we mentioned and I think we detailed on one of the slides.
Big River was actually flow through our other businesses a segment when we look at EBITDA reporting. So when you will not see it show up on any of the bridge charts for flat road youre or to be we're going forward.
[noise] [noise]. Thank you very much well get turned next question on the line or Brian <unk> with Barclays go right ahead.
Hi, good morning.
Just two quick questions for me first and then sorry, if I missed this before but could you walk us through what the right way to think about the pacing of Capex is into 21 and 22 relative to 20, given your Mon Valley comments earlier, just to level set expectations versus the 875 and again.
I apologize if I Miss that and then my second just on the on the debt front. Obviously previously stated that the focus was on unsecured financing is that still the plan would you entertain using the secured market and I guess high level out as you know the Big River acquisition at some point when that gets consolidated and if and when it gets consolidated you know gesture.
Thinking on the balance sheet you know, it's one of the questions we get from investors I appreciate it. Thanks.
You're not a problem. This is Kevin I'll start with the cadence of Capex, particularly on the a and Wisconsin ruin cogeneration, So and I want to Christy talk about different sources of capital and how we're thinking of that as part of a broader solution. So first starting with the M., Wisconsin and ruling line.
2020, as we previously articulated as part of EUR 875 million of Capex guidance for 2020 included about 175 million to 200 million for the unless causing enrolling in cogeneration projects or we do see that ramping up in 2021 in 2022, a majority to spend occurring in those two years as engineer.
Structure really starts to take shape first deal is expected at the end of 2022. So it is a.
To your timeline to do a lot of work. So we do see not being in flux in Capex for 20, 122. However, you know the yeah project as Dave mentioned in his opening remarks glued in 2020, so that capex will roll off of our Capex budget.
But generally speaking the we should see some modest increase in Capex in 2000 towards 2021 in 2022 as we take on them on Valley project, but maybe I'll hand, it over to Christy to address the second part of your question now Okay regarding secured debt, we think there a lot of financing options available.
To us and I will be looking at things like tax exempt bonds. You know you saw we use environmental revenue bonds for the yeah.
Theres project financing.
Looking at that for Cogen.
There's also the unsecured market, we prefer unsecured to secured.
But we have built flexibility into our debt agreements that allow us to access secured debt, if we needed to but that's not our preference or preferences unsecured.
Unsecured debt as well as some of these other things that we've talked about you know we have asset divestitures all kinds of things that you know that we can do to raise cash before we'd need to go to the secured market and we again, we feel really good about where we are here in 2020, there's not an urgent need for us.
To go into the markets and we're going to get a total solution. When we go so that will be able to get the best of both strategy completed completed to when required so.
We feel good about we aren't in terms of the cash flow and we'll play this through to make sure. We can get Big River steel done is our top priority and less casting a rolling.
At Mon Valley as the second prominent priority and then carry works, where we're going in the Hot strip mill and of course later. This later this year second half the complete electric arc furnace and.
We're completing the Protex CTL three so each one of these things are are moving ahead, just fine and when we need the money to spend more money, we'll get it.
Thank you very much I know it gets her next question on the life from Tyler Kenyon recount correct.
Ah.
I think.
Maintenance, an outage was like a 108 million dollar headwind in flat rolled in 2019 any help you could provide us with with how to think about 2020, I mean I know you do have some tailwinds just from from from asset rationalization and then maybe if you could you could help us think about the paid could that through the year and specifically from the fourth quarter.
For a into the first.
[laughter].
Sure. So we'll get the first quarter or we don't really see any significant outage work plan specifically in the flat roll segment. So we don't think that's going to be a material headwind.
In the first quarter, but as Christie mentioned in her opening remarks, we do have a planned outages will occur in April and Gary. So you can see some elevated levels of maintenance outage costs in that time period, as we complete that outage work, but the year over year changes just due to continued reinvestment in our facilities in the focus that where we have on increasing the reliability.
The quality of those facilities. So that's the the reinvestment is what really what drove the year over year change.
Thanks, and then just on the pension OPEB can you explain a little bit more detail some of the actions that you you've taken there.
We're really pleased with the progress that we're making on our our pensions and I think under pensions wouldn't Christian 93% unfunded and then 108% side and on OPEB and so the team's been we're working really really hard we've got some good returns.
And.
There are some assumption or improvements are based upon the mortality and other access to the programs attention programs and benefit programs, but Chris maybe ensure a little bit more okay or.
We had strong asset returns this year. So that also impacted that funding says Dave's talking about and we did some updates on our assumptions.
And that lowered our obligations, but also we well that was partially offset by decrease discount rates.
We actually hard and outside consultant to work with us.
To review best practices around this and all the different assumptions and those assumptions have been reviewed by Eli and Pwc.
That's the change at the improvement in the funding and the good news for this is you know.
In terms of the amount that we'd have to put in the pension fund theres no requirements and the new to near term and based upon the current funded status, we don't expect to make a payments until a lot.
Beyond the timeframe in which we invest in big River beyond the timeframe, we complete endless casting enrolling so where we are today. We're in we're in good shape.
Thank you very much proceed with our final question as my follow up question. The line to Matthew Fields Back America. Please go ahead.
Hey, thanks for the follow up.
David a couple times in this call you've said kind of a total solution with regards to when you're asked about potential financing.
What does that mean does that mean funding sort of capex needs plus the other half of a big River purchase what what does what does a total solution mean.
Well, we think of cash holistically. So there's lots of pieces that come together and obviously, we have a portfolio of projects portfolio projects related to divestitures, we have a portfolio opportunities related to funding our balance sheet, you know and we have opportunities and look at unconventional ways.
Ways to raise money and so when we look at this you think about the traditional the old way we work at U.S. deal and then also the new way, where we look at tapping other sources that would enable us to implement our strategy total solution basically means we need to get it done at the appropriate time.
And to deliver on our best of both strategy. So that will be able to do big River steel and we'll be able to do analysts casting enrolling so that level, a big chunk of big Traunch, 10, able us to execute that's where the total solution needs.
Alright, thanks very much.
Yes.
Thank you very much and Mr., Louis where I'm afraid of course was on the line I'll turn the call back to you.
Thank you very much and thank you again for Everybodys interest in U.S. feel Dave any closing comments, yes. Thanks, everyone really appreciate you joining the call today.
Before we conclude let me provide some takeaways from today's call.
We have strong cash and liquidity position and we'll be opportunistic as to how and when we access capital.
We have a strong business because of the strategy we are executing.
And finally, we have strong employees supported by strong culture were recently named in the fourth Global 2000 world's best employers list for 2019, and we received a perfect score of 100 on the human rights campaigns 2020, corporate equality index, earning designation of a best place to work.
For LGBTQ equality. These recognitions are truly an honor and we look to build upon these accomplishments in 2020, a sincere. Thank you to our employees for their contributions 29 team was a year of extraordinary change any rose to the challenge.
And embrace this unique opportunity. Thank you for your continued commitment to U.S. deal. We look forward to continuing this journey with you.
Now, let's get back to work safely.
Thank you what that does conclude the conference call for today, we thank you for your participation ask a disconnect killings, how could they really.
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