Q4 2020 Schnitzer Steel Industries Inc Earnings Call
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Ladies and gentlemen, thank you for standing by and welcome to this it's there.
Steel's fourth quarter 2020 earnings release call and webcast at this time all participants are in a listen only mode. After this.
After the speaker presentation, there will be a question and answer session to EPS.
Ask a question during the session you will need to press star one on your telephone please be advised that todays conference is being recorded.
If you require any further assistance. Please press star zero I would now like to hand, the conference over to your Speaker Mr. Ma.
Mr., Michael Bennett Senior director of Investor Relations.
Please go ahead Sir.
Thank you and good morning, I am Michael Bennett, the company's senior director of Investor Relations I am here.
I'm happy to welcome you to censor steels earnings presentation for the fourth quarter and fiscal year 2020 and it.
In addition to today's audio comments, we issued our press release and posted a set of slides both of which you can access on our website at Schnitzer steel dot com or S C H and dotcom.
Before we start let me call your attention to the detailed safe Harbor statement on slide two which is also included in our press release and in the company's form 10-K, which will be filed later today.
As we note on slide two we may make forward looking statements on our call today, such as our statements about our target volume growth and future margin expansion.
Our actual results may differ materially from those projected in our forward looking statements.
Additional information concerning factors that could cause actual results to materially differ from those in the forward looking statement isn't is contained in slide two as well as our press release of today and our form 10-K.
Please note that we will be discussing some non-GAAP measures during our presentation today we.
We have included a reconciliation of those metrics to GAAP in the appendix to our slide presentation.
Now, let me turn the call over to camera Lundgren, our chairman and Chief Executive Officer. She will host the call today with Richard Peach, Our Chief Financial Officer, and Chief Strategy Officer.
Thank you Michael Good morning, everyone. Thank you all for joining us on our fourth quarter fiscal 2020 conference call. We appreciate your interest in our company and we look forward to sharing our results with you. This morning.
I'd like to start the call today by thanking our employees for their extraordinary efforts during fiscal 2020.
In particular over the last seven months.
These past seven months have been challenging for all of us we.
We have been confronted with cascading crises, including a pandemic.
Historically significant global recession, and natural disasters, including massive wildfires hurricanes and floods.
We pivoted quickly to accommodate the operating changes that were necessary in order for us to continue operating safely and effectively in a very volatile market.
At the same time, we kept our focus on the strategic priorities that we had underway to strengthen our company.
So that we can succeed through all market cycles.
The operational and financial results, we announced this morning as well as our full year results reflect the agility of our team the strength of our culture and the resiliency of our platform I am very proud of what our employees have accomplished during one of the most challenging years in our hundred and 15 year history.
On our call today, I'll review, our quarterly and full year financial results, including our response to the cold at 19 crisis and the.
And the market and macro economic trends affecting our business.
I'll also provide an update on the initiatives and capital projects, we have underway to address evolving industry dynamics.
Richard will then provide more detail on our segment performance, our capital structure and our capital investments although.
All wrap up and then we'll take your questions.
So, let's turn now to slide four to get started.
We have operated continuously throughout the pandemic.
Early on we deployed health safety and wellness protocols rolled out training and engaged and steady communications across our platform to ensure the safety of our people our customers our suppliers and all who visit our sites.
These actions include pre entry temperature checks where.
Wearing face coverings, social distancing frequently cleaning our work sites and washing our hands and remote working arrangements where applicable.
Well implementing these new work protocols and practices our team members did not lose their focus on operational safety.
I'm proud to share with you that our recordable incident rate in fiscal 20 was the lowest and best rate recorded in our company's history.
As follows fiscal 19, which was our previous best.
It is a testament to our team's dedicated focus on safety and their commitment to continuous improvement.
But even in the face of all the disruptions this year, our recordable incidents declined steadily throughout the year.
Our total recordable injury rate was 32% better than last year.
86% of our facilities did not experience any lost time injury, and we have made excellent progress in identifying and addressing potential hazards before they become injuries. Thanks go to the entire sensor organization for their dedication to creating a safe work environment and a sustainable safety culture.
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So now, let's turn to slide five.
Last December we issued our sixth annual sustainability report, which.
We concluded multiyear goals centered around our sustainability framework of people planet and profit.
We were recognized by several organizations for our goals and for the transparency of our report.
Well, we were pleased to receive these honors and the recognition of our progress there is still much more for us to do.
Our people strategy has three main focus areas.
Continuing to improve our safety performance across our organization.
Strengthening our culture through increasing diversity and inclusion and expanding employee engagement.
And positively impacting the communities in which we operate through initiatives like our paid volunteer time off program.
Our planet strategy is also centered on three critical areas reducing.
Reducing absolute greenhouse gas emissions from our recycling operations by at least 25% by 2025.
Maintaining a 90% or higher carbon free electricity use.
And increasing landfill diversion through our investments in technologies that enable us to to extract more recyclables from the material that we process. We made notable progress in all three areas in fiscal 20 and.
And our profit strategy is built upon three strategic pillars growing our volumes to leverage our existing processing capacity.
Expanding our margins through the successful deployment of advanced metal recovery technologies and to.
And developing new products and services to complement our core recycling and auto parts business.
As one of North Americas largest metals recyclers sustainability is at the core of what we do and how we operate.
Advancing sustainable business practices and further integrating sustainability throughout our operations have been and will continue to be foundational elements of our success.
We expect to publish our next sustainability report in December.
Now, let's turn to slide six to review our quarterly financial results.
Earlier this morning, we announced our fiscal 24th quarter adjusted earnings per share of 23 cents, a significant sequential increase versus Q3.
Although the quarter continued to be impacted by Cove at 19, and its economic effects, we significantly increased sequential operating income gena.
We generated strong operating cash flow.
Reduced our net debt to levels not reached since 2010.
Continued our strategic investments and issued our hundred and six consecutive quarterly dividend.
Both MRF and CSS were successful in expanding sales volumes sequentially and benefited from the productivity initiatives, we implemented earlier this year.
And Mark tripled its adjusted operating income per ferrous tons sequentially.
Commercial initiatives to increase supply flows and a strong focus on productivity improvements and cost reduction together with better market conditions.
Led to the strong sequential operating and financial improvement.
Ferrous and nonferrous sales volumes were up sequentially by 17% and 28% respectively.
CSS operating income increased by 20% driven by a combination of increased sales.
Lower inventory costs and benefits from higher production levels and productivity initiatives.
Our positive operating cash flow of $69 million was driven by profitability and strong working capital discipline.
Let's turn to slide seven to look at the full year in perspective.
Even before COVID-19 hit go.
Global scrap markets in fiscal 20 were volatiles how.
However, as a company we benefit from an operating platform, where the majority of our costs are variable we have.
We have multiple levers available to us and most importantly, the experience and agility to adjust them in order to manage through rapidly shifting environment.
The first half of our fiscal year reflected this volatility it began with a very significant decline in ferrous and nonferrous prices. This was.
This was driven by weaker export demand and declining global auto sales in key markets and in the case of nonferrous scrap trade and regulatory actions by China.
Ferrous and nonferrous prices and demand strengthened in the second quarter importantly, the benefits from our productivity and commercial initiatives were significant contributors to our positive adjusted earnings for the first half of our fiscal year.
10 days after the start of our third quarter totaled 19 was declared a global pandemic and interrupted the market recovery, we had begun to experience.
However, we delivered even stronger results in the second half of our fiscal year due to the rapid actions. We took in response to this crisis as well as our continued focus on what we call the five sees cold.
COVID-19 costs customers commercial initiatives and cash flow.
This focus underpinned our ability first to keep our people safe, while continuing to improve safety performance.
Second to align our operating costs with changes in supply and production volumes as demonstrated by the solid improvement in financial performance at AMR and CSS.
Third to optimize our sales through the continued diversification of our customer base as you can see by the strong sequential growth in ferrous nonferrous and finished steel sales volumes.
Fourth to effectively manage working capital and generate strong operating cash flow through the cycle.
And fifth.
To progress our strategic priorities, while reducing our debt and returning capital to our shareholders through our dividend.
Our focus on productivity did not falter as we delivered ahead of schedule. The full run rate of the targeted productivity initiatives, we announced last October.
We also continued to execute on our strategy to develop a leaner and more efficient organizational structure and.
And as a result, we achieved early benefits from the transition to our one ships are operating model.
Let's turn now to slide eight for a review of market pricing trends.
As you can see on the chart in the upper left hand corner of this slide at.
Export ferrous scrap prices plunged in March and April and then strengthened steadily through September reaching levels higher than we saw pre pandemic.
Looking at export activity off the east coast during the.
During the quarter Turkish demand continued to be driven by two trends.
Turkish government fiscal stimulus to support economic growth in their economy and.
And strong bill it demand from China due to the stronger pace of its recovery.
Higher iron ore prices and love.
And logistical challenges with Chinese domestic scrap.
[noise] demand off the West coast from Asia. During the quarter also increased driven by steel import demand from China as well as a quicker rebound in economic activity across the region and broader government stimulus.
The domestic ferrous price and demand trends during the quarter were weaker than the export trends, but also rose sharply in September.
The pricing increase in September occurred as all grades of scrap or in shorter supply than what was needed.
And U.S. manufacturing, including auto production restarted post the COVID-19 shutdowns.
During the quarter domestic steel capacity utilization rose steadily.
From 53% when the quarter began to 62% when the quarter ended an improvement, but still far below the 81% utilization rate that we saw pre pandemic.
Now turning to the nonferrous markets we.
We have seen strengthening demand and higher prices as you can see in the chart in the lower left hand corner of the slide in fact during the quarter copper aluminum and zorba prices steadily increased rising close to pre pandemic levels.
This was primarily driven by strong demand from India, and southeast Asia as their economies reopened and more recently by expectations surrounding the implementation of Chinas, new scrap import regulations.
For both the ferrous and nonferrous markets. However, supply flows have been steadily improving but have not yet recovered to pre pandemic levels.
Let's turn now to slide nine to discuss some of the longer term demand trends for recycled products and services.
Despite the uncertainty in near term market conditions due to COVID-19.
The long term drivers of scrap and metal demand are underpinned by several trends that remain intact and are gaining increasing importance and relevance.
These include the increased focus on reducing the environmental impact from steelmaking by lowering greenhouse gas emissions and reducing energy consumption.
Our steel mill is one of the very few is primary energy source comes from hydro electricity.
Combined with the use of recycled scrap as its primary raw material steel we produce has an exceptionally low carbon impact as compared to the industry average.
Equally important.
Is that a low carbon economy is widely acknowledged as more metal intensive.
Whether it is driven by the demand for electric cars, the deployment of renewables or the efficiency and convenience of smart grids, a green economy means a metal intensive economy.
There are dozens of metals, including steel aluminum copper and nickel, which you could see a growing market with the rising use of wind solar and batteries for power generation.
We expect these trends to accelerate and for the recycled metal industry to play an increasingly important role.
We can see how some of these trends have already been translated into higher ferrous scrap metal usage by looking at the chart in the upper right hand corner of this slide.
The proportion of global E F steelmaking ex China has been expanding and is projected to increase.
And due to their lower carbon footprint demand for metal based products produced with recycled materials is expected to increase significantly in the years ahead. These trends underpinned our strategic initiatives.
Notwithstanding the disruption caused by Coca 19, we have kept a strong focus on our strategic priorities and as a result, we are already experiencing benefits.
Let's turn now to slide 10 to review the strategic actions we have underway.
In April we announced our plan to transition to a functionally based integrated operating model, which we call. It the one ships or model this way.
This was the culmination of our evolution to a more simplified operating platform to improve our efficiency and enable greater focus on the critical drivers of our business our.
Our operations sales services and other functional capabilities have been consolidated at an enterprise level and we will report our fiscal 21 Q1 financial results in a single segment in January 21.
We have already received early benefits during the transition to our new operating model first.
Working towards one integrated unit has enabled us to be more organizationally efficient.
And respond more rapidly to changing market environments, including the COVID-19 disruption.
Second our ability to increase our focus on growth, including from new products and services has already begun to deliver benefits and higher volumes and.
And third by standardizing our operations to ensure our low cost operating position, we have been able to more quickly adjust our operating costs with supply and production volumes.
And solidifies the productivity benefits and cost savings we delivered in fiscal 20.
As Richard will describe in more detail our investments in advanced metal recovery technologies are also well underway.
We expect the benefits from these projects to be substantial.
Specifically as they become fully operational during this fiscal year.
They should increase our volumes and revenues.
Lower our operating cost and improve our margins.
Expand our product offerings and our customer base.
And support our sustainability objectives of increasing recycling and reducing waste so.
So now let me turn it over to Richard for a more detailed review of these projects and our financial performance.
Thank you Laura and good morning.
I'll begin with an update on our initiatives to implement advanced medical recovery technologies.
And several of our major facilities.
Earlier in fiscal 20, we completed the implementation to people processing systems, and then the fourth quarter material process Rudy systems already led to a more than what the contribution to Yamal operating.
We expect these contributions to increase in fiscal 21.
Intake volumes improved with the economic recovery.
Use of the cable processors means we are now able to produce higher quality copper and aluminum products for our customers in both domestic and export markets.
This includes sales to our customers in China, we are new coal peacetime there have just been issued effective November course.
Construction of a major news nonferrous processing system on the West Coast has progressed steadily through the summer.
Who who are we reached an important milestone like starting commissioning activities.
And we'll move to the production ramp will seize as soon as we get through the commissioning process.
We've also received the necessary permits for a similar system on the East coast.
As well as for a new Zorba separation plant.
These projects are moving construction with the objective of entering the Rumble fees by early next calendar year.
When her or project engineering design elements thing equipment manufacturing and delivery all continue to progress in the <unk>.
In the <unk> Covance situation, some believes the permitting and equipment below grade were inevitable, but we are moving forward on subject to new additional covert releases or other delays over the winter. We are still targeting that we could rule all of our new installation by the spring Twentytwenty one.
Once implemented we expect volumes of nonferrous recovered from shredding to increase by approximately 20%.
Based on our fiscal 20 volumes the annual increase is expected to be over 50 million posts.
We also aim to use our new technology to create a wider range of almost ready product. So.
To increase for the Optionality.
Wayne economically feasible to compare Uremic metals, Zorba will go into higher volume base metals.
We expect total capital investment from the advisor metal recovery projects to be in the range of $100 million.
We have spent approximately $40 million D unexpected spend the remaining $60 million in the school Twentytwenty one.
One thing you Nonferrous technology is implemented we expect the benefit to operating income to be at least equal weight per favorites too.
We plan to reach this run rate by the end of fiscal 21, once all the new well Julio operational.
With the roller climbed over several quarters in fiscal 21, we expect to achieve both of the targeted Ebola.
Okay and.
And Oh, well the targeted annual increase in news on that as well.
No listen to sleep, well to the school or ferrous sales on the market dynamics.
Demand for recycled ferrous metal in the fourth quarter was stronger as economies continue to recover and benefited from government stimulus.
We use a flexible operating platform and global sales reach is still 65% or very close to the export market, what's the remainder growing domestic or.
Our whole country destinations for ferrous exports were Turkey, Vietnam and Bangladesh.
For fiscal Twinkies, a home or proportional export sales was all units per year by 400 basis point, though.
This reflected the quicker you can only recovery from coal, but im so overseas market relative to the piece of recovery in the domestic U S.
No I was told to sleep their team who are not the nonferrous markets, our global sales walk walk.
Our continued focus on sales to address the occasion resulted in those shipping over 90% of our nonferrous products in fiscal 23 countries, although in China.
In the fourth quarter, we sold or more for the 17 countries, including India, South Korea, Malaysia, Taiwan in Taiwan.
Only 4% well sales went to China I am.
Who knows restricted seals on as many calls there huh.
Or stylish new operations in other countries.
Just a little bit hormone fitness will come from the shredding process.
With the remainder coming from our nonferrous purchasing operation.
We continue to focus on expanding our product mix with zohr, representing 41% over fiscal 2000 people use aluminum 26%.
Well there are a few percent on the bones of approximately 20% <unk> steel lay it on a variety of although these nichols.
I was on mute signal of usual, though we expect to further broaden our product offerings and to increase our focus on higher volume almost ready products.
The importance of our technology strategy, and we're focused on enhancing pool well, let's see has only been reinforced by train those new quality standard for raw materials, including for recycled aluminum copper and bras.
Now, let's turn to slide 14 to discuss the operating trends that you are.
Uh huh.
Mmm are achieved the significant sequential improvement in the quarter Undeliverable adjusted operating income eating gold per tonne compete.
Compared to $6 in the third quarter.
This was a strong result was driven by increased supply pools, which underpinned the growth in our ferrous sales.
Higher SREC production, which boosted our nonferrous available for sale I'm continuing productivity improvements.
Together these benefits more than offset spread compression from higher porches places leasing in the quarter as markets improve for recycled metals.
Benefits from average inventory accounting will hopefully to golar compete.
Compared to an adverse impact $3 per ton in the previous quarter.
On a sequential basis ferrous sales volumes were up by 17% on nonferrous sales volumes rose by 28%.
These higher volumes were supported by increased supply pools, the higher price environment.
Increased shred or production of nonferrous on a strong commercial performance in all of our region.
In addition, non ferrous sales volumes were boosted in the fourth quarter like deliveries that had previously been gilead due to the initial impact will depend in it.
Other fourth quarter performance included some shipments for sales all those leased before the market improvement.
Our average ferrous and nonferrous silly claims as well as increased sequentially by 2%.
Sales of recycled or coupon remains robust and the results also benefited from increases in the prices for platinum group metals.
Now, let's move to slide 15, I'll discuss operating trends and see if there as well.
As well as our outlook for the fourth quarter.
She has achieved another quarter of strong results.
Operating income of $8 million, an improvement of 1 billion goals over the water.
Or seals initiatives enabled us to capitalize on resilient west coast construction demand leading to higher finished steel sales volumes that were up sequentially by 12%.
Compared to the last quarter finished steel suits places were driven by a two person.
Well the impact on the metal spread compression was offset by increased operating leverage was rolling mill utilization, reaching 96% up sequentially by 500 basis points.
Before we move on to overlook and then or capital structure I'd like to cover employee implications over a new one shouldn't so operating model for external reporting.
Starting from the first quarter fiscal 21, we will.
We will begin reporting our results on an enterprise level, which reflects a functional organization structure.
Under integrated operations.
Or enterprise level reporting will still include consolidated revenues cost of goods sold it.
It's genie EBITDA and earnings.
We will also continue to report operating statistics, including volumes and selling prices for our major product lines, including ferrous nonferrous and finished steel.
Reflecting or integrated recycling activities, an increased focus on recycling services going forward. We will also be reporting or consolidated EBITDA per ton and our gross margin percentage.
Expected benefits and returns from our strategic initiatives will continue to be part of our ongoing disclosures.
Assist with this change will say in November we will be publishing a re presentation or historical core pools for the past three years.
This will reflect the new reporting model and include or new performance metrics and operating statistics.
As we are almost two thirds, three or fourth quarter fiscal 21 and.
And assuming no major market disruptions to current trends.
We all this morning, providing an outlook for the fourth quarter level.
Compared to last year's fourth quarter, we expect companywide ferrous volumes to increase by a range of 5% to 10%.
Our nonferrous volumes to be stable on or finished steel steel volumes to increase by approximately 15%.
Although there is still uncertainty surrounding November market conditions the huh.
The higher price environment for recycled Nichols.
As well as operating leverage from increased ferrous volumes compared to last years fourth quarter.
Our expected to lead to EBITDA ferrous Oh, yeah.
To be approximately 10% higher sequentially and approximately tripled on a year over year basis.
No, let's move to slide 16, and discuss our cash flow capital structure and corporate items.
Operating cash flow in the fourth quarter was strong at $69 million onto the school fiscal year was $125 million.
Free cash flow before dividends for fiscal 20, as a whole was $43 million.
This performance once again demonstrated our strong cash conversion under multi year track record of delivering positive operating cash flow through the cycle.
We reduced <unk>, there sequentially by $54 million and at the end of the quarter permit there were $87 million its lowest level since fiscal 20 team.
Our net leverage ratio also fill and was just 11%.
On a ratio of net debt to adjusted EBITDA was due to one yeah. Thanks.
Given all the uncertainties or the end of June we amended our credit agreement superbly covenant relaxation for four quarters through the fourth quarter of fiscal 21.
In the fourth quarter, we also paid by the $250 million cash that we had drawn down <unk> credit facility in early April.
As a result.
Interest expense is expected to reduce sequentially by over $1 million in the fourth quarter fiscal 21.
Capital expenditures in the fourth quarter totaled $23 million on for the fiscal year or two topics with $82 million.
Looking ahead to fiscal 21, we expect to invest up to $125 million, which includes Capex that was the fair from fiscal 20, following that one's air cooled it.
Approximately half of the fiscal 21, 22 will be for growth projects and the other half from hitting the business, including on environmental project.
Our average quarterly run rate of depreciation and amortization.
Folks made $50 million during fiscal 20.
Well, we expect a similar amount in the fourth quarter.
As the new fiscal year progresses, we would expect this run rate to increase by approximately 15%.
Our major capital projects are completed and become operational.
Adjusted corporate cost and who who also were $11 million.
This was an increase sequentially due to higher incentive compensation accruals driven by stronger company performance.
Our effective tax rate was an expense of 30% on or adjusted Q4 results.
Looking ahead, we expect our tax rate in the fourth quarter and fiscal cliff.
Fiscal Cliff do you want to be approximately 25%.
During the quarter strong progress continues on productivity initiatives and we delivered six moving below improvements proposed.
For fiscal 20, as a whole the $18 million, we rely exceeded our targeted productivity benefits for $50 million that we'd say earlier in the fiscal year.
During the fourth quarter, we also return capital to shareholders through our quarterly dividend.
Starting in the first quarter fiscal 21 will be a lightning or quarterly dividend declarations with the timing of quarterly results.
I'll now turn the presentation back over to Tamara.
Thank you Richard.
Our strong fourth quarter results reflect the resiliency of our operations and the experience and the ability of our team in managing what we can control in the short term, while continuing to execute on our longer term initiatives we have.
We have a strong balance sheet with low net leverage and interest expense.
Strong track record of delivering positive through the cycle operating cash flows and ability to invest in the growth and productivity of our company and an uninterrupted record of returning capital to our shareholders through our dividend.
Our performance can be attributed to the steps we've taken over the past several years and steps, which are currently underway to continually improve our business performance with the commissioning of our advanced metal recovery projects expected this fiscal year.
The greater emphasis on recycling.
The continued growth in global E F steelmaking capacity.
<unk> increased metal intensity of lower carbon based economies the future for our business and industry is bright.
In closing I'd like to thank our employees for their extraordinary efforts. This is a quarter in which you've truly demonstrated why we continue to be a leader in our communities and the recycling industry.
Thank you for everything that you are doing to remain safe to keep your families and friends safe and to support your colleagues your communities our company and our country.
Now operator, let's open the call for questions.
Thank you, ladies and gentlemen, as a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound key please.
Please standby, while we compile the culinary roster agenda.
Again that is star then one to ask a question.
We do have a question from Michael a shock with Keybanc capital. Please go ahead.
Good morning, Michael.
So first I just want to see EPS that benefited from strong west coast construction markets. As you said could you talk to the cadence of the activity you're seeing in construction. There I'm just trying to get a sense, if there's more pent up demand lingering for many of the shutdowns.
Well, we are seeing resiliency I'm on the part of the construction market on the on the West coast and and that has been something that has been ongoing it's something that we can continue to see momentum building for so we didn't see significant slowdown.
During covered there were some slowdowns, obviously, but but but not so significant that that we think that this is an uptick that's going to to then fall back I mean, we are outlet for their construction demand on the west coast is steady and strong.
Okay, and then I was wondering if you saw any recent changes in Chinese regulatory changes I mean, whether its in ferrous and nonferrous imports, but just based on what you've seen in the headlines or anything else over the past few months.
Sure well there was just the regulatory changes that China announced with respect to copper aluminum and bras and just over the past few days Oh, we have seen that drive yeah, yeah, some uptick in prices.
For for those products and so while we Havent you know, obviously just announced and it goes effective Oh.
On November 1st I believe we do see this as a positive trend and as we've said in the past the demand for this product is very high so a waiting for the clarification I'm on the metal content and on the delivery mechanisms wasn't important.
And and we you know again see strong steady demand as you know with a with a bias to to strengthening Ah Ah for imports in China, and then elsewhere across the region.
Okay in inventories came down slightly in the quarter, but fairly stable sequentially are you.
Are you are you comfortable around these current levels or do you have any plan internally to restock or de stock further and kind of on a related note just given the investments that you'll be making in fiscal 21, how do you see free cash flow going forward. Thanks.
Thanks, Michael Let me, let me talk a little bit about supply and then I'll turn it over to Richard and he can talk about or free cash flow regarding supply as I mentioned in the prepared remarks, clearly that's a one of the most sensitive levers in in in our outlook and and going.
Forward and that's very much contingent on the strengths and trajectory of the economy reopening so as I as I mentioned, we've seen prices and demand come back actually to level levels higher than pre pandemic, but supply flows have improved but they haven't.
Yet gotten there and part of that for example is driven by lower a end of life vehicles that we see coming through the supply chain because vehicle miles driven have fallen off and quite dramatically from a year ago again, improving but not yet back to pre pandemic levels. So we think.
But there is runway there for improvement as the economy improves.
And Richard I'll turn it over to you to talk about free cash flow. So.
So by some Oh Hi, Michael.
Yeah regarding free cash flow going forward, we were expecting another strong year operating cash flow in fiscal 21, and we always seem to cover our topics on January positive free cash flow.
We've been pretty successful not the last few years as you'll have noticed it.
Okay cool or are they reached its lowest level.
In a decade, one point I would mention is the in the fourth quarter of fiscal 2000 to one normally not courts are opening castle as slightly seasonally warm weather, but on average for the year because in the fourth quarter did you do.
Our incentive compensation and in addition, this time was the or prediction Oh.
Increased volumes as cooperate look we really expect or working capital to move slightly higher but overall to a user who expecting another strong you hope within cash flow and to cover our cost base and generally according to <unk>.
Free cash flow position.
Got it appreciate all the details thanks.
Thank you know again as a reminder, ladies and gentlemen, if you have a question. Please press Star then one.
<unk>.
And I'm showing no further questions from the phone lines at this time I would now like to turn the call back over to Ms. Tamra Lundgren. Please go ahead. Thanks.
Thank you and thank you everyone for joining us on our call today and for your interest in our company. We look forward to speaking with you again in January when we report our first quarter fiscal 21 results in the interim stay safe and stay well. Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
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