Q4 2021 Superior Industries International Inc Earnings Call
Please standby we're about to begin.
Good day and welcome to the superior industries fourth quarter and year end 2021 earnings teleconference. Today's conference is being recorded.
At this time I would like to turn the conference over to Mr. Clemons Stinks. Please go ahead Sir.
Thank you.
Good morning, everyone and welcome to our fourth quarter and full year 2021 earnings conference call.
During our discussion today, we will be referring to our earnings presentation, which along with the earnings release is available on the Investor Relations section of Superior's website <unk>.
I'm joined on the call by March via Boulevard, <unk>, President and Chief Executive Officer, and Tim coronary or executive Vice President and Chief Financial Officer.
Before I turn the call over to Marty I would like to remind everyone that any forward looking statements contained in this presentation or commented on today are subject to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995.
Please refer to slide two of this presentation for the full safe Harbor statement and to the company's SEC filings, including the company's current annual report on Form 10-K for a more complete discussion on forward looking statements and risk factor.
We will also be discussing various non-GAAP measures today. These non-GAAP measures exclude the impact of certain items and therefore are not calculated in.
Quarters with U S GAAP.
Reconciliations of these measures to the most direct comparable U S. GAAP measure can be found in the appendix of this presentation.
With that I'll turn the call over to modestly to provide a portfolio and business update.
Thanks, Glenn and thanks, everyone for joining the call today, as we review fourth quarter and full year 2021 results.
2021 marked a year of significant progress for superior as our team demonstrated great agility in delivering profitable growth in a challenging production environment.
We are now realizing the benefits of several years of execution against our value creation roadmap.
In terms of revenue. This is the third consecutive year of growth above market.
And in terms of profitability our earnings in 'twenty one.
At pre pandemic earnings levels, despite substantially reduced industry volumes.
I will now start on slide five with our full year highlights.
In 2021, we delivered double digit year on year increases in revenue earnings and continued growth over market.
This clearly is the result of our operational strength in an environment with OEM production volatility and declines and elevated raw material costs.
Our performance was also further enabled.
The continued shift to premium products, enabling us to deliver an impressive 29% increase in EBITDA in 'twenty one.
6% increase in unit shipments.
We are <unk>.
Successfully capturing the growing demand for premium larger and lighter wheels as Oems seek products to meet secular trends toward electrification tier two reduction and vehicle customization.
Our portfolio of differentiated technologies has supported content growth and in turn long term margin expansion.
Further we maintained a strong cash balance of $113 million. Despite the decline in full year operating cash flow driven by increasing material costs.
In turn impacted our working capital requirements.
This combined with our revolver provide ample liquidity to support our business and mixed superior exceedingly well positioned to drive further growth in 2022 and beyond.
Slide six highlights.
<unk> levels over the last year across our manufacturing operations.
Truly an impressive testament to how our differentiated portfolio of products technologies is enabling us to capture content growth in both regions for a combined growth over market of 17% in 'twenty one continuing the trend we have delivered since 2019.
Slide seven illustrates how years of operational focus has paid off with superior.
In 2021 volumes for both superior and the larger automotive industry was significantly lower than 2019, which is the last full year of normal operations.
After the onset of the pandemic.
Despite the substantial decline, we achieved EBITDA and EBITDA margins nearly in line with our 2019 results.
These figures are most encouraging.
And in addition to demonstrating our ability to drive performance in the face of a volatile macro environment.
Also convey how well positioned superior is to deliver earnings growth once once industry volumes return to pre pandemic levels.
I will now move to slide eight to address the current state of our operating environment.
Looking at the left side of the chart. Many of the same challenges and tailwind that impacted our operations. During 'twenty one will continue into 2022.
As I addressed on the last slide demand for premium wheels continues to support a favorable shift in product mix.
Further we have also seen solid performance from our aftermarket business driven by strong European demand, which is benefiting from our localized footprint in Europe .
As the industry continues to look to Derisk long supply chain, we expect to continue to benefit from our footprint of being local for local for our customers.
This is another favorable tailwind that we expect to continue in the coming years.
As you can see underwrite 2021 industry production.
Fell significantly short of what we expected earlier in the year due to the lingering effect of macroeconomic challenges.
We are taking a conservative approach for forecasting our estimates for the industry in 2022.
In our forecast are well below that of IHS current predictions.
Should industry production recover faster than our current estimates there will be a substantial upside for outperformance during the year.
As shown on the right the right side of the chart.
Current production remains far below that of historical levels in 2019.
And as such we are confident that underlying consumer demand remains quite strong.
That said I will provide further detail on our 2022 expectations later in my remarks.
Moving on to slide nine.
Our legacy of consistent growth over market has been continually supported by execution on our value creation roadmap.
Throughout the year, we work to drive enterprise wide operational improvements to mitigate ongoing industry headwinds with the goal of positioning superior for long term profitable growth.
Actions taken in 2001 2021 have included flexing manufacturing costs at facilities in Mexico and Germany.
And enhancements of both cost and commercial discipline to mitigate the impact of increasing cost operating cost without compromising product quality and to enable commercial recoveries of inflationary costs.
We have also focused on development of our culture of continuous improvement by utilizing six Sigma training.
<unk> 125, green belts and black belts during the year.
While we have been focused on improving operating metrics in the business.
We have not taken our eye off the ball on ensuring the right investments in manufacturing capability to allow us to continue to deliver products that enable our customers to differentiate their vehicles.
We have invested in more light weighting capabilities in Mexico, and Poland to enable electrification.
More painting and machining capabilities to enable 24 inch wheel and ultra premium <unk> and.
And greener products with low carbon footprint that enable us to execute on our ESG strategy.
Slide 10 makes the point further.
Our broad portfolio has been the cornerstone of our growth over market.
We expect to continue growing.
Each of these technologies further in the coming years positioning superior to increase its penetration in the premium wheel space, while expanding margins along the way.
We will continue to leverage this content growth well into the future as Oems continue to seek larger lighter and more premium wheels.
Slide 11 showcases several of our product launches during the year and highlights the speed with which Oems are continuing to adopt our technologies in North America and in Europe .
These product launches continue to reflect the increasing diversity of our customer base. The continued growth of our premium technologies.
Our success in adapting to the evolving.
Trends in the industry.
During the year, we continued to leverage our innovative portfolio with over 50% of launches incorporating light weighting technologies over 60% utilizing premium finishes.
Over 70% with larger diameter wheels, and over 25% for electric vehicles.
Turning to slide 12.
Before moving onto our 2022 outlook.
I would like to address the progress we have made towards environmental social and governance initiatives throughout 2021.
These include the establishment of our goal to be carbon neutral by 2039 2039.
The implementation of our global diversity equity and inclusion Council.
And the launch of our inaugural UN Global compact sustainability report.
Further.
I am pleased to announce that superior recently joined the aluminum stewardship initiative.
A global organization dedicated to bringing together shareholders and stakeholders involved in the aluminum value chain to help drive responsible production and sourcing of aluminum within the industry.
Slide 13 highlights the.
And the fact that our ESG focus and particularly the environment has been multifaceted.
We are in the process of launching our all four strategy, we're excited about that.
Which will further enhance the sustainability initiatives of our operations and diminish the emissions produced in our manufacturing processes.
With a focus on utilization of clean energy sources coupled.
Coupled with our local for local manufacturing footprint.
Superior is actually far ahead of global competitors on the emissions front.
We currently deliver wheels, with roughly 60% lower <unk> footprint than the global average and aim to achieve further reductions by 2025.
In addition to helping US advance the sustainability of our operations. This progress also makes us an attractive partner to major Oems that are looking to reduce the carbon footprint of their supply chain.
We look forward to driving further progress in our sustainable sustainability efforts in 2022.
I will now address our full year 2020 to outlook on slide 14.
Although we are seeing some stabilization of OEM production levels visibility for the full year remains limited.
Due to supply chain headwinds and uncertainties regarding inflationary cost pressures.
Given these factors we have taken a conservative approach to our industry assumptions for the year, which is reflected in our guidance.
Further we do anticipate some level of disruption associated with the Russia, Ukraine conflict.
The full impact of which is currently unknown as the situation continues to evolve.
Regardless.
Once the industry recover once the industry recovery accelerates.
The high levels of pent up consumer demand will materialize into substantial growth for both superior and the wider automotive space.
For the year, we expect continued industry recovery over 2021 with mid to high single digit growth in global light vehicle production.
Adjusted EBITDA is anticipated to be in the 160 to the $190 million range with cash flow from operations between 105 and $150 million.
This includes the expected benefit from further accelerating our cost recovery and continuous improvement efforts to mitigate inflationary headwinds.
That said, we see substantial upside potentials to earnings and cash flow should industry production volumes returned stronger than anticipated.
In closing I am incredibly proud of the superior team for the progress we achieved in 'twenty one.
Heading further into 2022 I look forward to the many opportunities that lie ahead, and I am excited about our position as the industry rebounds and accelerate growth.
With that I will turn the call over to Tim Tim.
Thank you Marcy and good morning, everyone.
2021 was a year of progress for superior in a challenging business environment, especially so in the back half of the year.
More specifically 2021 reflects operating discipline and our cost structure benefits of our enterprise cost improvement and continuous improvement programs.
Top line reflects our product portfolio supporting growth over market of 17% and 9% content per wheel growth for the year.
Interestingly the 12 months ended June 32021, and forms the financial performance superior can put up considering the improvements in the company.
For the 12 months ended June 32021, a period of relative normalcy, notwithstanding the pandemic for semiconductor and other supply chain disruptions superior debt $193 million of adjusted EBITDA and $797 million of value.
<unk> sales for a margin of 24%.
This was accomplished even though we'll sold were down 9% from pre pandemic levels that is 2019 and light vehicle production in our markets was down 12%.
This is a testament to the earnings power of superior in more normal times.
Let's begin on page 16, with the regional unit shipments net.
Net sales value added sales and earnings for the fourth quarter and full year 2021 as compared to the prior year period.
In the fourth quarter real unit shipments were $3 9 million units down 12% compared to the prior year period.
But for the full year will unit shipments were $16 1 million up 6% from the prior year.
This contrast, the fourth quarter versus the full year reflects a tale of two business environments in 2021.
A fairly robust first half of the year.
In a rather miserable back half of the year.
Net sales increased to $368 million for the quarter compared to $338 million in the prior year.
For the full year net sales were $1 4 billion compared to $1 1 billion in the prior year.
The increase in net sales reflects higher shipments because of the pandemic induced 2020 manufacturing shutdowns and higher aluminum cost pass through because of an approximate 45% increase in the cost of aluminum during the year.
Favorable foreign exchange, primarily the relative strength of the euro during the year also helped.
Value added sales decreased to $189 million for the quarter compared with $202 million in the prior year.
But for the full year value added sales were $754 million compared to $648 million in the prior year, primarily due to higher shipments favorable product mix and higher content per wheel.
In the fourth quarter, we reported a net loss of $4 million or a loss per diluted share of <unk> 48.
Impaired to a net loss of 21 million or a loss of $1 16 per diluted share in the prior year period.
In the fourth quarter, we incurred a $4 5 million charge for cost associated with the restructuring of our manufacturing facility in Germany.
For the full year 2021.
We reported net income of $4 million, but a loss per diluted share of $1 17, and because of accretion of and dividends on the preferred stock.
The net loss in the prior year period was $244 million or a loss per diluted share of <unk> 81.
The improvement in net income is largely due to a $194 million impairment charge in 2020 and more operating income in 2021, resulting from the higher sales.
Page 17.
Highlights some of the actions executed throughout 2021 and will improve our business and.
And to mitigate the impact of the difficult business environment on our financial performance.
As you might expect many of these actions are reflected in the company's value creation roadmap. The margin you spoke of.
<unk> centrally led procurement.
Disciplined enterprise cost improvement programs and acceleration of our lean six Sigma continuous improvement are examples.
Noteworthy are the actions beginning in the third quarter to address the business environment.
The size of our manufacturing cost structure more appropriately to the almost 20% decline in light vehicle production in our markets in the back half of the year.
We implemented temporary layoffs in our Mexican facilities and utilized a government funded short time labor program in Germany.
Page 18.
Fourth quarter year over year sales bridge.
Improved mix and higher content per wheel offset much of the impact of a 21% decline in year over year light vehicle production in our markets.
Value added sales before giving effect to currency declined only $8 million or 4%.
Note the $43 million increase in aluminum pass through the cost of aluminum rose by about 45% by year end.
The full year 2021 year over year sales bridge can be found on page 19.
Value added sales before giving effect to currency are up $88 million or 14%. Despite light vehicle production in our markets being down 3%.
Again, we delivered favorable mix and a higher content per wheel in large part thanks to our premium wheel, making capabilities and product portfolio.
On page 20.
Adjusted EBITDA decreased to $37 million for the fourth quarter of 2021 compared to $47 million in the prior year period.
Primarily because of the 21% decline in year over year light vehicle production in our markets.
Metal timing helped in the quarter compared to the prior year, but was offset by manufacturing performance a reflection of the difficult business environment.
The full year 2021 year over year adjusted EBITDA Bridge on page 19.
Adjusted EBITDA increased to $167 million for the full year 2021 compared to $129 million in 2020.
Higher production volumes improve.
Improved mix higher content per wheel and favorable currency and metal tiny all contributed to this increase.
An overview of the company's cash flow is on page 22.
Although free cash flow of $40 million was very satisfying in the fourth quarter full year 2021 free cash flow was a negative $28 million.
All of this may be attributed to higher investment in working capital more specifically the higher cost of aluminum as depicted on page 23.
This will come back to us once the cost of aluminum normalizes.
Capital expenditures of $65 million were more normal this year than last year, but still a bit below historical trends and $10 million below our 2021 financial plan.
Lower view of the company's capital structure and May be found on page 24.
Funded debt was $616 million at year end 2021, compared to $643 million at the end of 2020.
The $27 million decrease reflects principal payments and the depreciation of the euro denominated debt because of the euro weakening against the US dollar towards the end of the year.
As of the end of 2021 liquidity, including availability under the revolving credit facilities was $309 million.
The debt maturity profile as depicted on page 25.
Our revolving credit facilities were Undrawn and we remain in compliance with all loan covenants and have no near term maturities of funded debt.
The company's 2022 outlook is on page 26.
Our 2022, we expect unit shipments to be in the range of $16 four to $17 7 million.
Net sales to be in the range of one six to $1 7 billion in.
In value added sales to be in the range of $780 million to $840 million.
Resulting in adjusted EBITDA of $160 million to $190 million.
We model, a 25% to 30% effective tax rate in 2022.
These figures assume light vehicle production in our markets in the mid to high single digits.
Further these estimates do not reflect the impact of the Russia, Ukraine conflict.
We are monitoring closely and we'll assess as the conflict evolves.
The growth in net sales is expected to result from higher production volumes and the elevated cost of aluminum.
The increase in value added sales assumes continued growth over market in 2022.
Cash flow from operations is expected to be in the $105 million to $150 million range, a substantial increase over 2021, as we expect the increasing cost of aluminum to moderate and we continue to focus on cash generation.
With respect to capital expenditures.
We plan to invest $80 million in our business this year, including some carryover from 2021 as we continue to strategically invest in the business, especially finishing capabilities.
This amount spend will depend however in part on the evolution of the business environment during the year.
Back to the 2022 outlook for adjusted EBITDA and cash flow from operations for a moment.
The low end of these ranges reflect some stranded inflationary cost pressures in the P&L in 2022.
We are and will continue to vigorously pursue customer recovery of the impact of inflationary cost pressures on our business in order to preserve margins.
The timing of these recoveries may be lumpy and there is no assurance, we will be able to completely recover these costs.
On the other hand, this is a business with good operating leverage.
Our premium wheel, making capabilities and therefore, our product portfolio.
Coupled with our disciplined operating teams and a return to more normal light vehicle production levels in our markets.
Could result in our business recovering very handsomely from the semiconductor shortage.
As I mentioned at the outset this.
This is a business that did $193 million and adjusted EBITDA on $797 million of value added sales for the 12 months ended June 32021, a period of relative long, mostly for a margin of 24%.
<unk> back to you.
Thanks, Thanks, Tim in closing I would like to thank our teams for their contribution to our strong performance. This year, we look forward to continuing our momentum and driving further shareholder value in 2022.
Operator, I would like to turn the call back over to you for Q&A.
Thank you if you would like to ask a question. Please signal by pressing star one on your telephone keypad. If you are using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment.
Once again it is star one for any questions or comments.
Our first question comes from Gary <unk> Barrington Research. Your line is open. Please go ahead.
Good morning, everyone.
Okay.
Okay.
Okay.
Okay.
Okay.
Thank you.
Great.
Alright.
Okay.
Sorry.
Producers for Europe .
Okay.
Colonial to in the Ukraine is that kind of correct.
Yes.
Now components from us, but specifically in my prior life wiring harnesses is quite quite concentrated right rain.
Right.
Okay.
And are most of these.
Do you know.
Most of these in the western part of the country.
These production facilities.
Yes, they are actually they are spread over but the bulk of the employment, especially in the wiring harness business.
With <unk> and others are in the west.
And right now are for.
What I've read a lot of these things are shut down production or is that incorrect.
Partially not a lot I would say.
So a VW has announced the closure of their portion of plant and thats largely because of wiring harnesses.
Ukraine carry it remains to be seen the European automotive industry is.
It's highly dependent on Ukraine, because of the concentration of that commodity.
But again right plants are located in remote locations.
From what I understand <unk> been able to continue production and whatnot. So this thing we're watching it closely as it plays out.
Our exposure is really in the raw materials Gary.
<unk>.
20% about aluminum by comes from one supplier in Russia and now our teams are doing a good job putting in place plans to derisk.
And making sure we have the right inventories on hand.
To continue to support our customers.
Okay.
And then.
<unk>.
Now it's become very evident we're in an inflationary environment, Tim one of your comments was I guess recapturing.
Costs are inflation from your customers could you.
Maybe explain how that works I mean this is really the first time, we've had to deal with something like this for almost 30 years.
Sure.
The first thing I would note and as evidenced by the company's financial performance in 2021.
We really have very little margin compression, resulting from inflationary pressures until the back half of the year.
And most of that manifested itself in the fourth quarter and and in Europe . So very little total impact during the year, but coming out of the year. Some inflationary pressure. This was primarily as a consequence of.
Increases in the cost of resin.
Which go in our coatings.
And some increase in energy costs and transportation costs.
We have.
As I think you know.
Commercial arrangements with all of our customers whereby the customers are responsible for paying for the cost of aluminum.
<unk>.
<unk> associated with those agreements are mechanisms, whereby we actually compute and pass those costs on to the customers.
With respect to 2022 this year.
The cost to alloying on RV aluminum has risen and we are in the process of.
Having discussions with our customers around adjusting the mechanisms to reflect that.
The changing cost of the alloy and of the aluminum.
I would tell you that we have today.
Agreements in hand, or certainly agreements in principle to do that.
With the majority of our customers and the handful that we havent run that the ground yet.
We will sell those.
The aluminum alloy, which we believe we are well on our way to addressing and then to the extent we.
We continue to have cost pressures from let's say the resins or utilities.
And to the extent we can.
Arrive at an agreement with our customers to assure that costs work with them.
That will be great absent that as you know in this industry.
We have productivity with our call productivity pricing adjustments and the practices as we <unk>.
Prove our productivity we pass some of those savings onto the customers in the form of price Downs, we have that lever in that flexibility. So to the extent, we have inflationary pressures with the customers don't can't see their way.
302 for sure and we have the pricing.
The pricing lever so.
Suffice to say that.
Not much of an issue in 'twenty, one 'twenty two a little bit of an issue, but we are pursuing.
<unk> the recovery of these costs.
Currently and we expect our our customers too.
Pay their fair share.
Hey, Gary let me add something that I think would be helpful as well and its relative to 2021, which is kind of shed light on the why we call that as do the resiliency.
<unk> of our profile as a company on this question and the exceptional ability of our team to execute right.
So commercially as Tim said, we are naturally hedged on aluminum we have to meet we have to address the abilene portion, but in 'twenty. One we are rational naturally hedged.
We had established six positions on energy.
And that is the reason why we did not see any of that.
And on other commodities our teams.
Done very well either negotiating pushing back indexing or fixing prices while at the same time driving continuous improvement to offset.
To offset this.
These pressures and the net of all that is very little margin compression.
2021, as a result of all of the inflationary movements you described but I think the takeaway for me is what I'll call. The resilient profile of our company and the ability of this team to execute.
Okay I'll, let somebody else go thank you.
We'll take our next question from Mike Ward with Benchmark. Your line is open. Please go ahead.
Thanks, and good morning, everyone.
Martin.
Page 10 page 10, it says a lot.
When I look at that a couple of things I'm curious about.
The 19 inch wheels is just youre going above 50% is there a difference between the basically the level of percentage in North America versus Europe .
Well actually.
Directionally I will give you the data maybe at the end of the call, but Directionally in North America will tend to be larger than that in Europe , but the growth the growth profile has been and the trend has been consistently the same.
Okay.
And the premium finishes.
Weighting technologies any differences between the two regions or are they pretty consistent.
So the characteristics of the two reasons Mike so.
I would say that.
North America tends to be to have.
Slight because of the Suvs slightly larger wheels right.
I would say that North America has a lot more variety on premium finishes.
I'd say that Europe really started very heavy and very fast on light weighting technologies.
Which north American I think is catching up with that trend and as you know light weighting technology for US is a big content adder and the reason is it's on all of these.
Performance vehicles, when you consider the 75% of our revenues with German carmakers and premium carmakers that explains it.
<unk> premium finishes sizing on the use side light weighting technologies.
On the European side.
Okay, and then on the actual numbers.
The number I just found it it's very close.
Hi, <unk> in Europe in the low <unk> in North America.
Okay.
And on the EV side.
Europe is ahead of the U S. So I assume you are getting a lot of that growth there.
When you look at this 37.
Growth is that with content and wins or is it both is there a breakdown between like how much added content youre getting with some of the wheels.
<unk> seen this gets bigger wheels.
Yes exactly.
The 37% is really intended to say if you look at where we are today in terms of.
Will that go on the electrified vehicles and wheels that receive aerodynamic finishes and <unk>, we see that growing 37% in the next three to four years right.
<unk>.
And what is that within that is the light weighting technologies.
And the only dynamic.
Applications to 37% as a purely the count of growth, but the content is quite significant Mike Mike.
Okay.
On the next page page 11, when you look at some of the new vehicles.
I'm assuming of the 90 global launches.
Right.
More evs there can you say if your.
150 lightning or the GM.
Electrified full size pickup trucks.
Yes.
We of those 90 90 launches 25 of them about on electric vehicles.
<unk>.
And as you look at the wins that we've had with the Oems recognize him.
In North America.
We're winning on firsthand I mean and.
And when you step away from it Mike in terms of what is this company going.
In terms of capitalizing on what the industry is growing right. So you look at our standing from a market share standpoint with customers.
Market share wise, where we're number one with GM number to afford when we're in a very tough one to position with Toyota in North America, and with the German carmakers.
When you think of Audi Daimler BMW Volvo with number one two and maybe one of them with number three so we're just going to go right along for the right and and as a technology company.
While we are a global leader in the top three market share wise, we are actually.
We could argue that we are the number one producer of premium wheel. When you think of just take the premium segment larger wheels with premium finishes. We are a global leader hands down. So as you think of that industry and what it's going the carmakers, where theyre growing our position with the automakers and how that enables us.
To grow with them, it's a great story.
Yes, it certainly is.
Tim.
On page 23, and one of the things you talked about the transitory items and im assuming thats the timing.
Call it out.
Or was that what you said.
Yes, the transitory items here Mike.
Mike This is really by and large the value of of aluminum.
At year end that finds its way into our working capital and therefore into our balance sheet. So we are obliged to make investment in that we refer to them <unk>.
<unk> items.
I guess the pleural part here is.
In addition to the aluminum cost a little bit elevated inventory levels, but the lion's share of this is the cost of aluminum.
I think the point I want to make here is that absent that investment and that modestly higher inventory level because of the manufacturing environment.
The debt would have been at least $30 million lower.
Sure.
And so then as you look forward.
As you look at page 25, and some of you have no near term.
Maturity issues.
The term loan B as fully outstanding after tap that at all right. So the only near term.
I guess you have senior notes that come due.
And then you have.
Potentially the preferred redemption rate that's it.
Yes.
All the maturities of the funded debt or two plus years, two plus years out that would be the term loan and the senior notes.
The revolvers of course are Undrawn, and we have $100 million of.
Of cash on the balance sheet, that's why they are undrawn.
I mentioned the preferred equity the redemption date, there is at the back half of.
2025, or three plus years away.
How.
Exactly would that work and what are your options as far as cash impact.
Our options with respect to the preferred equity.
Yes.
Well, it's an option at first of all it's an optional redemption. So the papers redeemable at the option of the holder GPA.
Should the option be triggered.
The company to the extent it has at that point in time, the financial wherewithal to do redeem the stock the preferred stock that has an obligation to do so.
This is three and a half years away, we will see what transpires in the event. However.
The company did not have the financial wherewithal at that time to fully redeem the stock since its equity not debt.
There is certain provisions whereby we would only be obligated to redeemed a portion of which we could do without jeopardizing the company's financial condition. So it's.
Those are redemption, there, but the important thing I think you are potentially as if it ever gets to be an issue is that this is equity and not that it's not a contractual obligation to actually pay off the full value. If the company does not have the financial wherewithal to do so.
Okay, and so then what would happen then you would issue equity or would you have to continue to pay the fee.
Dividend.
This redeemable its redeemable in cash okay. So we will take cash.
My recollection is is that whatever portion that will not be redeemed if that were to be the case, we will continue to pay dividends.
Alright.
Just.
One last question on the aftermarket I think Mark you mentioned that the aftermarket business.
Some pretty good performance in <unk> was that correct.
Yes, very good performance.
Okay.
Was it up in line or.
Above market growth that youre seeing with the rest of the place where we up double digits.
Very strong Gary.
Let me see.
And you had north of 15% year on year growth and the trend continues listen we have said.
Mike.
<unk>.
The wheel industry, especially in North America has been only always exposed to long supply chain from the far east and especially China right.
This is now.
Very evidently becoming problematic long supply chains will make sense that are disruptive you had geopolitics you got freight costs, you all kinds of things going on.
And you have container availability. So you are going to see a big push for localizing envision with the carmakers make their vehicles and the same thing putting aftermarket except the aftermarket can turn on a dime faster than the OEM side right and that's what you've seen.
The guys out of Thailand out of China, Couldnt get the wheels into Europe are customers just.
Shifting to temporarily to answer earlier in the year in aftermarket and then finally, frankly and even we see it in continuation now.
Very comfortable with working with superior with the technology with the service they get and I believe youre going to see that tailwind continuing very much sir.
It's a manifestation of what we're seeing with long supply chain and geopolitics and I think it's a tailwind that is going to stay for the aftermarket business and is going to begin its going to begin to take hold in auto OEM side as well Mike.
And some of that aftermarket and some of that magic turn it to the north American market as well.
That's what I mean remember we don't do much in the aftermarket in North America.
Most of all of the exports right right yes.
Interesting.
Yes, I mean my point is if you want to if you want to look for a point of reference.
What is what is the benefit to superior of being local for local for our customers. We have in region in the U S, where a customer will in region in Europe .
You see that trend going in aftermarket my point is you're going to see that.
Not today, but in the coming months and maybe couple of years as the North America automakers begin to localize their footprint.
Our supply chain and <unk> and ship to ship that risk.
Just out of curiosity I know theyre with their dozens of these wheel manufacturers in China.
They have the capabilities for some of these larger diameter wheels and premium finishes.
No no I mean.
Mike It's only recently the Chinese entered the market, mainly in North America and the U S.
And I think they did a good job of building a beachhead in the face wheels, Okay only recently.
In our view listed in our view have the acquired technology for premium finishes and larger wheels I still fans down superior has the best capability of any new short line when you get.
Now, but even within that there's only a couple of them that have come close to acquiring that capability.
More than 20, we'll supply more north of 20 actually but they ultimately after the mobile app.
All play in the afternoon.
Well, Brian Miller performed at all it's all driven by price price price and actually interestingly Mike.
The Chinese aftermarket wheel suppliers do not have.
Much of a presence in Europe their presence reviews in the aftermarket in North America.
Okay.
Thanks for that.
Apology nature of the wheel.
In the aftermarket in general.
Interesting. Thank you.
Very much like we feel good about our footprint.
Got.
We're going to be a competitive advantage has done has done.
And the technology.
All of the capabilities on page 10, because it sounds like that.
Eastern Europe grows well.
He has always been.
<unk> sharing with you how we view our technology.
And.
We're shifting the dialogue now in addition to that that footprint is actually more and more of an enabler and a competitive advantage as well so it's both.
Absolutely well thank you.
Thank you very much. Thank you. Thank you.
Well go next to Richard Phelan with Deutsche Bank. Your line is open. Please go ahead.
Hey, good morning, guys.
Two questions Richard it would be used.
It would be useful to get an update.
With respect to the Mexican operations, just in terms of sort of.
Scrap rates and uncertainty employee turnover, our retention issues that your patents and what progress has been made year on year.
Yeah. So.
So I would tell you with.
With omicron right.
It was it was a challenge earlier in the year for US in January we had north of 900 cases.
Our our team in Mexico is vaccinated.
Almost 100%, 97% actually vaccinated.
The biggest impact we have seen really is only a couple of months, where we had.
A higher infection rate.
Whereby people had to stay home we had two <unk>.
Volumes were up we had to bring people to supplement.
So that was a disruption in itself, but if you look at the last couple of years, the Mexico operations performance.
I'd actually surprisingly.
Our turnover rate actually has consistently declined.
And in 2021.
Our turnover rate overall was the lowest we have had in four years.
Now recall in Mexico, we tend to pay higher than minimum wage rate.
Our workforce tends to be skilled so turnover is not as big of a problem as it would be for <unk>.
In my prior life in wiring harnesses, where you have 3000 people in wiring harnesses plant.
So it's not huge but it's a problem still it has improved and.
Our focus is to continue to improve it now as you look at overall, the Mexico operations listen we I mean, if you look at the last couple of years and evolution of our product line.
Hum.
Richard.
In terms of size and premium finishes the complexity is absolutely monumental.
And what that team in Mexico had to undertake to deliver product quantity.
And deliver high complexity, while at the same time, reducing scrap.
Is really impressive I'm very very proud of what they've been able to accomplish so we are good with turnover, we are making progress on.
On scrap and most importantly, we're delivering X two.
<unk> complexity out of those operations.
Understood.
Understood and that turnover rate.
Would it be sort of as a percentage.
Is that where it stands at the end of 2021 store.
First of all of the year was profitable for the year for the year. The turnover is north of 25% for the entire year include.
Including.
Our salary.
North of 25% Okay.
And the second question I had I.
Thought I heard you say earlier on the call.
That's up 40% of your aluminum.
Needs are sourced from a Russian supplier.
I fully understand all the price through 2020%, Richard 20% twice, the 20 or so.
Even factoring in all the price through mechanisms that you have built in.
It's still a significant.
Exposure so.
How do you intend to address that I guess.
In the absence of that supplier.
Richard Richard.
Yes, other competitors would also be looking for the same.
<unk>.
Richard It's Tim.
Point number one is margin is absolutely right now at full production the sort of normal.
Bandwidth.
The Russian.
Supplier is 20%.
What sort of levels that we're experiencing today, it's <unk>.
Probably closer to 10%, 15%, but still 10% to 15% matters.
And I would tell you that we have.
<unk>.
Welcome to our procurement officer, just even this morning, here's here's the status he.
It has made arrangements with respect to North America.
To source at our other smelters.
Whatever capacity, we may need to source with them away from Russia. So these made alternative by arrangements in North America with our other aluminum providers.
With respect to Europe , we've taken delivery of enough metal out of the ports.
<unk>.
To.
Satisfy that element out of our aluminum needs.
The Russian needs through May I think it is and he is in the process of making the same arrangements in Europe with the European aluminum providers that he has done with North America. So as of this morning on really.
We are reasonably comfortable that we've got that covered.
Got it okay.
That's helpful. Good luck with that thank you very much.
So I think.
We'll go next to Stephanie Vincent with Jpmorgan. Your line is open. Please go ahead.
Alright, Thanks, Stephanie you much for hi.
Great year.
Im hoping thats going on.
Just on the point that rich made about <unk>.
Aluminum by I'm, sorry, if I didn't get that in your comments you said, it's about 10% to 15% is that Jeff you are European spend or is that in Colorado.
Well Thats global Stephanie.
Global and Paul and then my next question is because we get asked.
Now all the time, it's Jeff.
On your Cogs.
What percentage in.
Aluminum and what percentage is energy that would be very helpful.
Well you can certainly get a sense of the element that is that as metal because as you know we report both our.
Net sales, which are the the gross sales if you will inclusive of the value of aluminum and then we also reported new angle.
Value added sales right and so substantially all there is a small piece of the business mature, but just think of that delta is being the value of aluminum so.
Gross through cost of sales.
With respect to energy.
I don't have that metric frankly.
At hand, right now to be honest with you.
Okay.
Just had a quick search for I know, it's not great, but American axle for example, and I think they've disclosed between zero and five for some of their costs for energy cited net that would sort of year on year on the ballpark.
I'm, sorry say it again excellent.
Yeah.
As I said.
<unk> zero.
Five to the CDP. So I didn't know if that was kind of in the ballpark.
Yes, I just I'm, sorry, I, just don't have that metric at my fingertips at this moment sure.
Sure and then my next question.
With some things that were in the knee.
Back in February about some of that.
A lot of people have been asking you about hearth pathways and other suppliers as well and there are some articles that the beginning of February late Jan about some Oems actually asking for even more cost savings, which I recognize.
Part of the course of doing business.
Given the environment.
That not only tier one suppliers are under that tier two and tier three D. Do you see that.
Accelerating throughout the end of may be a bit harsh search terms for suppliers, which is a bit surprising given the price.
Trailing three vehicles.
Stephanie we.
We are proud of tier ones are probably spending more time with their suppliers at all levels in the last 10 years and I would tell you just from personally personal experiences. They are very well versed on what the tier one supplier base and seeing from a cost standpoint.
We are having serious dialogue with all suppliers, including us when adjusting indexes in stepping in where they need to be these are very very tough negotiations, but down constructive negotiations, we are making progress in this environment.
Count you dialogues about.
Price reductions and LTA.
I'm going to be very very difficult for any supplier.
Right and then my last question.
It is about the Polish facility, you, obviously have facilities as well.
And Germany.
Right now obviously Poland.
Are you seeing I guess some fluctuation.
Is I realize that you said you know part of your expectation for 2022 doesn't include a lot of further disruption you sort of take it will stay as is.
Is there any disruption thus far.
Sure.
On Europe .
Stephanie.
That's the question of the day of the week of the month now.
For us listen we had some trucking issues.
On the aluminum and Poland, but if you asked the specific question has any of our operations in Poland to date been disrupted no have we seen disruption from our customers you saw the announcement from Porsche because I believe because the wiring harnesses the shutdown last Friday so Stephanie.
Stephanie It really remains to be seen how this plays out I think the impact first and foremost.
Most will be on the car makers and the Oems first because of their dependents.
On Ukraine, and then obviously if it gets.
More more entrenched.
You're going to see it in logistics and in other parts of the business, but for now really very limited impact we are concerned as you would be as well.
And ladies and gentlemen that will conclude today's Q&A session I would now like to turn the conference snapped back to <unk> for any closing remarks.
Thanks, everyone for participating in today's earnings call. Please be safe and we look forward to updating you on our first quarter results of 2022 and early named in the meantime, please do not hesitate to reach out to us for questions or comments you may.
Have have a good day everyone.
Ladies and gentlemen that will conclude today's conference. We thank you for your participation you may disconnect at this time.
[music].
[music].
[music].
[music].