Alcoa Corporation (AA) Q1 2014 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Q1 2014 Alcoa Incorporation Earnings Conference Call. My name is Whitley, and I will be your operator for today. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. (Operator Instructions) As a reminder, this call is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Ms. Kelly Pasterick, Director of Investor Relations. Please proceed.

Thanks Whitley. Good afternoon, and welcome to Alcoa's first quarter 2014 earnings conference call. I am joined by Klaus Kleinfeld, Chairman and Chief Executive Officer; and William Oplinger, Executive Vice President and Chief Financial Officer. After comments by Klaus and Bill, we will take your questions. Before we begin, I would like to remind you that today's discussion will contain forward-looking statements relating to future events and expectations. You can find factors that could cause the company's actual results to differ materially from these projections listed in today's press release and presentation and in our most recent SEC filings. In addition, we have included some non-GAAP financial measures in our discussion. Reconciliations to the most directly comparable GAAP financial measures can be found in today's press release, in the appendix of today's presentation and on our Web site at www.alcoa.com under the Investor section. Any reference in our discussion today to EBITDA means adjusted EBITDA, for which we have provided calculations and reconciliations in the appendix. And with that, I would like to turn the call over to Klaus Kleinfeld.

Hello, good afternoon. Let me characterize our first quarter as we have seen solid results in the first quarter as the transformation of Alcoa accelerates. So let’s talk about the operational performance. We have seen strong earnings throughout – increased sequentially downstream record performance up 9% year-on-year. Midstream earnings rebound almost tripled quarter-over-quarter record auto revenues and this is just the start as we will see later. In upstream, we have an improved performance, it’s a 10th consecutive quarter that we have seen that and we have seen the highest alumina first quarter profit since 2011. Another point on the operational performance, productivity stands at $250 million and the good news that really comes from all segments so everybody is performing well. So second big point in the quarter is the portfolio transformation and we have seen two big elements, the growth elements we commissioned our $300 million Davenport, Iowa automotive expansion, it’s operating now. We are investing $40 million in our value-add especially packaging facility in Brazil. We are expanding our proprietary wheel facility in Hungary to cater to the European market. And the second element restructuring, the major part of the restructuring comes from smelting capacity. We have taken out in this quarter roughly 420,000 tons of smelting capacity in Australia, U.S. as well as in Brazil. And on top of it, we are changing our portfolio and announced that we are taking down our can sheet rolling capacity by 200,000 tons through closing our rolling mills in Australia and this will happen at the end of the year. So with that said, let me hand over to Bill.

Thanks, Klaus. Let’s quickly walk through the income statement. Revenue declined on a sequential quarter basis to $5.5 billion driven primarily by the shift from third party to internal sales as the primary segment typically restocks the pipeline for our midstream business in the first quarter. Versus a year ago, capacity reductions in primary metals combined with an 8% decline in year-over-year realized aluminum prices caused revenues to fall 6% from the first quarter last year. Cost of goods sold percentage decreased sequentially by 190 basis points due to better price and mix for the quarter and productivity gains partially offset by lower metal prices. Note that overhead costs are down both on a sequential and year ago quarter basis. In the other income and expense line, we realized that $28 million gain from the sale of our ownership interest in the Suriname gold company, Surgold offset by start up cost in Saudi Arabia recognized an equity income and unfavorable currency adjustments. Our effective tax rate for the quarter is 28%; however, if you exclude the impacts of discrete and special items, our effective tax rate is 46% which is consistent with our expected operational rate for the year. However, we will continue experience swings in the rate given the volatility of our profit drivers with each taxing jurisdiction. So overall results for the quarter are net loss of $0.16 per share excluding special items we have net income of $0.09 per share more than double adjusted earnings from the prior quarter. Let’s take a closer look at the special items. Included in the net loss of $178 million is an aftertax charge of $276 million or $0.25 per share associated with special items primarily for restructuring. During the course of the quarter, we announced curtailments and closures in Massena,…

Very good. Thank you, very much Bill. So let’s start with the end markets and the usual fashion that we start with aerospace. In aerospace we ramped up our forecast here by 1 percentage point and we are now at 8% to 9% growth that we forecast for this year. Why do we see that? We see a continued strong performance from the large commercial aircraft segment. We believe it’s up by 12.1%. If you look at Boeing and Airbus, the backlog stands now at 10,675 aircraft units, this is well over eight years of backlog. We’ve just seen recently strong demand coming from Asia and the Gulf region, if you just look at the last three months, the Singapore Air Show 90 orders and options for Airbus and just recently Japan $26 billion of orders coming from JAL as well as ANA both to Airbus and Boeing and all of that has been happening in the last month that’s pretty exciting. At the same time, the Airline Monitor has also reported the aircraft prices and the reported prices, average prices to be up 2.1% for Boeing and 5.7% for Airbus. And IATA, very strong indications for good fundamental passenger demand up by 5.8%, the cargo demand up 4% and airline profitability now projected to stand at $18.7 billion. Also nice here in the other segment, the smaller segment, regional jets that has nicely rebounded plus 13.2% and now has a backlog of roughly five years with over 1,200 aircraft. The second segment is automotive. So in automotive, we have a regional markets, so let’s first look at USA. We continue to believe in a 2% to 5% growth for this year. Why do we believe in that? I mean the March numbers has just come in orders are up…

(Operator Instructions) Your first question comes from the line of Sal Tharani with Goldman Sachs. Please proceed.

Hello.

Hello, Sal.

Hi, Klaus. Just a quick question on how to get our hands around the benefit on the cost side or the EBITDA margin on these capacity closures? You on your slide 28, you are 400 – more than 400,000 tons announced, which will be I think which will be taken care of by the end of this year. And if I look at your EBITDA a ton on the aluminum side, as you might had some adjustments but you made up $122 a ton last year and $144 the year before that. I’m just wondering were these capacities well below these levels, where you had been making for the last couple of years, while any of these negative EBITDA margin businesses. And also what’s going to happen to alumina associated with these facilities?

Yes. Well, to your first question, you are spot on. Those have been negative on an EBITDA basis and therefore you should expect our cost also to come down reflected in the average cost per aluminum produced. On the alumina side, the good news is, as we have gotten out of this pretty good (indiscernible) of pricing alumina as a percentage of aluminum and we’ve established the alumina pricing index. We have to monitor this market as a separate market. And Bill had in his presentation an overview on what we see in this market and in the alumina market on top of it. And I just refer to it. We didn’t put a slide in there as we have also a different cost structure, we are a cost wise our facilities are more competitive which is reflected in the lower position on the cost curve. So those are really two independent decisions, right? And we have adjusted some capacity, but not much but we see this sale and you should also see this as two independent business decisions because they cater to two different markets.

Great. Thank you very much.

Pleasure. Next question please.

Your next question comes from the line of Paul Massoud with Stifel. Please proceed.

Hi. Thanks for taking my questions.

Hi, Paul.

I guess I wanted to just dive into the switch from packaging to auto sheet on GRP. I guess first I know you probably don’t want to give specific numbers, but is it possible to give us a sense of the magnitude difference in margin between packaging and auto sheet. And then just more generally speaking, you’re doing in Tennessee where you’re taking auto sheet – packaging facilities and converting them to auto sheet. At some point in the future, over the next few years, North America are you expecting to see the North American market have to rely more on imports for packaging and that result in price increases in that side of the business as well?

Well, this is two questions really. So on the first one and you – we provide a couple of additional information – I think for to get a better handle around it. You would have the slide in my deck there that gives you an indication of how we see the growth – the revenue growth in automotive sheet. So you can directly reflect that in your projections and we broke it down basically by years, right? And it correlates, obviously, it correlates highly with ramp-ups of aluminum intent vehicles in the marketplace so I guess that’s the way I would model that. And the second thing, I think that I would give as recommending, we are not going to give segment below sub-segment profitability. We’re not going to do that for a whole host of reasons. But you should assume and actually you see it reflected also in the GRP numbers already in this quarter that there are substantial difference in the profitability and that’s also one reason why we early on when we didn’t even see automotive did not go for larger packaging contracts because we have been suffering from some large packaging contracts for a long, long time, right? So coming to your second question, I want to speculate where this goal is frankly, right? A lot depends also my view on how much the packaging industry values innovation, I mean I’m always been a big, big believer, the can by itself to me is a mystery honestly because today you have 200 billion cans manufactured every year, right? And when you look at the packaging you would say wow! Is this the most appealing thing, it has a lot going for it, right, from recyclability to transportability to feasibility and those types of things. But there are innovations in there. And what we have seen from studies that we conducted there pretty much market share increases for consumer firms very often have been driven by packaging innovations. That’s why we invested in shaping technology. So what you – what I showed today this Bud Light bottle, re-sealable Bud Light bottle as a great example. It’s a great example of that, but it’s only one example because the technologies that we are using to make this bottle, you can equally well use to make other types of forms and packaging, it doesn’t have to be re-sealable all the time. You can also have a shaped can, right? And there is a huge degree of flexibility. So I very much hope and we put some efforts into this as the packaging industry will understand that and then we would see also growth coming from that and a more differentiated way how to handle – how to handle this. And instead of being more a commodity type of approach that the packaging firms apply today, which obviously is not effective for us. Paul, I hope that answers your question.

Appreciate it. Thanks.

Thank you, Paul. Next question please.

Your next question comes from the line of Michael Gambardella with JPMorgan. Please proceed.

Yes. Good afternoon, Klaus and Bill.

Hey, Mike.

Hey, Mike.

Hi. I have a couple of…

Can you go a little bit closer to the microphone, Mike?

Here we’re having a hard time hearing you.

Yes. I have a couple of questions on the premiums. Some of your costs are associated with index to the LME price of aluminum, but are any of your costs indexed to premium price movements?

The energy cost there is a variety of different types of contracts and some of the – and just one comes to mind, but some of the energy contracts also have a premium component to the metal price index that they use.

So as a percent of your total business, how much would not be referenced to a cost increase – decrease premium movements?

I don’t have a percent Mike, on top of my head. But it’s not – it is not overly significant. When you think about our overall cost structure, if you are thinking specifically about smelting roughly a quarter of the cost is energy cost, only a small portion of those have LME linkages to them and then within that only a portion of that has an LME – has a premium linkage also. So it’s not all that material.

All right. And I think the premium price was about $0.21 per pound in the quarter. How much of that is product versus price premiums?

And when you say the premium, the premium peaked out at $0.21 in the Midwest. And…

So your – in your pricing, in your realized prices, I think the premium over LME in your total realized pricing, we’d estimate it was around $0.21 in the quarter between product in the Midwest and other premiums right in the world.

Right. And you need to be careful to go back and look at the – and we’ve provided a new level of transparency around the premiums. So we’ve given you in the appendix, the lag effect on premiums. And so to be clear on that, roughly 55% of our product is – 55% is based on Midwest and that’s on a 15-day lag, 30% is in Europe and that’s on a 45-day lag and then the rest is really either in Japan, which we know is negotiated in the prior quarter or negotiated. So it’s not a simplest thing, the premiums in the quarter are what we see because of these lags.

One last question. Do you have any other smelters around the world that are currently operating and have not been yet announced that they’re going to be closing, ever losing money?

Well, look I mean the curtailing – I’m very happy with how well our team has been able to handle those pretty massive curtailments and this is a very delicate process involving valued employees that really cannot do anything against this because it’s not their fault. They have been doing a great job very often and the energy cost in that business. And then there is a political process involved. So it’s not helpful to talk about this but what you publicly before we talk about the constituents that are involved in it. But what I think, you’ve seen from us and that’s also what I meant to depict in the slide that I showed to you in the bridge. We will continue to monitor where the market is moving and you’ve seen that we acted swiftly. We acted drastically. So it all depends on where the market is going and we are committed to make money and that’s the route that we are following here, Mike.

But I mean currently are there any smelters that are operating that are still losing money?

That’s really all I have to say on this. When you look at the primary metal segment, you see where the primary metal segment is. It’s connected to this, all right. So you know the answer to this. All right?

I’m just trying to get an idea how much low hanging fruit is still there?

Low hanging fruits, I would not call anything one of this low hanging fruits to be honest. I think we all did extremely hard work and happy to advise anybody who wants to see this, right? And really great, great job for everybody involved. Great job. Of course, very often these things have long, long history and we want to make sure that they are done in the right way and that they are done in the way that we are not going to see additional restructuring, it’s falling into overlap. Okay?

Your next question comes from the line of Brian Yu with Citi. Please proceed.

Thanks. Afternoon Klaus and team. On Page 26, where you got the slides, we got a couple of questions, one is that you guys are obviously switching or adding capacity and some of your competitors are doing the same thing. And your discussions with the OEMs and do you see enough whether ramp has steepened up for the next several years for the market to accept all this capacity. And then two, there seem to be a difference between body sheet and body and white, can you discuss by your level of participation those two and if there is any appreciable margin differentials in those two types of products?

Yes. Let’s address it one by one. In regards to additional capacity what have we seen? You have on the slide 26 that we referred to, we have our structure there. Davenport is fully committed and Tennessee is pretty much also fully committed. That’s the level of what’s going on here. And the same pretty much holds true for Saudi Arabia, right? So that’s the first thing. Second thing, as when you look at other companies we have seen Novelis obviously is a player in this. They have announced in December that they would be further expanding the automotive sheet capacity in Oswego. And then comes Constellium has had talked about North America in January that they want to have a corporation with UACJ through their subsidiary Tri-Arrows to plan to form a JV and that sounds like from the planning stage and Wise has inspected there. They are considering a JV with Toyota and might add that to their Muscle Shoals, Alabama. So that’s what has been going on in the marketplace, but look at what we are seeing here in terms on the left-hand side of the Slide 26. When you will see what we believe we will be envisioning here in terms of aluminum substituting other materials mainly steel in cars. You will see a very substantial shift, I’m convinced to lightweighting across the board. At this point in time, I’m not concerned about the capacity situation in North America in the way that you described in terms of overcapacity. I think most folks are rather concerned about not enough capacity to cater to this growing demand.

Okay. That’s helpful.

Thank you, Brian.

The body sheet versus body and white, can you describe the level of participation in those two markets and will that require different equipment?

No. In reality you have different, you can use different types of automotive products and you can use them at different places in the car. It’s a question of the strength and formability requirements, the big thing and we will be happy to run you through this. This might actually be a good session. I think we should do that. We should do it session after a session with our automotive experts to run them through technically what this is and because of this, technically there are two large groups, there is 5000 series products and 6000 series products than they are mainly differentiated on the production side through the heat treatment. So heat treatment which changes the characteristics of the aluminum and the characteristics of aluminum go inline with the formability and the strength, right? So let’s go through this and there are different profitability’s depending on this but there are also different production steps depending on this, right and different levels of innovation, right? And also don’t forget when you want to get a handle around what our role in this market is. This whole market in the U.S. would not be able to exist if it hadn’t been for our exclusive bonding technology that we made available to the industry without that it would have been impossible to move this around. And there we also get decent royalties the moment the market takes of even more. I think we should do this, I mean so we have noted down Brian, I think this is a good idea. I know that this is not just a question that comes from you and so it would be helpful maybe as a conference call so that we offer this. Yes. Okay. Thank you.

Thank you.

Thanks again. Thank you. Next question please.

Your next question comes from the line of Timna Tanners, Bank of America Merrill Lynch. Please proceed.

Hey, good afternoon.

Hey Timna.

Hey, Timna.

I was hoping you could provide us an update on the situation in the aerospace market. So you talked a little bit about the underlying demand which remain strong. But at your Investor Day, I think on your last call you talked a little bit about destocking, timeframe for different portions of the end markets whether it be engines and airframes. So I was just wondering, if you could give us an update on where that stands and how you are seeing that evolve? Thanks.

Yes. Well, that’s a very good Timna. And I think you heard in general, our joint optimism on the aerospace market. Compared to for instances, I think when we last time that when we board last time talk about this in-depth was at the Investor conference. And already there I was optimistic but at that time I think we also had a discussion on, isn’t this in the end of potentially a cyclical market. Frankly, what has been going on in the last, almost half year now, I would say that at least for the next six to ten years, I mean this cyclicality is probably not going to happen partially driven by a very, very strong, or mainly driven by a very, very strong demand coming from those regions where the middle class is growing and has enough money now to travel, which is mainly the Gulf and Asia. And you saw that reflected whenever there is an Air Show going on in that region, the big ones are raking in fantastic order volume. So that’s the first thing. That’s the first thing. And that’s in the short-term as well as in the mid-term. The second thing to your point and the inventory, destocking there were two items there that we address I think in the third and the fourth quarter. The one-item was a very temporary one and that has gone away. This was around the jet engine products that’s gone away that was really just a small, synchronization issue. The second one that is still there, but as to reduce the impact is purely around what we call aero structural plate. And that does not affect fasteners, wing skins, engine, engine parts, forging and all of these things. This is a very, very tiny segment. And the…

Okay. Got it. If I could ask a question about the cash position, switching gears is because it’s relatively low and obviously a seasonal working capital build. I just wondered if you could provide a little bit more color about how seasonal that might be or if there is any change in the way you look at your cash position? Thanks.

Yes. We haven’t really changed the way we are looking at our cash position. Couple of key things to keep in mind Timna is that unlike other quarters we have no CP outstanding at the end of the quarter. We have not drawn on any of our short-term debt facilities. We did have a working capital build in the quarter that was largely related to the seasonality that we see in the second quarter where we see seasonally strong volumes in the GRP business. We had built a little bit of inventory related to the automotive production ramp up. And then we had very strong sales in March which result in a higher receivable level in March versus December. So you build working capital through all of those. So not to be concerned on either of these issues, I don’t believe.

Great. Thank you.

Thank you, Timna. Next question please?

Your next question comes from the line of Josh Sullivan with Sterne Agee. Please proceed.

Good afternoon.

Hello, Josh.

So on your new automotive sheet targets out 2018 I think were $1.3 billion. Does that I mean how many customers does that include, is that just for Ford, is that just F150, are you assuming greater customer set in other units?

Well, first of all, Josh welcome to Alcoa. And really appreciate you starting the coverage on us and I think everybody will benefit from it because you know the automotive and the aerospace industry very, very well. So and I really enjoyed your comments on the first coverage in those industries, right? So on the $1.3 billion, no, it doesn’t reflect that and neither does our volume today reflect only Ford or the F150. We are – and this is by the way only North America, right for those numbers. We are catering today already to everybody here in the U.S. basically, right, the big thing is obviously those gigantic change of the highest volumes sell-off over the last 30 years which is the F150 in the U.S., right? That’s a big one but we are seeing that others are ramping up the shift over to lightweighting and that’s reflected on the slides which I think is 26 and your stack that was referred to earlier, on the left-hand side where you see the aluminum intensity for the vehicle. And I think you can pretty much multiply that than with the numbers that you see coming out there.

Okay. And then –

And by the way let me be clear on this. I believe that’s a conservative number.

Okay. Okay. And then just on the aerospace outlook, I know you talked a bit about the plate overhang, one of your primary competitors in the titanium fastener market has pointed to kind of a similar change over from the supply, demand balance becoming more attractive. Are you guys seeing that same sort of dynamics?

In the fastener side?

Yes. On the titanium fastener side in particular?

That’s in the fastener side. Well, our folks have been very optimistic in regards to also the fastener business in aerospace. And the good news is, we have a leading position in the aerospace market and pretty much everything that is there now really been excellently positioned also in the composite planes. So we are optimistic in this segment in general.

Oh, great. Thank you for the welcome. I will jump back in queue.

Well, thank you. Next question please.

Your next question comes from the line of Paretosh Misra, Morgan Stanley. Please proceed.

Hi, everyone. I had a question about this $1.3 billion auto sheet revenue guidance you gave for 2018. What’s aluminum price and premium assumptions are you using for that forecast?

Josh, we are essentially assuming similar prices to what we have today. So no major upside on LME prices. We try to normalize the future projections for similar prices as we have now.

Got it. And if I could add just a follow-up, on the scrap side, hearing a lot about tightness in the scrap market. Did that have any impact on your rolled product segment in the first quarter?

Scrap, yes. No, significant impact on – negative impact on GRP in the first quarter.

And scrap prices are high. Other than that not much you can do about it.

Got it. Thanks guys.

Thank you, Paretosh. Next question.

Your next question comes from the line of Andrew Lane, Morningstar. Please proceed.

Good afternoon.

Good afternoon, Andrew.

I’m thinking about your EPS business, which has generated improved margins in each of the last four years, aluminum of course serves as the major input costs. And declining aluminum prices have supported margin expansion for this business. If aluminum prices increase materially from here, have margins already peaked for the EPS segment. And then additionally to what degree would you expect the productivity gains and a continued mix shift towards the value added high margin products to offset the impact for the higher input prices?

That’s a very good question Andrew. Thank you asking this. In the EPS, first of all, I love the EPS business. While I love every business as long as we improve our performance. But EPS as you correctly pointed out as a long streak of doing this. And we are nowhere close to ending this. One thing what I would like to refocus, the EPS business is much less depend on aluminum, its our least dependent business on aluminum, right? I would say 60% of the total volume in the EPS business is non-aluminum. And it’s basically titanium, its nickel alloys, and it’s even steel. And you see that pretty nicely in this. I have the slide and I never know what the page numbers are because on my stuff they are different than on yours. This is what page, which one, its 21. On 21, when you look at our aerospace portfolio, a major share of this is the EPS business. And you see the nice material mix in there. So 60% is basically non-aluminum in EPS. So is this impact of falling aluminum prices has not been a big impact story for the improvement in EPS. It has rather been the second point you mentioned, what drive, we accelerated the drive in every single one of the business for more value add, higher innovative products that gave value to our customers. And I can go pretty much through every segment. When you are in aerospace look at the structural casting, what we have done in structural casting what we have done on the engine – on the engine parts, we just talked about the fastener business. Our lighting strikes fast, absolutely innovation, right? So when you go to commercial transportation wheels I talked about today. When you go to building infrastructure and one of the last quarters I talked about the innovative products the round insulation as well as blast protection on building and construction. What else, commercial transportation we can also talk about some of the structural elements that we have done there. And also pretty much in everyone of those businesses we innovated and we will continue to innovate, right?

Okay. Thanks Klaus and congratulations on another constructive quarter.

Well, thank you very much. Thank you, Andrew. Okay. We are coming close to the last question here. So who – do we have any more questions on the line?

Your next question comes from the line of Harry Mateer from Barclays. Please proceed.

Good afternoon, Harry.

Hi, good afternoon guys.

Good afternoon.

Bill, so just following up on the prior question about cash, I guess can you just remind us what the minimum cash level is that Alcoa want to keep on the balance sheet. Should we expect any gross debt reduction for the balance of the year or will it be more of a net debt reduction this cash rebuilds? And then last, can you just update us on any discussions with S&P and Fitch regarding getting this negative outlook on your ratings results?

All right. So we typically like to keep anywhere from between $0.5 billion and $1 billion of cash on hand in the quarter. As far as debt maturities we don’t have significant debt maturities coming due, right? So we don’t have any significant maturities till 2017. And the latest one was the convert which converted into equity. So any build – any build in cash really at this point will be a net debt reduction not an overall debt reduction. And your question about Moody’s and Fitch, clearly and we have said this number of times. We keep them up to-date on where we stand; we meet with them in the beginning of the year and run them through our plans. And so they have all the information they need at this point to make an informed decision.

Thank you very much.

Very good. So who was the lucky winner of the last question? Have to be a good one?

Our last question comes from the line of Sal Tharani with Goldman Sachs.

Okay, Sal. You stand for good questions. So take it home.

Thank you. Wanted to ask you, you haven’t mentioned aluminum lithium for a while, what’s going on there and what kind of opportunity we looking at and when should we start to see some benefits of that in your numbers?

This is a good question. I’m glad you asked it. So basically, we have as you know invested pretty heavily into getting all aluminum capacity up. And we now have two facilities here in the U.S. that can produce and one facility in Europe. So this is very, very nice. We have a very nice complete aluminum lithium portfolio consisting of sheet, plate, small press extrusions, large press extrusions, hallow extrusions, forging and multiple alloys and in multiple tempers. So and we are on a quite number of key platforms from twin-aisle to the A380, A350, 787, single-aisle with Bombardier CSeries we are on there. And on the regional jets we got new 650 and the Bombardier 7000, Global 7000 and 8000. So this is very, very nice. And we project aluminum lithium revenues to more than quadruple over the next years from nearly roughly $200 million I think we said that, we said that before. And we are going to cater to this market from Lafayette as well as from our 83 locations outside of Pittsburgh and from [Sweden] (ph).

Thank you, Klaus.

Okay. Hope that answers your question. And we are excited. I hope that came across you. Okay. Very good. So this concludes the conference call for this quarter. I hope you agree with me this was a very strong quarter. You have seen record downstream profitability nearly tripling results in the midstream and we strengthened our upstream business growth is powering through our value add businesses, good investments, smart investments we capture. Strong end market demand we are aggressively reshaping our commodity business and we were not stuck with this and we are already I believe seeing the proof of our strategy which is basically in the profits and the results. The transformation is accelerating and the repositioning in my view is working, so you will see more of this. And thank you very much for listening and stay close. And you will see more of this. Thank you very much. Talk to you online.