Feb 18, 2015
Executives
Melinda Ellsworth - VP and Treasurer Jack Hockema - President and CEO Dan Rinkenberger - EVP and CFO
Analysts
Edward Marshall - Sidoti & Company Tony Rizzuto - Cowen & Co. Timna Tanners - Bank of America Merrill Lynch Josh Sullivan - Sterne, Agee Phil Gibbs - KeyBanc Capital Markets.
Operator
Good day, everyone, and welcome to the fourth-quarter 2014 earnings conference call. Today's call is being recorded.
At this time, I would like to turn the conference over to Miss Melinda Ellsworth, Vice President and Treasurer. Please go ahead ma'am.
Melinda Ellsworth
Thank you. Good afternoon, everyone and welcome to Kaiser Aluminum fourth-quarter and full-year 2014 earnings conference call.
If you have not seen a copy of our of our earnings release, please visit the Investor Relations page on our website at kaiseraluminum.com. We have also posted a PDF version of the slide presentation for this call.
Joining me on the call today are Chairman, President and Chief Executive Officer, Jack Hockema; Executive Vice President and Chief Financial Officer, Dan Rinkenberger; and Vice President and Chief Accounting Officer, Neal West. Before we begin, I'd like to refer you to the first two slides of our presentation and remind you that the statements made by management and the information contained in this presentation that constitute forward-looking statements are based on management's current expectations.
For a summary of specific risk factors that could cause results to differ materially from those expressed in the forward-looking statements, please refer to the Company's earnings release, earnings presentation and our most recent reports filed with the Securities and Exchange Commission, including the Company's Annual Report on Form 10-K for the full year ended December 31, 2014. The company undertakes no duty to update any forward-looking statement to conform the statement to actual results or changes in the Company's expectations.
In addition, we have included non-GAAP financial information in our discussion. Reconciliations to the most comparable GAAP financial measures are included in the earnings release and in the appendix of the presentation.
Any reference in our discussion today to EBITDA means adjusted EBITDA, which excludes non-run rate items for which we've also provided reconciliation from the appendix. At the conclusion of the Company's presentation we will open the call for questions.
I would like to turn the call over to Jack Hockema. Jack?
Jack Hockema
Thanks Melinda and welcome to everyone joining us on the call today. We are going to cover a lot of materials today.
I will start the discussion with comments on the fourth quarter and full year 2014 and then Dan will provide further remarks on the 2015 results after that I'll share our expectations for 2015 and then wrap up with the discussion around our perspective for the five year outlook. Looking first at our fourth quarter results, our value-added revenue and EBITDA were slightly below our expectations primarily as a consequence of lower shipments related to and an unanticipated level of destocking resulting from more aggressive than normal yearend customer inventory management actions and export shipment delays related to gridlock at the West Coast ports.
The situation at the port is due to an ongoing dispute between the port owners and the Longshoremen's union; we're currently rerouting shipments in order to deliver to our export customers. Although these factors hampered shipments at the end of the year, we continue to generate capacity and productivity gains facilitated by the implementation of the Phase 5 heat treat plate expansion and the new casting complex at Trentwood.
As a result, we achieved a record for both throughput and heat treat plate shipments in the fourth quarter. We expect further capacity gains at Trentwood in 2015 and beyond as we continue to realize benefits from these investments.
Turning to Slide 5, as we look back on the full year of 2014, our value added revenue was comparable to the prior year while our EBITDA margin declined approximately 1.6 percentage points. These results reflect primarily three storylines for the year.
First we established records in 2014 for heat treat plat shipments, automotive extrusion shipments and total shipments. These records were achieved despite demand being impeded by an inventory overhang in the supply chain for all our aerospace and high strength products.
Second, as we've been discussing throughout the year, lower heat treat plate prices caused a substantial drag on earnings. The lower prices were a function of competitive price pressure on the spot prices exacerbated by the aerospace plate inventory overhang and lower effective prices on contract business that in prior years reflect a certain payments related to lower volumes that didn't recur in 2014.
The net effect of the lower heat treat plate prices equated to a reduction in our year-over-year EBITDA margin of approximately 3.5 percentage points. And third we achieved record manufacturing efficiency that contributed approximately 1.5 percentage points EBITDA margin improvement year-over-year which along with the operating leverage from record shipments partially offset the impact of the lower heat treat plate prices.
Investments at Trentwood particularly the Phase 5 capacity expansion and the new casting complex along with investments made to expand our automotive extrusion platform were the key factors contributing to the record shipments as we continue to realize increased capacity and improved productivity. You may recall that we indicated that the investment at Trentwood's Phase 5 expansion would provide approximately a 5% to 10% increase in our heat treat plate capacity.
Combined with the implementation of our new casting complex in 2014 we beat that target achieving a 12% increase in capacity in the first year of implementation. And as mentioned we fully anticipate that our Trentwood facility will achieve further capacity gains in 2015 and beyond.
In addition to significantly advancing our operational platform in 2014, we remained committed to returning cash to shareholders through approximately $70 million of quarterly dividends and share repurchases during the year. Highlighting our continued confidence and the long term outlook for the business, our Board of Directors declared a 17% increase in our quarterly dividend in 2014 and recently increased the quarterly dividend an additional 14% in 2015.
Lastly reinforcing our strong and positive relationship with the United Steelworkers Union, we recently announced a new five-year collective bargaining agreement for our Trentwood and Newark facilities that continues until September 2020. As part of that agreement, the obligation for payments to the Union VEBA currently an annual contribution capped approximately $17 million per year expires in 2017.
I repeat that, the obligation for payments to the Union VEBA expires in September of 2017. I'll now turn the call over to Dan for further discussion of 2014 results.
Dan Rinkenberger
Thanks, Jack. For the full year of 2014 value added revenue was $733 million was comparable with the prior two years.
But looking behind the numbers tells the story different in 2012 and 2013. Our value added revenue in 2014 was the product of higher shipment volumes and lower average value added revenue per pound.
The year-over-year decline in value added revenue per pound was substantial amounting to $0.06 per pound impact which on our record total shipments of 589 million pounds equated to more than $35 million negative impact on our total value added revenue for the year. The vast majority of this decline was due to reduced heat treat plate pricing that we had commented on throughout the year.
They were largely able to offset the pricing impact on value added revenue through strong shipment growth and specifically because of record heat treat shipments and automotive extrusion shipments. Looking at value added revenue by end market, despite record shipment volume per heat treat plate substantial pricing declines per plate was primarily responsible for a $19 million year-over-year decline in value added revenue for aerospace and high strength and $4 million decline in value added revenue per general engineering applications.
The timing value added revenue for aerospace and high strength and general engineering was offset by strong step change growth in value added revenue for automotive extrusions which increased 37% in 2014 on 22% higher shipments, surpassing the prior value added revenue on shipment records that were set in 2013. 2014 also established the new level for our automotive content as our value added revenue dollars per North American vehicle bill increased to $5.35 from $4.09 in 2013.
Industry dynamics were strong as North American vehicle bills increased a healthy 5% in 2014, while multiple automotive applications inverted to lightweight high strength aluminum extrusions. The launch of a number of new automotive extrusion programs drove our step change growth in 2014.
And we look forward to further automotive growth in 2015, as we ramp up additional automotive extrusion programs including several applications reports high volume aluminum intensive F-150 truck. Turning to slide 8.
Adjusted EBITDA and EBITDA margin for the full year of 2014 were $162 million and 22.1% respectively, compared to $174 million and 23.7% in 2013. As Jack discussed earlier, the EBITDA and margin declines were primarily driven by lower pricing particularly for heat treat plate, but this obscured some very favorable trends and achievements in 2014.
First, as mentioned earlier, we had record shipment volumes for both heat treat plate and automotive extrusions. With growth in these two important product categories offsetting most of the plate pricing decline the overall sales impact on EBITDA was a decline of approximately $17 million compared to the prior year.
Growth in these two product categories also established a new and stronger commercial platform for further growth. Additionally, we achieved record manufacturing efficiency in our operations in 2014, as we offset inflation on all plans conversion costs other than energy and additionally delivered approximately $10 million of improvement to EBITDA compared to the prior year.
These improvements were driven by the capital investments that we've made across our platform as well as by focused efforts by our folks in our manufacturing operations to achieve sustainable new levels of efficiencies. And we expect to achieve further operational efficiency across our manufacturing platform in 2015 and beyond.
On Slide 9, we show other key consolidated financial metrics, commenting briefly on the fourth quarter, adjusted consolidated operating income declined approximately $4 million for the prior year quarter, as lower pricing; higher overhead costs and higher depreciation expense were partially offset by improved manufacturing efficiencies. Compared to the third quarter adjusted consolidated operating income declined approximately $3 million primarily reflecting the year-end shipping delays that Jack highlighted in his earlier comments and the related operating leverage impact of lower shipments.
For the full year of 2014, consolidated operating income as recorded was $138 million, adjusted for $7 million of non-run rate gains; consolidated operating income was $131 million, which compares to $146 million in the prior year. The $15 million decline in adjusted operating income reflects the $12 million change in EBITDA discussed in the prior slide as well as $3 million of higher depreciation expense.
Reported net income for the year was $72 million or earnings per diluted share of $3.86, adjusting for non-run rate items as well as a favorable fourth quarter adjustment to our tax reserves 2014 net income was $63 million or adjusted earnings per diluted share of $3.38. This compares to adjusted net income of $70 million or adjusted earnings per diluted share of $3.65 in 2013.
The year-over-year decline was primarily related to the decline in operating income. Our effective tax rate of 33% for 2014 was slightly below our estimated statutory rate of 37% primarily because during the fourth quarter we were able to recognize the benefit of a previously uncertain tax position.
At the end of 2014, our net operating loss carry forwards totalled $660 million and as we have applied these NOLs our cash tax rate remains in the low single digit percentages. Slide 10 shows the strong cash generation of our business.
Our adjusted EBITDA of $162 million funded virtually all of our cash outflows during the year. Our 2014 capital spending of $59 million included the completion of the major investment initiatives at Trentwood which enables capacity and efficiency improvements during the year as well as investments to support continued growth in automotive extrusion programs.
In the first quarter of last year, we paid a total of $16 million to the Union VEBA and Salaried VEBA based on 2013 results. And in the first quarter of this year, we will make another annual variable contribution totalling $14 million based on last year's stronger earnings and cash flow.
The Union VEBA accounts for 85% of our yearly VEBA contributions and as Jack mentioned earlier, our agreement with the Union VEBA to make variable contributions will expire in September 2017. During the year we've returned approximately $70 million in cash to our shareholders through quarterly dividends and share repurchases.
As Jack mentioned, demonstrating our continued confidence in the long term outlook of our business and our commitment to driving shareholder value, our Board recently increased our quarterly dividend by 14% to $0.40 per share. And during the last couple of weeks we continued share repurchases as of February 16th, we had approximately $63 remaining under our existing Board authorization for further share repurchases.
Our $175 million cash total convertible notes are due in April of this year. We intend to repay these notes using cash on hand and proceeds from the settlement of our option assets that hedged these convertible notes.
Kaiser's net cash outlay will be $179 million representing the faced amount of the note and the final semi-annual coupon payment. After repayment of the note, our balance sheet and financial flexibility will remain strong.
The strong cash flow generation from our business, we will continue to deploy cash in a balanced and prudent manner investing in an attractive project for long term value creation and returning excess cash to shareholders through our share repurchases and dividends. And now Jack will discuss our outlook for 2015 and beyond.
Jack?
Jack Hockema
Thanks, Dan. I will start with comments regarding 2015 and then provide some additional thoughts on our long term outlook.
Turning to Slide 11 and our 2015 outlook for aerospace and high strength applications, similar to recent quarters we are continuing to experience steady abatement of the supply chain inventory overhang that has dampened demand for all of our products serving these applications. We anticipate 2015 year-over-year value added revenue growth in the range of 6% to 8% for these applications driven by higher commercial airframe build rates as well as reduced drag from the supply chain inventory overhang.
In addition to increased shipments from these applications in 2015, we also anticipate an improved pricing environment as competitive pricing pressure on spot buys subsides. While we're unlikely to see significant price appreciation, we hope to get some price relief as we progress through the year Regarding automotive extrusions, in 2015 we anticipate approximately 15% growth in our value added revenue continuing the momentum from the step change growth in 2014 as one would expect from the significant growth in the applications we have a lot of activity to more effectively utilize our available world-class automotive extrusion capacity we will transudation production of extrusions for antilock brake systems from our London, Ontario plant to our Kalamazoo Michigan facility.
This action has dual benefits. It will free up capacity at London to continue to launch new programs on their existing press lines and the shift in production of the ABS extrusions will enable us to more effectively utilize the exceptional capability of our press lines at Kalamazoo.
While we'll create some short terms challenges flexing our costs as Kalamazoo ramps up and London ramps down, the strategic benefits are significant as we position the Company for long term growth opportunities for these automotive applications. Also during the first half of 2015, we will be ramping up production at our Bellwood, Virginia and Sherman, Texas facilities on several new automotive programs including parts for Ford's aluminum -intensive F-150 truck.
For those interested in the role of aluminum extrusions for body and wide our website has a link on the automotive markets page to the aluminum channel. There are several videos regarding the use of aluminum for vehicles and an interview with Dr.
Bruno Barthelemy of Ford provides some insight into the role of extrusions. We believe the F-150 is a great example of the automotive market shift towards using more aluminum parts in their vehicles and we expect similar moves in the future.
Turning to slide 12 and our outlook for general engineering and other industrial applications, although we experienced relatively weak demand in the fourth quarter exacerbated by supply chain destocking, current market conditions are consistent with our expectation for 3% to 4% year-over-year demand growth in 2015 for these general engineering applications. Our other non-core applications have experienced declining value added revenue over the years as we proactively shipped our capacity to more strategic application and we anticipate the 2015 value added revenue for these non-core applications will be similar to prior year.
Turning to Slide 13, into summary of our outlook for 2015, we're very optimistic as we look forward to strong demand growth and continued improvement in manufacturing cost efficiencies, we expect another record year for both shipments and manufacturing cost efficiency as we continue to capitalize on the investments in Trentwood's Phase 5 capacity expansion and new casting complex as well as our investments in our Kalamazoo, London, Bellwood and Sherman automotive extrusion facilities. In addition, we hope to get some relief on plate spot prices as the aerospace supply chain inventory overtime continues to obey.
And as a reminder and similar to prior year's our first quarter EBITDA will have additional cost from the usual approximately $3 million front loaded accruals for certain annual employee benefits. Additionally, we will have approximately $1 million signing bonus of payments in the first quarter related to the new labor agreement and we expect to incur approximately $1 million of additional freight rerouting cost related to the grid lock at the West Coast port.
We also during the year in 2015 expect normal seasonality with a typical stronger seasonal first-half of the year and seasonal weakness in the second half of the year. Turning to Slide 17 and some color on our long-term view.
The outlook for our aerospace and high strength serve market applications remains very bright. Plate is a very important product for the -- heat treat and these high strength applications and over the next five years we expect approximately 5% annual industry shipments demand growth for these plate products.
Demand is bifurcated between commercial aerospace applications which represent approximately 70% of the demand for our high strength plate and other slower growth industrial and aerospace applications comprising the remaining 30% of demand. We anticipate strong demand for our commercial aerospace plate applications will be driven by approximately 6% annual growth in aerospace plate builds supported by a record nine-year backlog of commercial aeroframe orders and supplemented by continued migration to increase plate by weight related to steady growth in the use of the monolithic design for aeroframes.
While plate is a key product for our high strength applications a significant portion of our sales for aerospace and high strength comes from products other than plate including sheet, extrusions, tube, rod, bar and wire products. For these products we expect demand growth of approximately 3% lower than net per high strength play.
Two key factors contribute to the lower growth rate, much of the demand for these products are for industrial and aerospace applications other than large commercial aeroframes and content for these products is declining in large commercial aeroframes due to the continue in conversions to monolithic design using plate in lieu of other product forms. At Kaiser we're exceptionally well positioned to continue growing at a pace equal to or greater than the expected industry demand growth due to our very strong market presence, our reputation for providing an exceptional customer experience and an extensive portfolio of products and solutions including Kaiser select to respond to specific customer needs and requirements.
Turning to our high strength manufacturing operations, we continue to gain additional heat treat plate capacity as we achieve further efficiency improvements related to the Phase 5 and new casting complex investments. In addition, investments for new plate capacity expansions at Trentwood are defined and are ready to be implemented as needed to keep pace with demand from our customers.
And as we experienced further growth for other aerospace products, we also have the capability to expand facilities to meet those customer needs. Turning to Slide 15 and the growth prospects for automotive extrusions, we are very optimistic.
Our served market focus for these automotive applications includes anti-lock braking systems, drive shafts, crash management systems and chassis and structural components. We expect demand for these served market applications to grow at an 8% compound annual growth rate over the next five years.
The primary growth driver is increasing content related to body and wide and other initiatives to light weight vehicles for fuel efficiency in order to meet stringent CAFÉ regulations. In addition to strong content growth of approximately 6% per year we expect approximately 2% annual growth in vehicle builds over the next five years to drive additional demand growth moment.
Within Kaiser similar to aerospace and high strength we expect to meet or exceed the industry demand growth rate due to our strong market presence reputation for exceptional performance, our automotive focused technical sales and engineering teams for premier automotive extrusion facilities in London, Kalamazoo, Bellwood, and Sherman and a platform suitable to meet growing demand with brown side expansion of our focused automotive extrusion facilities. In 2014 and continue to in 2015, we are upgrading three existing press lines to provide capacity to supply demanding automotive applications.
We also plan to bring two new press lines on stream in 2016 and 2017 to facilitate expected growth in our automotive extrusion applications. Beyond these initiatives we have plans for additional expansion of our automotive platform as required to meet anticipated demand growth through 2025.
Turning to Slide 16 and a summary of our five outlook, we are very optimistic about our prospects for further earnings growth driven primarily by continued sales growth and improving manufacturing efficiencies. Demand is strengthening for our general engineering and industrial applications and our aerospace and automotive served markets have strong secular growth trends expected to extend well beyond the next five years.
Overall we expect our served markets which include aerospace automotive and general engineering and industrial applications to grow at a compound growth rate of approximately 4% over the next five years and we expect our growth rate to equal or exceed that. Our production capacity and manufacturing efficiencies will continue to benefit from investments already made as well as from planned future investments.
We expect to invest approximately $55 million in 2015 in a range of 50 million to 75 million per year in capital expenditures over the next five years as we implement our long term vision. The emphasis of these investments will be on capacity expansions for automotive and for heat treat plate, continuous improvement initiative focused on manufacturing efficiencies and product quality and sustaining investments equal to approximately 70% of depreciation to maintain peak operating condition for our manufacturing platform.
In addition to our capital development priority to grow organically we will continue to evaluate complementary inorganic growth opportunities that would create additional value for our shareholders and we will continue to emphasize returning cash to shareholders via quarterly dividends and share repurchases. Turning to Slide 17 and in a summary today's commentary, we achieved record shipments and record manufacturing efficiency in 2014 although the positive impact was more than offset by lower prices for our heat treat plate products.
We are optimistic about 2015 as we expected strong and growing demand and increased production capacity will drive another year of record shipments. We also anticipate another record year of manufacturing efficiency as we continue to capitalize on our investments.
Lastly, we are very well positioned for continued long term growth and shareholder value creation, top line growth has facilitated by strong secular demand growth for automotive and aerospace applications and improving demand for our industrial applications. And we plan to capitalize on the growth opportunities with additional investments in production capacity, efficiency and quality.
Future is bright for Kaiser Aluminum our shareholders and our other stakeholders. We will now open the call for questions.
Operator
Thank you. [Operator Instructions] We'll take our first question from Edward Marshall with Sidoti & Company.
Edward Marshall
So in 2015, there's a lot of moving pieces. I guess there's value-added revenue pricing, efficiencies.
There's changing the facilities. And I guess you gave a lot of detail to value-added revenue per segment level.
And I was just curious if you could or if you are willing to take a stab, maybe directionally speaking, into the EBITDA or EBITDA margin and what you think that might look like for 2015 given all those variable pieces coming through?
Jack Hockema
What our thinking right now is that we're pretty confident given the market dynamics that we see that we're looking overall at around 6% to 8% value-added revenue growth and that's strong top line growth. We expect that we're going to see margin expansion with two key drivers one key driver is the operating leverage that we'll get from the higher sales and the other key driver is improved manufacturing efficiencies, as I said in my earlier comments in 2014 if you get under the covers, manufacturing efficiency added 1.5 points of margin expansion by itself in partially offsetting the significant reduction we had in heat treat plate prices, we're not ready to say that we'll get another 1.5% this year, but we expect we'll get some margin expansion from operating efficiency as well as the operating leverage.
Edward Marshall
Okay. And I would assume that's maybe back-half weighted given the kind of changes that are going to happen with the prices from Ontario in the first half of the year?
Is that a fair assumption?
Jack Hockema
Well, it will grow -- I mean the operating efficiencies we expect will build during the year as they did last year, I mean it may have been hidden in my comments, but I commented in the fourth quarter with weak seasonality, we actually had record heat treat plate shipments, again, we have record throughput at Trentwood and we had very strong efficiency throughout our operations. So, we've been steadily improving quarter-by-quarter throughout the year with some hiccups but underlying there has been steady improvement.
So to say that it should be better in the second half than the first-half, we'd say that's right, because we expect continuous improvement here.
Edward Marshall
I guess that's a good segue into my second question. You talk about record heat treat plate shipments.
And when I think, generally think, of destocking, I think that leads, generally speaking, leads to lower volumes as the inventory bleeds out, and price to that extent. But you've only really seen the impact on price, at least in the non-contract business on spot.
I guess a little bit on the contract business as well. Can you give some clarity on why volume hasn't dropped as well, what you would normally characterize as impact from destocking?
Jack Hockema
Yes, two parts to that and I look at the year as a whole first in the year as a whole with the increased capacity that we had, we did achieve higher general engineering plate shipment. So remember, heat treat plate has two parts to it; one part is aerospace and high strength, the other part is general engineering plate, so some of the plate shipments record was higher shipments of general engineering plate during the year.
And in the fourth quarter and this over the past two or three years actually has happened where we've had relatively strong demand from some of our OEM customers in the fourth quarter for heat treat plate that has supported shipments in the fourth quarter of aerospace type plate. And the destocking, some of that applied to general engineering plate, but it also had a big impact on our long products, our extrusions and tube type products and that destocking we actually saw in some of our long products, we saw restocking in the supply chain in October and then destocking in November and then December was just -- was horrendous in terms of destocking, really, really strong destocking.
Edward Marshall
But you had volumes and shipments are up that's kind of we're on….
Jack Hockema
Only heat treat plate.
Edward Marshall
And then if I look at just -- last question, if I look at your general engineering there was a favorable quarter with volume down and sequentially but your pounds up pretty significantly and I am assuming that something to do with mix, could you describe maybe what happened there?
Jack Hockema
On general engineering, you're saying the fourth quarter, I don't have the numbers in front of me but the fourth quarter of higher than the third quarter, I don't think so, maybe year-over-year.
Edward Marshall
No, volumes down but pricing up. I was curious as to what's driving this price per pound, value-added price per pound.
Jack Hockema
That's primarily mix related.
Edward Marshall
Is that plate?
Jack Hockema
Yes, that would be a function of plate as bigger percentage of the mix in the fourth quarter than long product; so long products really got hammered in the fourth quarter with seasonality.
Operator
And we'll take our next question from Tony Rizzuto with Cowen & Co.
Tony Rizzuto
Melinda, how are you guys? I guess the first question is just to make sure I'm understanding correctly.
I want to make sure about the guidance that you provided. So if we think about the last couple of years, the value-added revenue overall has been kind of stagnant.
It's kind of flattened, understanding your overall volumes were up but pricing was down. I want to make sure I heard correctly.
Did you kind of indicate, Jack, that the pricing overall for your value-added revenue on a per-pound basis has an opportunity to maybe move closer to where levels possibly were in 2013? So a little bit of improvement in 2015 along with the volume increases?
Jack Hockema
No Tony that's not where I was going and the value added revenue in total is as you know is has a lot of the mix in there to. But in terms of pricing from an overall standpoint, we think that the pressure certainly is off.
We actually think market conditions support improved pricing right now and we're hoping for some improved pricing but we're not counting on improved pricing in our outlook for the year. Obviously we're not the player in the game here but we think certainly the dynamics are there to start to see some benefits in the spot prices on our heat treat plate products in particular.
Tony Rizzuto
Okay. So from the standpoint of the way you guys are looking at it from an internal standpoint, your kind of building in flattish kind of prices overall.
Jack Hockema
Yes.
Tony Rizzuto
All right. And then a question about -- there's a lot of exciting things going on here.
You've got a lot of moving parts, as Ed mentioned. You indicated 15% increase in the VR growth in automotive, and that would seem -- and you've made a lot of positive comments about the platform wins and how that's moving forward.
That would seem to equate to about $15 million, if I did my math correctly, with the kind of volume growth that you had in there, would seem to equate to about $15 million year-over-year, which would be below the prior year, the incremental volume growth. And I'm wondering.
That sounds conservative relative to the comments you made, the qualitative comments you made, about all your wins and how that's going to phase in over the year and new extrusion programs, et cetera.
Jack Hockema
Yes, we're saying that demand growth is about an 8% compound growth rate and last year I think our value-added revenue was up almost 40%. So we're not expecting a 40% per year growth in our automotive.
It was a step change last year. Shipments I think were in the 20s in terms of growth last year, so we did have some mix and some price in our value-added revenue growth last year.
I mean 15% is a pretty strong number and remember unlike our friends who are supplying sheet we're starting with a business that has been growing at a 7% or 8% compound growth rate for decade. And they're starting with a denominator close to zero in their growth.
Tony Rizzuto
Okay. Jack, I wanted to follow up.
Also you made the comment, you talked about in the release you made the comment in your comments about the shift from some of the programs in Ontario to free up more initiatives there in terms of new products and moving it over to Kalamazoo to more fully load that plant. It sounds exciting to me.
I'm also just trying to get a better handle on your overall margin as we should think about it. Obviously, pricing is not, at least the way you are kind of building into your forecast right now, not going to be a heck of a whole lot of help, but your efficiencies, the volume growth.
So how should we be thinking about -- should we think about kind of 2012, 2013 as a more normal year, if you will when we think about 2015 for the year as a whole given that you've got some plants ramping up and some, maybe some -- a little bit of dislocation there as well?
Jack Hockema
No, I think you have to start with 2013 as baseline and the reason for starting with 2014 is a baseline is remember there are key factors there. We have records shipments overall even though there was some headwinds.
We still have records shipments in 2014 so it was a pretty solid year in terms of volume and pretty solid year frankly in all terms except for the one which was the heat treat plate pricing. And you had heat treat plate pricing a lot of that was contract pricing which had a lot to do with some wins that are back seen in prior years from volumes penalties in those things, but the 2014 contract pricing is what we're going to have for quite some time and we're not expecting major moves in spot pricing, we're hoping for some relief in spot pricing.
So I look at it and we look at it that we had strong volume last year and we're not expecting a big change year-over-year in volumes so that kind of become the baseline and then the margin growth from that baseline comes from two major components hopefully there was going to be a little bit of pricing there, but when you're modelling, I wouldn't put a lot in there, you might put a little in there but not a lot for sure we certainly don't. And -- but the other two components is operating leverage clearly has an impact and I am sure you all have your models for what kind of leverage we get from operating leverage, but then the other piece in 2014 and we had some hiccups that everyone remembers in 2014 and we were ramping up DC, our new casting complex which we called DC zero internally and phase 5 at Trentwood even with that, we picked up year-over-year what amounted to 1.5 points of margin improvement from our manufacturing efficiency.
And we expect to see continued gains in manufacturing efficiency not necessarily to the 1.5% range but we expect to see margin expansion from that as well.
Operator
And we will take our next question Timna Tanners from Bank of America Merrill Lynch.
Timna Tanners
Hey, good afternoon or good morning to you guys. So, I just wanted to ask, just to follow on these same lines how do we know that this pricing pressure on heat treat plate is a function of destocking and not something more onerous-like or something ominous like the new supply coming on the market or some structural shift in the demand environment?
Jack Hockema
How do you know that?
Timna Tanners
Yes, I mean there has been some new capacity being added, right, when China and some other -- how do we know that you have been able to hold onto margins and this niche product that will return to historical margin levels?
Jack Hockema
Well I did not say the return to historical margin levels, I just commented to both and the answer to both Ed and Tony that we're basically expecting that 2014 is the norm that we work from, that's the baseline and we hope for some margin improvement. So all of my comments have been that we see pressure is off, so we don't expect further deterioration we certainly think market conditions and total market dynamics which include the supply side and the demand side, the combination of those two support improve pricing on the spot prices, but we hope so, we hope for it and we'll look for it, but we're not counting on it.
Timna Tanners
I'm going to switch gears here if I could. So you are paying down some debt, but I thought that your 225 million maturity in 2020 was -- I thought you could call it earlier, and I thought that was coming up.
Can you remind us what you are thinking of doing with that debt, and then talk about general uses of cash given your under leverage that we've talked about in the past?
Dan Rinkenberger
Sure, the senior notes the $225 million tranche is first callable in 2016 and I believe it's June purpose and I think the premium on that will be around 4% or so if we were to call in the first call date, which we may depending on the interest rate environment looks like as we get close to that bid. And so the fact that we're paying off the convertible notes does not take away the fact that we think we have very good access to capital markets and if we had needs and reasons to be going to the markets, we certainly expect that we'd be able to do so.
The cash usage remains the same as it always has been, Jack mentioned it, I think I mentioned it first growth for organic growth and potentially if there is an accretive and a good acquisition opportunity also for acquisition growth, the fact that we're actually paying off the convertible notes is one where we said we always anticipate and look for on a liquidity with the ability to pay off convertible or any debt that's coming up due before or unless we're planning on refinancing in this case we're not planning the refinancing and we're always looking for what our liquidity structure is going to look like even in a downturn. And so that's why we look like we got a stronger liquidity profile than any other companies might feel comfortable living with, we're one that always is conservative in that regard.
And then finally, we expect to have full other cash generation over the next several years, we expect that we'll continue share repurchases and dividend improvements.
Operator
And we'll take our next question from Josh Sullivan with Sterne, Agee.
Josh Sullivan
Good morning Jack, Dan, Melinda. Just with the expiration of VEBA in 2017, is the corresponding balance sheet obligation is going to be reversed as well, or how does that work?
Jack Hockema
We hope so and we think that it should happen that way, we have to really work through the whole accounting impact of not having the VEBA obligation, all the facts we think that support that would become up our balance sheet, we just have to talk to that with our auditors and probably with the SEC.
Josh Sullivan
And then just when you think about your long-term goals to eventually get back to the high 20% margin, so if that is still a long-term goal, just given the pricing environment in the heat treat market, how much of that target going forward is going to be driven by the automotive side?
Jack Hockema
Well the automotive is with 8% compound growth rate in demand and we think we'll do at least that well and then the aerospace and high strength plate which has a 5% growth rate, so obviously automotive is going to contribute little bit more than for its portion of the segment. So it's a portion of that growth but it's the overall growth that's really the 4% compound growth rate and demand which we expect to receive next year, but longer-term we're looking at 4% plus in terms of value added revenue growth in all and automotive is very important component to that.
Operator
At this time we have one question remaining in the queue. [Operator Instructions].
We'll take our next question from Phil Gibbs with KeyBanc Capital Markets.
Phil Gibbs
Hey. Thanks for taking my question.
Fourth quarter, 176 a pound in aerospace and high-strength, Jack, did you comment on why that declined a nickel from even the mid-2014 array was that all mix related?
Jack Hockema
Absolutely, yes it was back to my earlier comments we had really strong plate shipments in the fourth quarter and long products got hammered by destocking and in the aerospace and high strength sector unlike general engineering, aerospace and high strength plate is the lowest priced product and all of the long products are much higher priced than plate, conversely in general engineering, plate is the higher priced product and the long products are lower priced.
Phil Gibbs
So you had decent mix in general and engineering then because I saw your pricing went up there too. Did you get a little bit of relief on timing of any metal movements there?
I know you're neutral over the course of the year, but from a timing standpoint, did that benefit you in the quarter?
Jack Hockema
Yes, we got a little bit in the fourth quarter as the metal prices came down some and that's just the fact that the plates spot prices are high and don't move in precise concert with the market, so we've gotten squeezed a little bit in the third quarter and we got a little bit relief in the fourth quarter if you look at it sequentially.
Phil Gibbs
Reasonable, though, to look at pricing for 2015 as sort of an average then --
Jack Hockema
Yes.
Phil Gibbs
Of what you've realized there?
Jack Hockema
Yes.
Phil Gibbs
Okay. And then on the side of aerospace within that growth for this year, I just wanted to confirm that most of that 6% to 8% was volume related it wasn't pricing related.
I think you sound like you're holding out a little bit of hope that pricing could get better but a lot of that is within your core volume visibility at this point.
Jack Hockema
Yes that's precisely the case.
Phil Gibbs
Okay. And just one more if I could, just for clarification.
I know you said you had 150 BPS of efficiency improvement from last year, but I know you also had issues in 1Q from higher energy costs. In 3Q, I think you also had some issues from scrap page and yields.
So how do we segregate those items? Were those impactful to you guys last year that we should not be thinking will impact you this year?
Jack Hockema
Yes, first one when we measured manufacturing cost efficiency, we exclude energy price which is we call that internally a non-controllable net bounces all over the place although we count energy usage, so if you go back to the first quarter we had a couple of million dollars I think of what we call weather related and part of that was energy prices per se and part of it was usage because of the cold weather and then I think we had some production impact as well. But most of that would have things that we wouldn't count in our manufacturing efficiency measurement.
However the third quarter issues that we had were essentially all manufacturing efficiency type issues. In terms of how you model it there are lots of pluses and minuses that happen over a year 1.5% margin attributable to manufacturing efficiency is a pretty darn good year.
So I wouldn't be modelling. I wouldn't necessary use that as pattern or say that's going to happen every year.
We again like pricing, we'd hope to get those kind of levels and we expect to see margin mix expansion but not necessarily a 1.5 every year.
Phil Gibbs
Okay, but that 150 did include the 3Q issues as well, the scrappage issues?
Jack Hockema
Yes. And in the first quarter, we didn't have our new casting complex online and we were just getting going with the phase 5 expansion.
So we did -- the first quarter I'm looking at the gurus here, but the first quarter was actually our worst quarter of the year in terms of manufacturing efficiency. So it improved fairly steadily as the year went on.
Phil Gibbs
So the energy -- the potential energy cost savings associated with running that new caster are not included in the efficiency savings outright. Those energy savings could be separate from that because I know probably --
Jack Hockema
I will be -- the usage goes into the efficiency. So we use a flat -- we use a flat rate for energy consumption to calculate our efficiency and use a price variance as a separate item,
Operator
We will take a follow-up question from Tony Rizzuto with Cowen & Co.
Tony Rizzuto
Thanks for taking my follow-up, just a house cleaning item here. I don't know -- I didn't hear it, but maybe you can just talk and quantify the year-end shipping delays associated with the port situation?
Jack Hockema
Yes.
Tony Rizzuto
Maybe from your volume standpoint or bottom-line impact?
Jack Hockema
I don't have that number. I don't even think we've done that number.
The primary issue was the aggressive customer destocking. The port issue was less of an issue in the fourth quarter from a shipments standpoint although it did contribute to as falling below expectation.
We would have had more aerospace shipments than we had but the biggest issue in our shortfall from expectation was the aggressive customer destocking.
Operator
It appears there are no further questions in the queue. At this time, I would like to turn the conference over to Mr.
Jack Hockema for any additional or closing remarks.
Jack Hockema
Thanks everyone for joining us on the call. Lot of good questions here, we covered a lot of territory.
We look forward to updating you again on our first quarter call in April. Thank you.