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Linamar Corp
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Good day, and thank you for standing by. Welcome to the Linamar Q4 2021 Earnings Call. [Operator Instructions] I would now like to hand the conference over to Linamar's Executive Chair and Chief Executive Officer, Linda Hasenfratz.
Thanks very much. Good afternoon, everyone, and welcome to our fourth quarter conference call. Joining me this afternoon are members of my executive team, Jim Jarrell; Chris Merchant, who is stepping in for our CFO, Dale Schneider this quarter; Roger Fulton; Mark Stoddart, as well as members of our Corporate IR, Marketing, Finance and Legal teams.
Before I begin, I will draw your attention to the disclaimer that is currently being broadcast. So I will pretend it's been an easy start to the year for us here at Linamar. [indiscernible] the business challenges we're all facing, we of course had to deal with the loss of our founder, Ferenc Hasenfratz. My father was a mentor, a teacher, a friend to so many of us here at Linamar and many outside our company as well.
I can only be confident in the fact that he spent so much time of teaching us how save money, the importance of taking a new job, how to treat our people, our customers, the importance of technology and innovation and try to fix that, that these lessons are very firmly embedded within each of us. He's reiterated these things over and over to every one of us at Linamar is why he was successful, is why we are successful, and it's how we will continue to be successful. Now I know that for anything we have to pay for by the word or by the minute, he would want me to be very brief. So I will leave it at that for the moment.
I'll start off then with a review of sales, earnings and content. Sales for the quarter were $1.53 billion, down from last year on [indiscernible] vehicle markets and continued supply chain constraints. Our industrial segment had a tough quarter, thanks to the supply chain constraints impacting MacDon's ability to ship products. [indiscernible] was actually up over prior year, but not enough to offset MacDon declines and a less-than-favorable exchange rate. The auto sector also had a tough quarter, thanks to supply chain issues, notably the shortage in semiconductor chips, which has triggered continued shutdowns for our customers. European light vehicle markets were down 24% and North America down 14% in the quarter. Exchange rate changes versus last year have also not been in our favor, impacting our top line in the mobility group.
Launches helped temper our decline to just 11% over prior year even after considering the last favorable exchange rate. Normalized net earnings are down, thanks to significantly higher cost in material, energy, freight and labor, declining sales in both segments, lower government subsidy levels, and as noted, a less favorable exchange rate than last year.
We saw double-digit growth in our core North American and European regions on [indiscernible] vehicle, which is great to see. Launches are a big part of that [indiscernible] we have high content on being selectively prioritized for built by our customers. We finished 2021 with a record level of annual content per vehicle in each region, which is also great see. Commercial and industrial sales were down 6.5% in the quarter due to supply chain constraints noted at MacDon, offsetting growth at Skyjack.
Skyjack is seeing excellent market share gains in all 3 core products in North America and market share growth in booms growth, which coupled with the market [indiscernible] double digits is translating to some solid sales growth. MacDon is seeing strong market share growth as well, but supply chain constraints are impacting their ability to sell into that robust market. The good thing there is they should be able to recoup those sales in subsequent quarters as supply chain issues ease.
CapEx was down from 2020, but up from the first 3 quarters of the year, both in dollars and as a percent of sales as we start to anticipate more launches and volume growth. 2022 will also be up from 2021 and back into our normal range as a percent of sales. We have continued our track record of generating free cash flow with $145 million generated this quarter despite higher CapEx for a full year of $673 million in free cash flow. This marks our 15th consecutive quarter of positive free cash flow, which I think is excellent. We expect to see continued positive free cash flow for 2022.
We have $1.9 billion of liquidity available to us, which is also outstanding. Our strong balance sheet and liquidity means we have the ability to take on takeover work or acquisitions as they arise in an opportunistic market and drive even more growth. The solid cash flows allowed us to further reduce net debt levels. We are still in a net positive cash position, now $137 million, meaning we have brought net debt down by more than $2.3 billion since our peak in early 2018. We have an active NCIB program and anticipate being active in the program just as soon as our blackout ends, given weakness that we've seen in our share price since the start of the year.
We thought it would be a good idea to talk a little more in-depth around some of the headwinds that we're facing at the moment around supply chain issues, energy costs, logistics costs and labor shortages. [indiscernible] top of mind is the aggression we're seeing in Eastern Europe with Russia's unprovoked attack on Ukraine. We have watched events unfold with deep sorrow, concern and apprehension for the Ukrainian people [indiscernible] in support of the Ukrainian freedom fighters. First and foremost, this is a humanitarian crisis of significant proportions. Our global team is working to support the freedom fighters and the refugees as best we can. We are offering accommodation, jobs and money in one in one country we operate in globally to the people of Ukraine.
Fundraising efforts within our company have been very successful already and we are matching anything raised at the corporate level. We are also actively rolling out fundraising efforts in additional countries as we speak. We have seen the first of refugee families arrive in Hungary to take up accommodations that we are offering there. And we are working with various governments to fast-track refugees into our countries and into job opportunity.
Turning to the business impact. Top of mind is supply chain impacts to ourselves and our customers for products being supplied from Ukraine or Russia. Resourcing activities are well underway and supply chain mapping to identify risks continue. This will take some time, but many of these issues will be solved in the next 1 to 3 months in our estimation. Some products will take longer to resource and will impact volume for longer of course. But we feel the supply chain impact will be largely a Q1 and Q2 issue.
There are logistics challenges in terms of European companies bringing products from China to Europe by rail across Russia. Alternative routes are being established that will solve this issue again in the next 1 to 3 months in our estimation. Of course, Linamar's bigger business impact is the impact on energy costs, already sky high on business operations. We were already feeling the impact of gas prices up 5x late last year. This will create added pressure until such time as additional supply can be brought on board. This will take some months, possibly a year to get. The impact will continue for at least that time frame but will resolve as well.
Sales to Russia will of course be impacted given sanctions. The only business really affected by that will be our agricultural business whose level of sales to Russia was not significant. Finally, the impact on consumer segment is unclear as it will be determined in part by the length of time the conflict continues and the result in human and economic impact of that. We're keeping a close eye on the demand side of this equation.
In short, we believe many of the business impacts of the war are largely solvable in the near term, and our customers and ourselves are actively enacting plans to resource and reroute as quickly as possible. Here's a great example of that resourcing. We had a bearing that one of our plants in Germany was purchasing from a supplier in Ukraine. The team rapidly mobilized to find alternate supply and fast-tracked approval for that with our customer, all within 10 days. The result is our customer line will not be shut down to lack of the product that we assemble this bearing into.
Turning to an update on other areas of disruption. We're seeing improvements in several areas, for instance, chip shortage shutdowns are becoming less frequent. Shipping costs are starting to moderate and some commodity prices are also starting to moderate and even decline. Although I will note, others are continuing to climb. Labor availability continues to be a challenge, primarily in North America.
You can see here the impact of semiconductor chip shortages. Total impact to 2021 ended up being 9.6 million units of production with the biggest impact to planned production felt in the third quarter of last year. Since then impact of planned production has declined but has not been eliminated. You can see a forecast for Q1, for instance, of 830,000 unit lost, down from the 2 million lost in Q4, but still significant. This situation will not resolve until additional capacity for chips get put in place. This starts to happen in the back half of this year and more meaningfully early next year.
In terms of the impact of light vehicle by region, you can see the impact regionally is relatively balanced between Europe and North America, with Asia taking the biggest hit. This makes sense, given Asia is by far the largest market. In terms of OEMs, Ford and GM took the biggest hit as a percent of planned production in 2021 at around 22% or 23%, followed by Volkswagen and Stellantis who saw 15% of production loss. And finally, the Asian producers at 10% to 12% of planned production loss.
Commodity prices are taking divergent tracks depending on the commodity that you're looking at. Steel products transcends on leveling off and even declining, but aluminum and oil just keep climbing in part due to the war in the Ukraine. Of course, on the mobility side, the majority of contracts do allow for [indiscernible] on metal price changes based on a predetermined metal market index. Although I will note that there is a lag effect, and there is not a 100% coverage. Normally, this is not much of an [indiscernible], but of course even a very small exposure on an increasingly big number [indiscernible] become more meaningful in terms of dollars.
On the industrial side, there is no mechanism for making adjustments for commodity cost movements, meaning these changes are more challenging. We have approached [indiscernible] as of January 1 of this year to try to mitigate some level of these commodity cost increases. We are also seeing a lag in the ability of suppliers to meet demands, notably on the industrial side, which impacts not just cost, but our ability to meet production needs for a rebound in market.
It is also very disruptive on the productivity side, which is part of what is trading labor cost up. These challenges are continuing at both Skyjack and MacDon, but I will say are more pronounced on the MacDon side. It is their estimation that shortfall to shipments being felt in the fourth quarter last year and that they expect to see in the first quarter of this year will be caught up in subsequent quarters. But of course this is very [indiscernible] dependent.
Ocean freight costs are still to be challenged, but we're seeing costs leveling off in Europe and approximately trending down in Asia, although we did see a jump back up earlier in the year this year. We continue to believe that these costs will continue to normalize as we get [indiscernible] year, although it is possible that some of the logistics constraints mentioned regarding shipping across Russian may put some added pressure on ocean freight [indiscernible].
I mentioned gas prices earlier in the context of the war in Ukraine, natural gas prices in Europe are now up nearly tenfold over last year. So they were up 5x when we last talked in November, they're now 10x where they were a year ago at this point. And we are certainly feeling the impact of that in our European plants. I do expect energy costs to be an ongoing issue. We were already seeing pressure on energy prices given reduced supply, thanks to declines in investment in fossil fuel energy and an insufficient offsetting increase in investments in alternative energy and coupled with then increased demand. So with additional supply constraint now, thanks to [indiscernible], we are feeling more and more pressure on energy costs.
On the positive side, energy costs for us are typically only 1% to 2% of sales in most of our facilities, higher of course at our foundry. So not a [indiscernible] in our cost structure, but even something small can have a big impact if the change is substantial, which is exactly what we're seeing. We're at the same time actively engaging our plans in energy conservation and off-grid energy products to reduce projects or to reduce our dependent [indiscernible].
Finally, we are seeing a real shortage in availability belabor at the moment. The issue is twofold [indiscernible] lack of availability of people largely, and kind of a normal turnover broadly, although we have seen that level off in our own facilities in recent months. I'll note as well this is a North American issue, not a global one, and definitely worse in the U.S. than in Canada. This put pressure on cost of course, both in terms of wage inflation, but also in terms of higher recruiting and retraining costs. Unfortunately, wage inflation is not something that will be considered [indiscernible] but we are hopeful as more people come back to the labor market, now that subsidies are wrapped up and a more normal cadence is resuming, the schools [indiscernible] that these costs [indiscernible].
So to summarize on the challenges side, war-related supply challenges should be largely solved in the next few months. Higher labor and energy costs likely here to stay. Shipping costs and some commodities are already tapering back, but others, notably aluminum, still rising, and better supply of semiconductor chips expected in the back half of the year and early next year.
I'll turn now to market outlook. Market demand is strong pretty much across the board at the moment, which is great news. Unfortunately, supply chain issues are constraining industry's ability to deliver that demand, notably on the industrial side. But with strong underlying demand, we will be looking at a sustained period of [indiscernible] performance for some time after these issues that resolved. I'll start off by saying there is, of course, potential [indiscernible] consumer demand or production disruptions related to the war in Ukraine or the aftereffects of the COVID-19 global pandemic and resultant supply chain constraints.
We can provide the latest forecast from the various industry experts around market levels, but you should receive them with the knowledge that these forecasts can and are changing. Turning to the specific figures. Industry experts are currently predicting growing light vehicle volumes globally this year to 15.2 million, 18.7 million and 45.1 million vehicles in North America, Europe and Asia respectively. This represents double-digit growth in North America and Europe and single-digit growth in Asia. Semiconductor ship supply and other market pressures continue to create volatility in customer schedule for the predicted volumes of growth. Industry experts are predicting [indiscernible] in North America this year with more moderate growth in Europe and a decline in Asia. Industry experts are predicting double-digit growth in the access market globally this year in all 3 regions of North America, Europe and Asia. Our backlog at Skyjack is up meaningfully from prior year at 7x what we were last year, thanks to robust market demand. Delivery of orders is being impacted by supply chain challenges. However, as we work through these issues, we feel confident we can grow Skyjack at double digits this year based on this exceptionally strong backlog and the strong market conditions.
Lastly, the agricultural industry is predicting solid growth in the [indiscernible] market this year in double digits in North America. Europe and rest of the world will also grow at a more moderate 5%. We're also seeing solid pickup in the windrower market this year again with 5% growth in North America and by 20% growth in Europe. The order book is up over last year with farmers feeling more confident with persistently strong commodity prices. Easing demand is also a challenge for MacDon regarding supply chain and logistics and appears to be the limiting factor [indiscernible] demand.
That said, our current forecast is for double-digit growth this year for MacDon on the back of solid market growth, continued market share growth and a strong backlog.
Looking at this in a little more detail, on the auto part, we can see inventory levels in North America have continued their trend downward with average base inventory of only 24 days overall. What this means is regardless of consumer demand, we're in for a sustained period of strong production levels just to replenish inventory once supply chain issues are resolved. The industry is predicting at least 2 years just to refill the pipeline regardless of demand. And looking at production levels compared to what was forecast at our last conference call, you can see a strong Q4 driving EMEA and Asia. Q1 '22 was forecasted below [indiscernible] than we expected last quarter, but you should expect that to come down due to short-term production declines in Europe, thanks to supply issues out of Ukraine and Russia. For the full year 2022 is also expected to be better-than-forecast in October, as discussed on our last call and up 9% from 2021. All the pickup is coming from Asia. This forecast would not consider any loss production due to the Ukrainian war, which would primarily impact Q1 and Q2, hopefully, with a lot steady pickup in the back half. Again, the situation here is pretty fluid and difficult to predict.
Looking at the Access market in more detail, you can see first that all 3 markets showed exceptional growth over prior year in the fourth quarter as well as for the full year of 2021 with double or triple-digit increases across the board. Equipment utilization levels continue to look positive on average within 3.5 percentage points at the utilization levels that we saw in 2019 and 1.5 percentage points higher than the utilization levels we saw in 2020. Market growth and the strong backlog already noted should give -- should drive double-digit sales growth for Skyjack this year.
In the agricultural business, Q4 combined retails in North America were up 34% from prior year for a full year up 24%. EU was up 17% in 2021 and the rest of the world was up 25%. All markets are projected to grow an in 2022. MacDon continued to build market share globally in our windrower products over the last 12 months. We're seeing solid growth in our windrower business globally in part due to profit to growth developing as the market shifts to windrower from string cutting in reaction to regulatory changes, notably in Europe. Markets are up substantially and market share growth indicating validating our own sales growth.
We also saw market share growth in 2021 for draper headers in pockets of Europe where we have been targeting growth. Market share growth has been hampered by our inability to build products due to supply chain issues, which is frustrating. Order intake remains strong, supporting double-digit sales growth for MacDon this year as well.
Turning to an update on growth and outlook. You will be pleased to know that we had an excellent quarter in new business wins, the second highest in dollars of wins in our history, in fact, taking '21 to a record year. I will highlight a couple of our more strategic wins in a moment. Electrified vehicles continue to provide great opportunities for it. Almost 20% of business wins last year were for electrified vehicles, which likewise makes us a substantial share of the bulk of business currently being pursued. The dollar value of annualized sales won last year was 50% higher than the dollar value of sales won in 2020, which is actual progress.
You can see here the steady build in our global content per vehicle for battery electric vehicles as a result of these wins. We have also been building our business wins in other areas of the vehicle and [indiscernible] propulsion type to again offer less risk and more growth opportunities in the transition to electrified vehicles. We now have more than 41% of booked business by 2026 in parts and systems not related to ICE vehicle powertrains. We will continue to build this book of business for the future.
Our eLIN Product Solutions Group launch was very well received in the marketplace and is a big part of driving those business wins to the future. eLIN is focused on developing electrified products in 4 key areas: power generation, energy storage, propulsion systems and structural and [indiscernible] systems for all of Linamar's businesses globally as well as developing strategy and of course winning new business.
[indiscernible] supporting all of our existing groups of plants, and we utilize and leverage resources in our existing R&D organization slowly. Our addressable market across a range of vehicle propulsion has continues to look excellent with the total addressable market for us today around $80 billion, growing to more than $300 billion in the future, an increase of 3x. As you can see our addressable market potential for electrified vehicles is really growing, particularly as we get out [indiscernible] late '20, which is exciting. Our potential content for battery electric, hydroelectric and fuel cell electric vehicles is equivalent to our content potential for internal combustion engine vehicles at roughly $3,200 per vehicle with an intent of course to continue to grow content potential for the electrified vehicles.
With respect to launches, we're seeing ramping volumes on launching transmission, engine, driveline and body platforms, which are predicted to reach 45% to 55% of material levels this year, generating incremental sales of $600 million to $700 million. These programs will peak at nearly $4.1 billion in sales. We saw a shift of more than $165 million of programs moving from launch to production last quarter, more than offset by very strong business wins in the quarter. As usual, we're summarizing all of these expectations on our outlook slide, which is now being displayed.
Despite the challenges we're facing, we are still expecting to see double-digit growth on the top line and in earnings per share in 2022. This drives from double-digit growth at both Skyjack and MacDon this year, coupled with launches in the growing market on the mobility side. Net margins will stay fairly stable to what we saw in 2021, close to being back into a normal range. Material, energy, freight and labor costs are still weighing on results, although improving in some areas are worsening and others. We will also see continued positive free cash flow this year, leaving us in an excellent position from which to drive further growth.
Looking specifically at Q1, you should expect chip and war-related constraints to negatively impact vehicle build levels in Q1, which will be lower than Q1 2021. This will weigh on sales in the mobility segment, which you should expect to be down meaningfully from Q1 last year, but up somewhat from seasonal lows and higher levels of [indiscernible] Q4. Higher costs will weigh heavily on margins in the first quarter, as you may expect. You should expect margins well below our normal range in Q1 and then improving in subsequent quarters.
Ag and Access will see sales up from seasonal lows in Q4 and flat to up over prior year on more robust demands that continued constrained from supply chain challenges. Lack of supplied will weigh on sales, and costs will weigh and will heavily weigh on margins, which will be well below our normal range as well, improving in subsequent quarters. That means you should expect a decline in OE for Q1 in comparison to Q1 last year based on those 3 key factors, really continued significant energy [indiscernible] logistics and labor challenges, the sales decline and no subsidies. Expect below-normal net earnings margins in Q1 improving in subsequent quarters. And Roger would like me to again remind you that the situation is very dynamic and the impact is not fully determinable in terms of their impact at this point.
I'll highlight a few of our more interesting new business wins this quarter. First, we won a major driveline system product for our European OEM in the quarter, which will be produced in one of our German facilities. Volume is substantial at nearly 1 million units per year at peak volume, generating significant revenues. Second, we saw another meaningful quarter of wins for [indiscernible] electric vehicles, a combination of shafts, gears and differential assemblies, which in aggregate are nearly $40 million in annual sales. Third, we saw some significant gearing for a next-generation hybrid transmission program which again quite meaningful volumes of 600,000 a year. We will start production in 2024 in our plant in [indiscernible].
Next, we had an exciting quarter in wins for commercial vehicle programs and more variety of components where $130 million a year in sales in aggregate. We've seen a real pickup in business opportunities on the commercial vehicle side after quite a few years. Finally, we saw a few more wins or balance shaft program in the quarter, excluding one for an Asian-based OEM customer new to Linamar [indiscernible] key components for smaller engines and key to more fuel-efficient and hybrid vehicles importantly and have been a key target for us in terms of wins given the reliance of strong capabilities in gear and shaft manufacturing, which is right up our alley. Aggregate value of the wins are over $80 million at year-end sales.
Turning to an innovation review. I'd like to highlight some of the work we've been doing in our lightweight aluminum casting process development. As I just noted, in the quarter we secured new business wins for components used in battery electric vehicles, including some cast aluminum structural and chassis components. Our technical teams within our light-metal groups have been successful in expanding our engineering, our process development capabilities to pursue [indiscernible] products in the market. Low pressure and gravity die cast assets that were used in the past [indiscernible] components are being adapted to produce these lightweight vehicles structural components like cradles [indiscernible] consistent with our eLIN Product Solutions. This along with our high-pressure die cast strategy is increasing our portfolio offering and content potential for all vehicles, but particularly for electric vehicles where lightweight cast aluminum structural solutions are particularly important to offset the enormous weight of the [indiscernible]. Finally, we continue to execute on our global digitization journey with more and more connected machines, data connections and rollouts being commissioned in our global plant every day.
With that, I'm going to turn it over to our Global VP of Finance, Chris Merchant, to lead us through a more in-depth financial review. Over to you, Chris.
Thank you, Linda, and good afternoon, everyone. As Linda noted, Q4 was a tough quarter for sales and earnings with continuation of the semiconductor supply issues impacting sales and creating other cost and supply issues, further impacting earnings. Despite these challenges, Q4 was another great quarter for cash generation as we generated $144.7 million in free cash flow. Additionally, we were able to grow our strong level of liquidity to $1.9 billion.
For the quarter, sales were $1.5 million, down $170.4 million from Q4 2020. Earnings are normalized for any FX gains or losses related to the revaluation of the balance sheet [indiscernible] other items have occurred. In the quarter, earnings were normalized for FX gains related to the revaluation of the balance sheet, which impacted earnings per share by $0.07.
Earnings were also normalized for [indiscernible] rate subsides. In reviewing the legislation related to the subsidies, we potentially found misinterpretation of our calculations which should be performed. We have currently recalculated [indiscernible] to ensure that we are claiming correctly. This provision for a potential adjustment to our [indiscernible] claims impacted Q4 EPS by $0.20 per share. Normalized operating earnings for the quarter were $81.1 million. This compares to $176.4 million in Q4 2020, a decrease of $95.3 million or 54%.
Normalized net earnings decreased $70.1 million or 54.3% in the quarter to $59 million. Fully diluted normalized earnings per share decreased by $1.07 or 54.3% to $0.90. Including earnings for the quarter was a foreign exchange gain of $5.7 million, which resulted from a $5.6 million gain related to the revaluation of operating balances and $100,000 gain due to the revaluation of financing balances. As I mentioned, the net FX impact to the quarter's EPS by $0.07. From a business segment perspective, the Q4 FX gain of $5.6 million relating to the revaluation of the operating balances, which results in a $4.4 million loss in industrial and a $10 million gain in mobility.
Further looking at the segments, industrial sales decreased by 7.2% or $22.6 million to $293 million in Q4. The sales decrease for the quarter was due to lower agricultural sales due to supply cost issues impacting our ability to produce and deliver products and a negative impact on sales from the changes in FX rates since last year, which were partially offset by higher Access equipment sales driven by market share gains in North America for all 3 of our product segments.
Normalized industrial operating earnings in Q4 decreased to $44.1 million or 110.5% over last year to loss of $4.2 million. Primary drivers impacting industrial losses were the ongoing supply issues impacting raw material, labor and freight costs, the reduction of our agricultural sales, reduced government support related to COVID-19 due to the recovery in market conditions and the negative impact of changes in FX rates, which were partially offset by increased contribution from strong access equipment volumes and a reduction in AR provisions since Q4 2020.
Turning to Mobility sales, decreased by $147.8 million over Q4 last year to $1.2 billion. The sales decrease from the fourth quarter was driven by the market impact of the semiconductor chip shortage, which is impacting customers and the impact of negative changes in FX rates since last year, which were partially offset by increasing volumes of launching programs and certain programs which are high in demand and the increase on material cost [indiscernible].
Q4 normalized operating earnings for mobility were lower by $51.2 million or 37.5% over last year. In the quarter, mobility earnings were impacted by the ongoing semiconductor issues that our customers are experiencing. The ongoing supply issues impacted energy, raw materials, freight and labor costs, the negative impact of changes in FX rates since last year, reduced government supported utilization related to COVID-19 which was partially offset by the increased volumes of launching [indiscernible] programs [indiscernible].
Returning to the overall Linamar results, the company's gross margin was $160.9 million, a decrease of $112.6 million compared to last year due to the same factors that drove segment results. Cost of goods sold amortization expense for the fourth quarter was $110.1 million. Cost of goods sold amortization expense of sales remained flat 7.2%. Selling, general and administration costs improved in the quarter to $96.1 million from $106 million last year. The decrease is primarily a result of the reduction of accounts receivable provisions over Q4 2020. Lower management compensation tied to lower earnings, which were partially offset by increased sales and marketing costs to support future growth and a reduction in government support.
Finance expenses increased by $0.3 million since last year due to lower interest earned on declining long-term accounts receivable balances, which were partially offset by lower interest as a result of significantly lower debt levels since Q4 2020. The consolidated effective interest rate for Q4 2021 was 1.9%. The effective tax rate for the fourth quarter decreased 19.6% compared to last year due to decreased onetime adjustments related to higher tax years, decreased nondeductible expenses compared to Q4 2020, which were partially offset by an increase in unrecognized benefits and losses.
As a result, the full year tax rate was 25.2% and at the midpoint of our expected range of 24% to 26% in 2021. We are expecting the 2022 full year effective tax rate will also be in the range of 24% to 26% and consistent [indiscernible] 2021 full year rate.
Linamar's cash position was $920.4 million for December 31, an increase of $67.3 million compared to December 2020. Fourth quarter generated $217 million in cash from operating activities, which is used mainly to fund CapEx dividends and debt repayments. This also resulted in free cash flow generation of $144.7 million for the quarter. As a result, net debt to EBITDA decreased from negative 0.13x in the quarter from .5x a year ago and from negative 0.01x at the end of Q3.
Q4 '21 [indiscernible] net cash position. Based on our estimates, we are expecting 2022 net cash EBITDA to continue to improve over the 2021 [indiscernible]. The amount of our available credit on our credit facilities was $957.5 million at the end of the quarter. Our available liquidity at the end of the quarter remained strong and grew to $1.9 billion. Our [indiscernible] we currently believe that we have sufficient liquidity to satisfy our financial obligations during 2022.
To recap, sales and earnings for the quarter [indiscernible] cost issues. The semiconductor shortages continued to hamper OEM production requirements and significantly impact Mobility's sales and earnings. Other supply issues, such as commodity prices, logistics, energy and labor issues also continue to impact those segments. Linamar had a free cash generation quarter as we generated $141.7 million while growing our strong liquidity to $1.9 billion. This concludes my commentary. I would now like to open up the call for questions.
[Operator Instructions] Your first question comes from the line of Mark Neville with Scotiabank.
I guess I just want to understand or clarify just the comments around the conflicts in Ukraine and the, I guess, the impact on the business. So what you said and again just to sort of paraphrase my own words, direct exposure is sort of minimal. You're managing your company-specific sourcing, but the primary impact will be energy cost and I guess the broader impact regionally, globally on wherever the follow may be? Is that how you're summarizing it or am I summarizing it correctly?
Yes, you're correct, direct exposure is minimal, but the impact will come from lost vehicle builds because of customers of ours who are buying products in Ukraine. So that will have an impact on us, right? Because we'll definitely see lower vehicle builds this month in March, right? So that will impact Q1 and over the next month or 2. So that will affect Q2. So we do certainly expect to see lower vehicle builds because our customers are going to have to resource products that they're currently buying in Ukraine. Some will be easy to resource, like that very example that we were buying in Ukraine that we quickly resourced somewhere else. So they'll have products like that. And then some will take a little bit longer. So they may see like a longer impact on vehicle builds beyond that. So to me, that's the big impact. On the energy side, I mean, we were already feeling the pinch on higher energy costs. And I do expect that that's going to continue for some time, in part due to Ukraine but in part due to some of those other issues [indiscernible] as well.
All right. I guess just a follow-up. I guess, it does sound like you're already sort of seeing some changes to production schedules in Europe. Is that right?
Yes.
Okay. Yes. Sorry. And I guess, just broadly, do you have a rough number of sort of your European sales exposure either by division or consolidated?
Sorry, you want to -- the impact of the production schedule changes?
No. No, no, no. Just I guess, from a real high level, roughly how much of Linamar's sales are coming from broader Europe? Is it 25%, 30% of your sales?
Yes. I mean we do geographically segment our sales. If you referenced, you can see what total European sales are. So I mean, for 2021 in total. Now that's a combination of the automotive and as well as the industrial was about $1.8 billion.
Okay. Yes. I just wasn't sure if I have the industrial, okay. In terms of the energy, you mentioned some numbers earlier, I just missed those. Are those 1% or 2% of sales? Or you mentioned some numbers here just around your energy costs.
Yes. Energy cost in our machine and assembly plants are typically 1% to 2% of sales, depending on what they're doing. So it's a pretty small element of our cost structure, but the problem is when something goes up tenfold, even if it's small, the dollar value starts to get a little bit bigger. So it's something that's a concern, and for sure a bigger concern for our foundries, right, where the percent of cost for energy is higher.
And mainly Europe, mainly Europe.
Yes, yes, absolutely. I mean that's where the energy costs are up.
Right. On the supply chain impact in the quarter, it sounds like it was much more acute in Ag. I guess I'm just curious why, why was it -- why would it be so much worse in Ag than the other parts of the business?
Yes, I would say that there's just a lot more supply chain components and things that are in the Ag, so the risk level or the numbers are just greater there, right? Like a day-to-day basis, Mark, is, it could be from a trucking issue or an example just recently the border protests at the Emerson in Manitoba, right, that put a constraint [indiscernible] moves to an idler or bearing or something like that. So it's just the amount of components that we are dealing with, and we are building, right, so we are building the product -- and then what we do is we put it out and then we got to take it through a rework process when they bring the parts. So as Linda said, the efficiency level is not that good when we're doing that. So it really is driven by the numbers of suppliers in the supply chain.
Okay. If I could ask just one more question. There was an adjustment or provision taken this quarter for [ SUS ]? I'm just curious what that was. Is it something you [indiscernible] repayment or what exactly is that number?
Yes. As you know, the SUS program ended in October 2021, then we're finalizing our submission of the final things for '21. They are due within 6 months to the end of the claim period given that the program is [indiscernible] we wanted to ensure that the SUS impacts are [indiscernible] '21. As a result, after further reviews of the legislation, we noticed that what appears to be a potential discrepancy between the information on the SUS website and the actual wording of legislation. As a result, we're currently assessing this potential discrepancy to ensure the [indiscernible] given the level of detail required to [indiscernible] claim will take a few months to recalculate the claims to be confident with our accuracy. As a result, we thought it would be prudent to require a provision until the analysis can be completed in -- the potential discrepancy. Okay.
Okay. So I'll…
And [indiscernible] point out as well, Mark, that the accrual represents like less than 9% of the total due claim. So it's not massive in terms of a claim, it is like, I don't know, $2 million a quarter, if you spread it out over the full claim period. So when you spread it out, it's not -- it doesn't look like that much, but when you put it all in one quarter, it does.
Yes, it's not a big number, but it's just a provision for a potential repayment, right?
Yes.
Your next question comes from Krista Friesen of CIBC.
So more of an industry question, what's the reduction in auto production in Europe given the supply chain issues and being exacerbated right now by the geopolitical situation? Do you think it's possible that some chips will move from Europe to North America and that will -- where we have less production and supply chain issues, and we could see heightened North American production versus Europe?
I'm not sure. I didn't quite understand that question.
So actually I think she is wondering if because production is going to be constrained in Europe because of the specific issues there as opposed to North America, maybe chips get sent to North America instead of Europe, so I mean…
Yes, potentially. I mean -- yes, I think the chips, if there's available chips, they're going to go, like people will take them, right? So I think there's no question if they're not being used in Europe, they'll come to like an OEM for sure.
Well, I think you need to keep in mind that pretty much all of the OEMs are global, so they'll be managing that internally. So obviously, for GM or Volkswagen or Toyota, Honda, or whatever, they're going to allocate, and they've been doing that already, allocating chips globally as to where they can put them and build vehicles and where the needs are. Plus Tier 1s as well. We'll shift them around. A lot of Tier 1s are using them that go into the system for an OEM, so they could play off in a different region as well.
Okay. Great. That makes sense. And just what are you hearing on the [indiscernible] for the ag industry. Obviously, crop prices are higher, which bodes well for the farmers, but we're seeing input prices or prices for inputs rise just as quickly too. Just wondering what you're hearing there in terms of farmer net income for this year.
Yes. I mean, I think the increase in commodity prices is pretty significant, and that's always [indiscernible] bode well for the farmers. So our general sense is that the outlook is pretty positive in terms of farmer income sentiment and therefore supporting the continued growth in the ag industry on the demand side that we're seeing.
Okay. And maybe just to add, I think that -- I mean, all the indicators that we're seeing on the ag side are very, very, very positive in regards to dealer and field inventories being sort of at an all-time low. As you just stated [indiscernible] income is up, cash receipts crops are up, demand is up. The thing that is the whole [indiscernible] the supply chain, right, that's really -- and that's what's keeping everybody from fulfilling that.
Right. And then I guess maybe just a broader question. Labor is obviously at issue and not a transient cost. Do you think we could see a structurally lower margin, I guess, however you want to quantify maybe 50 bps hit to margin structurally over the next couple of years with higher labor costs?
I mean, I wouldn't say that -- that I wouldn't go that far. I mean, certainly, availability, labor is an issue, solving that is going to be a combination of immigration, to bring more people in, getting more people back to work who're not engaging the workforce for whatever reason at the moment. And of course, automation, which is the path that we've been going down for quite a few years, of automating more on the shop floor. So that -- so in terms of changes that structurally changes labor as a percent of sales in any case because you're shifting it into robotics that are flexible and we can shift around in the programs as well. So I don't think -- I think that the labor issue is certainly a challenge, but that's how we'll approach solving it over the next few years.
Your next question comes from Brian Morrison of TD Securities.
Great. I've got a couple of follow-up questions to start. Can you actually provide us with what you're seeing with respect to the European schedule adjustments? I know you alluded to that in Mark's question.
Yes. I mean they're coming fast and furious. So like that's an early [indiscernible] answer Brian, I mean as I was suggesting in my note, in formal comments, the analysis is still underway. So our customers are still uncovering areas of risk and digging into the subject to see where there's areas of risk. So we're really only just starting to get some of the notifications that they're going to need to be down, so -- and nobody has been able to kind of have that up yet. So the impact is like I can't quantify it for you right now. I mean we're definitely seeing shutdowns and we'll -- as I was suggesting, I think we'll continue to see them over the next month to 2 months as these issues sort of percolate up and then get solved.
Yes. I got to say it's like a day-to-day thing, and we have a daily note that comes through on this. And you'll see on a day that customer A reduces by 25% this week on a part and then Customer B has got a supplier issue that can't sustain under the energy cost issues and customer 3. So it's sort of like that going on, on a day-to-day basis. And really, I think as Linda started in her discussion earlier, is the customers are now just trying to figure out at the different tiered levels where the impact is and then how do you resolve that and who do you go to and resolve it. So to me, I look at this also as an opportunistic time as well that as things can't be sourced, they'll come into companies like Linamar that have the ability to ramp up quickly. And that example in the bearing, right? So again, it is a very fluid Brian [indiscernible].
Brian, as of today right now, BMW and Volkswagen have reported combined about 100,000 vehicles are going to be lost due to the shutdown, but that doesn't include what is going to happen with BMW and Toyota now that they've announced their plants being shut down and other car companies to come.
Okay. I appreciate that the situation is fluid. Can I just ask a question with respect to industrial and the performance in Q4 in terms of the operating margin and the outlook? Is it fair to say that Skyjack, the DOM, is it near normal? Or -- and this is all MacDon? Or is Skyjack well below normal operating margin as well?
No, Skyjack is below normal margin as well because they're dealing with these cost increases, right? And then the problem is MacDon struggling with just getting products in-house so that they can actually build products and get it out the door plus higher costs as well. So MacDon is impacting on the top line, but they're not selling what we think they should be selling and what they've got the orders to sell, and then they're both being impacted on the bottom line.
The operating margin, is there a big gap between the 2?
Well, I mean, there's always been a gap between 2, to be honest. They are different businesses. They're in different markets. And they got different cost structures. So they're not at all aligned.
Right. I'm just talking about the performance today though.
Yes. I mean the impact is higher at MacDon right now than it is at Skyjack, but that's [indiscernible] the impact as well.
Okay. Can I -- this might be a question for Jim. Just in terms of the annual contractual reset, we've talked about this before with Skyjack and MacDon, but -- and I probably need an update. Can you just talk to me like what is the ability here? I think you've priced these -- priced for the year now. But what is your ability to reset with the conflict in commodity price increases and pass those through? Do you have ability to do that?
Yes. I mean, let's just talk about Linamar-wide and then we can get into the sectors. But first of all, I mean, just -- it goes without saying that our -- we pride ourselves on sort of best product, best price, right? And -- but the cost increases -- I mean the first thing we do is push back, right? And we try and lean things out through our cap process and all that. But I can tell you, in every sector, mobility, ag and industrial, we are face-to-face with customers now reassessing all the cost and pricing that we will need to reset. And there's customers now that are not on the industrial side, but the mobility side, really looking at indexes related to energy, as you, exploding over in Europe. So they're looking at setting indices around that and logistics, dealing with surcharges and metal market base prices differently and mobility. So we have a very solid review going on with each of our customers, and we are on the infrastructure and ag side certainly reassessing what we had put in place in sort of fourth quarter to come in and sit down with customers again. So -- but we're going to play it out really opportunistically as well because I think we can weather the storm in a lot of areas better than some other suppliers. So looking sort of longer-term view too, we got to take that into consideration to protect our growth as well.
Okay. I don't want to -- last question very quick. Linda, last quarter, you had a headline, you've been active with your buyback. I haven't seen any participation here. Your share price is obviously, balance sheet is in a fantastic position. What's your approach to the buyback now?
Yes. 100%. Good question. When we completed the NCIB process late last year, what was happening was our share price was already appreciating. So [indiscernible] into the market at that time. And unfortunately, it was just as we entered blackout in January that the share price started to deteriorate [indiscernible] purchase shares. So we had made the decision not to enter into an automated program for share repurchases during blackout as we like to have a little more control over the decision that went to buy. So we've been extremely frustrated because if we have an NCIB, we have the ability and the cash to buy shares. But as long as we're in blackout, we can't do so. So just as soon as we're out of blackout, I can assure you we're going to be out-buying the market.
Your next question comes from Peter Sklar of BMO Capital Markets.
Linda, when are you out of blackout? Do you wait like 2 more trading days? How does that work?
Yes, the 2 full trading days after the end of the [indiscernible] issue a press lease.
Okay. So today is Wednesday, Thursday -- so you could be in the market on Monday, I think, is what that means.
Correct.
Okay. Can you review like in your mobility business like the major commodities, like I think you're buying like a lot of castings. You're buying aluminum castings. I believe you're buying high steel castings. I don't know if you also, machine iron castings, but what are the major material inputs for mobility and which materials and which casting materials do you have contractual arrangements for price movement as the underlying commodity moves around?
Yes. I mean the commodities that we're most exposed to are aluminum and steel. That's for both the mobility and the industrial businesses. It would be the quantities we would be most impacted for. We are buying aluminum castings. We are buying steel working. We're buying straight up steel for fabrication in the industrial side as well as steel bar for the mobility side. We're also buying iron castings, which also kind of drive up steel prices. So on the mobility side, we do have metal market adjustment programs with most customers that cover most of the exposure. And normally, there is almost nothing in the way of noise around that. It's a little bit up, a little bit down, but it's not at all noticeable. The problem is of course that the costs have increased so much, for instance, on the aluminum side that even a tiny level of exposure [indiscernible] the number starts to become a more meaningful number. So that's kind of what we've got going on right now.
Okay. On the issues you're having at MacDon, getting the product out the door, just from like reading the press release, it sounds in addition to supply chain you're having labor issues. Like it sounds like the labor issues are more acute at MacDon than they are at Skyjack. And if that's true, I'm just wondering, like, is the labor situation different in Winnipeg than it is in Guelph?
I wouldn't say that it's -- the labor issue is worse at MacDon. I would put them on the same level because it's just the numbers of supply issues that are out there with MacDon are more than what they are at Skyjack, and there's more suppliers. So the risk level of that supply base is higher, right? And I mean, again, what's happening is the parts are coming in. So you go build this [indiscernible] unit, you put it out in the yard. It's not fully built. You're waiting for parts to come, then you got to go over and rework it. It's a really awkward system that's set up right now. So there's just more to the manufacturing around that assembly versus Skyjack, which is creating that gap, a bigger gap.
And I would just add that it's far and away the supply chain issues that are impacting our ability to build. I mean labor is a piece of it, but it's a smaller piece. We're less productive and less efficient because of what Jim just described, building something not quite complete, having to bring it back [indiscernible] bring it back in, put the parts in. This is by far, the bigger issue is supply chain and availability in products.
[indiscernible] maybe just go back. I just had a comment what I didn't say when you were on the surcharge issue and things like that. So it's -- the surcharge, as Linda said, it's a pretty straightforward calculation. But keep in mind too, there's base metal pricing that is changing too, meaning base prices because these suppliers are now being hit with increases in labor, logistics and things like that. So it's not just the metal market stuff now, it's base metal pricing that's also going up across like the ductile, the iron, the aluminum, the magnesium casting suppliers.
And so how do you -- do your mechanisms take that into account as well in terms of recovery?
Yes, absolutely. So we're in on these things in our commercial discussions with our customers, right? That's exactly what we are now doing. We are sitting down and saying, look, it's just not tenable for us to be the middle person holding all that, and we are now sitting down, being opportunistic saying, hey, here's what the total cost is, so we need recovery, but also we're willing to play ball and -- but what else opportunity-wise can we gain from that to grow with you. But it's just not just -- I just want to make sure you understood, it's just not a surcharge issue.
Yes. And I think what Jim is saying when he said it's the base prices, he's talking about [indiscernible] actual cost to make it not -- we're not talking about metal, right? Like I mean, labor costs, they've got higher labor costs or just another costs are going up. So that's increasing how much it cost to them to make the part. And in addition to that, there's the metal piece that's adjusting as well. So that's what we're trying to address with commercial discussions with our customers.
Sorry, I'm a little confused. So like are you talking about Tier 2s? Or you're talking about your other costs?
Tier 2.
Tier 2.
Yes. Okay. Okay. And so like I think you've answered this question. So Linamar does not have a -- like you don't have a forecast on how much you think how Western European vehicle production is going to be impacted, like you don't have a number for Q2, like 500,000 units or 100,000 units, you don't have…
Not yet, Peter. It's a work in progress, right, as to what the impact is going to be. And I will say that the general sentence is going to be made up, right? So we lose some vehicle builds in March and in the next 1.5 months or so or few months, then the general sentence is going to be made up within the year.
Yes. Okay. And then just lastly, sorry, I have to plead ignorance, like this claim you're talking about, like which government program is that?
The government's subsidy, federal subsidy program, the CEWS.
Okay, the CEWS. And is that the $0.20 a share negative that was mentioned in the financial part of the presentation?
Yes.
And that's an after-tax, so $0.20 after tax.
Yes.
There are no further questions at this time. I will now turn the call back to Linda Hasenfratz for closing remarks.
Thanks very much. So to conclude this evening, I would like to leave with 3 key messages. First, we had an outstanding record year in new business wins, key to future growth, with EV wins notably 50% higher in dollars than we saw in 2020. Secondly, we have yet another quarter of strong cash flow, meaning we are sitting on a war chest of cash, and we are putting it to work for shareholders this year. And third, despite continued challenges, we did deliver double-digit top and bottom line growth in year 2 of the COVID-19 pandemic as promised. And we are poised for solid growth again this year. Thanks very much, and have a great evening everybody.
This concludes today's conference call. You may now disconnect.