Q4 2020 Constellium SE Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to city can steal your fourth quarter and full year 2020 results conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question during the session.
You will need the fresh star one on your telephone if you require any further assistance. Please press star zero. Thank you now I would like to hand, the conference over to our first speaker today, Mr. Ryan Wentling director of Investor Relations, Sir the floor is yours.
Thank you operator, I would like to welcome everyone to our fourth quarter and full year 2020 earnings call on the call today are chief executive officers of Merck's remain and our Chief Financial Officer, Peter Matt. After the presentation, we will have a Q&A session a.
A copy of the slide presentation for today's call is available on our website at <unk> Dot Com and today's call is being recorded before we begin I'd like to encourage everyone to visit the company's website and take a look at our recent filings.
Today's call May include forward looking statements within the meaning of the private Securities Litigation Reform Act of think from 95 such statements include statements regarding the company's anticipated financial and operating performance future events.
And expectations and may involve known and unknown risks and uncertainties.
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 factors presented under the heading risk factors in our annual report on form 20-F.
All information in this presentation is as of the date of the presentation.
We undertake no obligation to update or revise any forward looking statement as a result of new information future events or otherwise except as required by law.
In addition, today's presentation includes information regarding certain non-GAAP financial measures. Please see the reconciliations of non-GAAP financial measures attached in today's slide presentation, which supplement our ifr S disclosures I would now like to hand, the call over to Mark.
Thank you Ryan good morning, good afternoon, everyone and thank you for your interest income failure.
Want to start by thanking the members of the <unk> team for their contributions in 2020.
I am proud to say that consortium rose to each of the many challenges presented by the COVID-19 pandemic I'd like to take a moment to specifically call out two examples first considerable delivered extremely strong cost performance.
Cost flex of 92% was impressive again in the fourth quarter.
For the full year, our cost flex was 90%.
This is something we are very proud of.
Second we delivered on our commitment to free cash flow generation was 157 million euros in 2020, when combined with 2019, we have generated over 330 million euros of free cash flow.
For perspective that is about 20% of our current market cap in just two years.
Now, let's discuss the highlights from our Q4 results.
<unk> were 374000 tons.
<unk>, 2% compared to the fourth quarter of 2019.
Revenue decreased 9% to $1 2 billion euros. This was primarily due to weaker price and mix and lower aerospace shipments.
Net income of 26 million euros compared to net income of 22 million euros in the full scale third 2019.
You can see in the bridge on the right side of this slide adjusted EBITDA was 111 million euros. The decline of 10 million euros, which was driven by lower results at ANP from weak aerospace demand, partially offset by strong performance of thought.
Lastly, free cash flow was 28 million euros in the quarter.
Now, let's turn to slide six and discuss our full year highlights shipments were one 4 million tons, a decrease of 10% compared to 2019 due to impacts from the COVID-19 pandemic across each of our businesses.
Revenue decreased 17% to $4 9 billion euros, primarily due to lower shipments as a result of impacts from COVID-19, and lower metal prices.
Remember, while our revenue are affected by changes in metal prices, we operate to pass through business model, which minimizes our exposure to metal risk net.
Net loss of 17 million euros compared to a net income of 64 million euros from 2019.
As you can see in the bridge from the right side of the slide the adjusted EBITDA was 465 million euros in 2020, but a decrease of 97 million euros, which was driven by weaker results at AT&T and arsenite voluntarily offset by record results at <unk>.
This result is above our guidance range of 450 to 460 million euros provided during our third quarter earnings and is at the midpoint of our free announced results from mid February.
Our free cash flow of 157 million euros came in above our guidance of 100 to 150 million euros.
Our leverage at the end of 2020 was four three times.
Fight the COVID-19 crisis, which included the second quarter of Lockdowns, and nearly 100 million euros less adjusted EBITDA in A&P, our leverage in 2020 peaked at four four times.
Only have it.
Higher than at the end of 2019. This performance is clear validation of our business model and our strategy.
Now turn to slide seven.
Steady on the health and safety of our employees is our top priority.
Safety results are among the best in the industry and we remain committed to continuous improvement as shown on the top left of this slide <unk> achieved a record low recordable case rate in 2020.
Well this is something to be proud of we will continue to push for further improvement.
<unk> to safety is also reflected in our compensation structure.
For our 2000 managers, 10% of their annual bonus is based on safety performance.
As you can see on the top price from stadium is proud to lead the way with our recently completed sustainability linked notes offering first and the first in the metals industry Pizza.
Peter will provide details of the bonds later in the presentation.
Our ESG efforts have been recognized externally <unk> gave us a platinum rating, each highest which places castelli Amit its top 1% of companies assessed Castelli Im also received a double AA rating from MSCI ESG, placing us in the subsidy side of our sector.
Lastly, we continue to make progress in achieving ASI certifications at our plants with Nestle Zac Zynga got smiting good day in sales now certified.
Over the course of 2021, we will be developing our 2030 sustainability strategy, which will establish a new sustainability targets and the steps to achieve them.
<unk> has a long track record of setting targets and measuring our progress against them.
This is evident in our annual sustainability report, which we have produced each year since 2011.
Another initiative, we will be focused on in 2021 is a potential investment to increase our recycling capacity in Europe. These projects, which is an advanced planning stages is expected to add a minimum of 60000 tonnes of annual capacity to go stadiums current recycling footprint.
Which is already one of the largest in the world.
In addition, we expect these investments will provide opportunities to expand our low carbon product offerings to meet customer demand the scope and location of the project is expected to be finalized by the end of 2021.
We will provide regular updates from these highly strategic initiatives as you can see we're looking at sustainability.
The great opportunity for <unk>.
I will now hand, the call over to Peter for further details on our financial performance. Thank you.
Jean Marc and thank you everyone for joining the call today, turning now to slide nine let's focus on the PARP segment.
Adjusted EBITDA of 82 billion increased 31% compared to the fourth quarter of 2019.
Volume was a $14 million euro tailwind as shipments increased 7% compared to the fourth quarter of 2019.
Packaging rolled product shipments increased.
5% and automotive rolled product shipments increased 12% both both on higher shipments in North America, and Europe price and mix was a tailwind of 15 million euros from both automotive and packaging.
Costs were a headwind of $7 million due to unfavorable metal costs, including higher alloy costs and inefficiencies related to a strike at muscle Shoals.
<unk> effect in the second half of December and was resolved on January 11th.
<unk> translation, which is non cash was a headwind of 3 million barrels in the quarter due to a weaker U S dollar.
For the full year 2020, PARP generated record adjusted EBITDA of $291 million.
Volume was a headwind due to the impacts from COVID-19, notably in automotive and European packaging costs were a tailwind due to strong cost control, notably lower maintenance labor and overhead costs and improved recovery.
FX translation for the year was a headwind of $3 million.
Now turn to slide 10, and let's focus on the A&P segment.
Adjusted EBITDA of $13 million decreased 72% compared to the fourth quarter of 2019 volume was a headwind of 38 million euros.
55% lower aerospace shipments year over year.
It showed signs of improvement in the fourth quarter with shipments increasing 15% compared to 2019 price and mix was a headwind of 21 million euros due to a weaker mix in aerospace and the lower share of aerospace shipments relative to tid.
Costs were a tailwind of 27 million euros.
Primarily related to lower labor.
<unk> and maintenance costs Lastly, FX translation was a 1 million euro headwind in the quarter.
Now please look at the full year bridge for A&P 2020 was a challenging year for A&P with adjusted EBITDA declining 98 million euros to 106 million euros.
Volume was a headwind due to the impacts from COVID-19 on both aerospace and Tid demand.
Costs were a tailwind on strong cost control.
And FX translation for the full year was a headwind of 1 million euros.
Now turn to slide 11, and let's focus on the <unk> segment.
Adjusted EBITDA of $22 million increased $1 million compared to the fourth quarter of 2019 volume and price mix were each of $1 million Euro headwinds.
<unk> was a 4 million euro tailwind strong cost control, notably a lower labor sub contracting consulting and energy costs.
Looking now at the full year bridge from <unk> 2020 showed significant operational improvement compared to a challenging 2019.
Volume was a headwind due to the impacts from COVID-19 on both automotive and industry shipment costs.
Costs were a tailwind strong cost control.
And FX translation was a headwind of $1 million.
Now turn to slide 12, where I want to highlight our continued strong performance on cost.
In the fourth quarter, we flexed our cost by 92%.
Cost flex represents the change and of course over the changing of revenues for the fourth quarter of 2020 as compared to the fourth quarter of 2019.
Effectively for every euro change in revenue, we were able to flex our costs by 92.
Looking by segment, you can see that A&P and <unk>, both demonstrated strong cost control with A&P at 76% cost flex and <unk> at 104% cost flex.
For PARP incremental margin is a relevant metric as both revenues and adjusted EBITDA increased compared to the fourth quarter of 2019.
Incremental margin represents the change in adjusted EBITDA over the change in revenue.
<unk> incremental margin was 56% and exceptional performance and solid evidence that we are retaining a healthy portion of our cost reduction.
Excluding metal on depreciation we reduced cost by approximately 75 million euros compared to the fourth quarter of 2019, notably lower labor and energy costs.
These cost savings include $3 million of benefit from European State employment age related to COVID-19.
For the full year of 2020, we flex their cost by 90% excluding metal in depreciation excluding metal on depreciation we reduced cost by approximately $260 million compared to 2019. This included $22 million benefit from European State employment.
Related to COVID-19.
As you know, we're very committed to reducing costs and running a lean operations.
Fixed cost reduction as a major platform of our horizon 'twenty two initiatives the successor to project 2019.
We maintain our $75 million target for horizon, 'twenty, two and we estimate that we were over halfway to our target at the end of 2020.
I remain excited about the significant cost reduction opportunities that are in front of us I'm confident that <unk> will emerge from this crisis, a stronger company with better margin and an improved financial profile than when we entered it.
Now, let's turn to slide 13, and discuss our free cash flow.
We generated 157 million euros of free cash flow, including 28 million euros in the fourth quarter. This is our second consecutive year of free cash flow in excess of 150 million euros.
Our 2020 performance was helped by strong working capital management, and our proactive steps to reduce capital spending in the face of the COVID-19 pandemic.
As you can see at the bottom left can still Liam has also been a consistent generator of free cash flow.
I want to remind you that the second quarter of 2020 would have been positive without the effect of reduced factoring in that quarter.
We deployed a substantial portion of this free cash flow generation towards growth debt reduction in the first quarter of 2021.
Looking forward to 2021, we expect to generate free cash flow in excess of $100 million, we expect capex of approximately $225 million an.
An increase from 2020, due primarily to some catch up maintenance and targeted growth projects.
We expect cash interest of approximately $130 million.
Assuming current foreign exchange rates and cash taxes of $10 million to $20 million.
To summarize we have generated over $330 million of free cash flow over the past two years, our free cash flow yield based on 2020 figures is over 9%.
And we remain committed to consistent and significant free cash flow generation.
Now, let's turn to slide 14, and discuss our balance sheet and liquidity position at.
At the end of the fourth quarter. Our net debt was just under 2 billion euros, nearly $200 million lower than the fourth quarter of 2019, approximately half of that change was due to FX translation.
We remain committed to deleveraging at the end of 2020, our leverage was four three times less than half a turn more than at the end of 2019. This is a remarkable achievement given the challenges imposed by the Covid crisis.
As you can see in our debt summary on the bottom left hand side of the page we have no bond maturities until 2020 for the.
$650 million of $6, 625% notes due 2025 were refinanced in February with $500 million of 333, 75% notes due 2029.
This refinancing is expected to save approximately $20 million of cash interest annually.
This is a meaningful step forward towards our long term goal of cash interest of less than 100 million euros annually.
Our liquidity was strong at $981 million.
As of the end of the fourth quarter.
Now, let's turn to slide 15, and discuss our landmark sustainability sustainability linked notes offering, which we completed yesterday.
This bond aligns our business and financing with our sustainability commitment and value. We established two sustainability performance targets or <unk> as part of this offering.
The first FPP its greenhouse gas intensity of 0.615 tons of Cotwo equivalent per ton of sales in 2025, representing a 25% improvement from our 2015 baseline.
In order to hit this ambitious target, we must accelerate our pace of greenhouse gas intensity improvement.
We expect to achieve this target primarily through continuous improvement in our manufacturing processes processes and.
Shipment.
The second SPT is recycled aluminum input of 685000 tons in 2026, representing a 10% improvement from our 2019 baseline.
2019 was chosen as the baseline as this was our highest level of recycled input to achieve this ambitious target. We are planning to increase our recycling capacity in Europe as Jean Marc noted earlier.
This bond creates a direct link between our sustainability targets and our funding costs.
Associated with each SPT is a potential 0.125% increase in the coupon of our bonds. If we do not achieve the SPT.
The targeted date.
For more detail see our sustainability linked financing framework.
And the second party opinion from sustained Olympics, both available on the investors section of our website.
I'll now hand, the call back to Joe Mark.
Thank you Peter as I noted <unk> sustainability is offering us great opportunities. It is driving mega trends across all our end markets, namely we are seeing increasing focus on light weighting and transportation the electrification of the automotive fleet and customer preference for infinity.
<unk> recyclable aluminum can profit.
Volume is well positioned to be a significant beneficiary of each of these mega trends.
I'd also like to highlight our diverse and balanced portfolio of end market exposures. These diversification proved invaluable during the COVID-19 pandemic.
So, let's turn now to packaging.
Packaging is a core market for from stadium and represented 40% of our revenue in 2020 packaging again displayed recession resilience during the pandemic as demand from our carrier customers remained strong.
Growth in demand for aluminum cans is underpinned by consumer preference versus other alternatives such as plastics aluminum cans are infinitely recyclable, making them. The most sustainable beverage packaging container and a contributor to the development of a <unk> economy.
To meet this growing demand our customers have announced new can lines in both North America, and Europe, which should drive can sheet demand growth for years to come.
Now, let's move towards annuities with dilutive represented 27% of our revenues in 2020.
You are also considering these will position in booth sheets, and extrusion to realize the benefits of the secular shift to aluminum in automotive and the electrification of the automotive fleet.
We expect electric vehicles to increasingly wing share electric vehicles need to be light to meet a range of objectives, which makes aluminum the logical material of choice for auto body sheet crash management systems and battery and closures, we are seeing increased demand for.
Trick vehicle platforms in our auto body sheet older books in North America, and Europe, and we continue to serve many electric vehicle platforms from our automotive structures business.
We also expect continued light weighting of internal combustion engine vehicles to meet increased regulation, the societal focus from sustainability and demand for improved safety and performance.
In the near term demand for our automotive products remains steady and we have this fall.
<unk> impact from the shortage of semiconductors, where possible Oems are prioritizing the production of light trucks, Suvs and luxury cars, where consumer demand remains strongest and where we are most exposed.
While there may be some effect on our automotive shipments in the coming quarters from the semiconductor shortage. We believe this is a temporary trend and is more likely to only delay demand to later quarters, having said that we will closely monitor automotive market trends.
Let's turn now to aerospace.
Aerospace represented 12% of our total revenues in 2020.
We remain confident that long term fundamentals driving aerospace demand growth remain intact, including growing passenger traffic and greater demand for new more fuel efficient aircraft.
The near term outlook remains uncertain in aerospace Oems have reduced build rates and it is unclear how long build that rates will remain at these levels. Our aerospace shipments are at levels below build rates, which suggests the supply chain is destocking based.
Based on our current visibility we expect this destocking to persist at least through the first half of 2021.
In other specialties, we continued to execute on our strategy of expanding in niche products in a diversified range of markets in general These markets all dependent upon the health of the industrial economy in Europe, and North America flow.
<unk> Tid the defense markets remained strong.
Most industrial and transportation markets in North America are improving whereas these markets are stable at low levels in Europe.
The European extrusion demand is strong across most end markets with select pockets of weakness.
Turning now to slide 18, I wanted to start by saying again, how proud I am proud I am of from stadiums 2020 performance.
We reacted quickly to the COVID-19 crisis by protecting our employees, reducing costs limiting capex, increasing liquidity and extending debt maturities, we delivered on our commitment to consistent and significant free cash flow.
Business model and strategy I'll now battle tested.
I firmly believe that can stadium as a stronger company coming out of this crisis than when we went into it.
As I mentioned earlier I believe there are many of our <unk> social stadium to benefit from very real sustainability, driven Mega trends. These trends can provide demand growth and markets for years to come.
I am optimistic about our prospects for 2021, they're all substantial value creation opportunities within our four walls. These include the continued recovery of our end markets.
Further operational improvements and cost reductions from our horizon 2022 initiatives.
Each of these opportunities represents a meaningful driver.
Earnings and free cash flow.
In the short term, we are targeting adjusted EBITDA per 110 to 115 million euros in the first quarter of 2021.
Within this figure we currently expect a headwind of approximately 10 million related to the strike at muscle Shoals in January the severe weather in the southeast U S. In February and the semiconductor of shortage to annuities we.
We expect to generate for the full year free cash flow in excess of 100 million euros in 2021.
As you can see we remain committed to shareholder value creation with that Rachel we will now open the Q&A session. Please.
Thank you as a reminder to ask a question you will need to press star one on your telephone and Toby draw. Your question this spread per ton.
Again, if you would need to ask a question just press star and then the number one on your telephone keypad.
Please standby, while we compile the Q&A Roxanne.
Okay.
Our first question comes from the line of Mr. Curt Woodworth of credit Suisse Sir.
Thanks.
Mr. Curt Woodworth your line is open.
Yes.
Can you hear me, yes, we can good morning, guys hi.
First question just on on packaging.
Two part question. One is can you give us an update on the Debottlenecking efforts that you've had ongoing it that.
At muscle Shoals, I think it was for roughly 75 to 100 K T.
And I assume a lot of that was going to trickle into packaging and I know some of the incremental spending go into auto as well and then can you also give us an update on kind of the cadence of the packaging contract resets I believe you had a small amount re price this year.
Much larger chunk is going to reprice in 'twenty, two and 'twenty three and if you can give any color on kind of how you see.
Profitability changing for that part of your business going forward would be helpful. Sure.
Sure.
So on the first part of your question on the Debottlenecking, we are making very good progress very pleased with it and if you know <unk>.
Shipments in Q4.
5% against the prior year, so that's evidence of.
Our ability to find incremental opportunities and we are well on track to achieve the 75 and I think I alluded to the fact that.
We're expecting even a little bit more so we are.
We're very optimistic about our ability to debottleneck and sell those tons in the context of good marketing in can sheet.
<unk> the contracts will.
Youre right.
Mortgage repricing next year than this year.
Continue to be.
Optimistic about price development for us and we.
We're seeing some benefit in 'twenty, one we are expecting to see more in 'twenty two.
And that will happen again.
Contracts mature.
You remember that.
On average we've got five year contracts 20 percentage of 15% to 25% renew every year. So it's not like you go to big Bend, but you.
You should see an expanding margin and Youll seeing day here.
Some some bits of margin bump at the moment, which we.
As reflected in our earnings so we would expect to continue to see some progress so potentially there is a good market for us. It's a good market for cans are a good market for our customers and it's good to see that it's making its way.
Across the supply chain.
Okay. That's helpful.
And then with respect to the recycling facility the 50000 ton.
Project and you alluded to.
Evaluating potentially another location I assume to process that recyclable material.
Can you just kind of give us any more color on what that project could look like and potential capex associated with it.
So we are still in.
Not fully decided on exactly the technology the sides and all that so we can see at least 60000 tons and that's actually consistent with the commitments we've made in the in the zone.
But it is likely it could be a bigger we'll have to make sure that each project that.
Very good returns for us and that's a key criteria in deciding how to dimension to pursue.
The other thing I can say is even though we're in the early stage of designs it's free.
Clearly, there's some rule of thumb or.
In terms of how to size Capex in full recycle center, then typically yields looking at around $1000 or euros per tonne.
Installed capacity so that gives you an idea in those.
<unk> typically take a good couple of years to compete right. When you got detailed engineering and all that thats supposed to give some money as part of it but then it takes two to three years to build <unk> in the southeast so the spread of Capex is going to be very manageable for the company over the course of several years.
Okay.
Then.
Just last question when you look at your business I mean, I think you have.
Pretty good visibility across a lot of it and even with you know with.
Aerospace I understand there's destocking, but.
Airbus has laid out some relatively specific production guidance along the lines of the <unk> hundred 20, or the next couple of years. So I'm just curious what's the hesitancy to.
Provide a range of full year guidance at this point and that's something that you think you would look to do next quarter or so.
We like to be.
We were reasonably conservative and we like to be reasonably sure and we want it.
Giving guidance very seriously and we want to be able to give you guidance within a reasonable.
Reasonably precise range, which we don't feel we're able to do just now.
However, we are giving guidance on free cash flow.
For the full year.
Which is a little bit easier than EBITDA, because obviously.
You've got some.
If you EBITDA is very is higher because youre shipping more than you've got more working capital <unk>. So it will be the impact on free cash flow.
So the visibility is improving but will.
Not yet at the stage, where we feel we can give you the guidance, we'd like to give you a reasonably tight guidance for the full year.
And I'm sorry to disappoint.
To keep our conservative approach to life.
Yes.
Thank you very much welcome Kurt.
Thank you. The next question comes from the line of Josh Sullivan from Benchmark company.
And Josh sorry.
Sir your line good morning.
Hi, good morning.
Yes, just a question on the overall automotive exposure and outlook Youre curious on the automotive OEM 30, 60, 90 day orders schedules.
How are those lining up I know you said.
You don't see too much impact from the semi issue and the weather event. That's helpful. But do those 90 day orders schedules.
Are they showing more promise.
Good day they.
Continues to be strong and.
I mean, the trend that I highlighted in Q4, when you look at every segment right Im talking beyond automotive right, but every segment is at or above last year by quite a bit.
Except for aerospace as you see we're seeing that continued strength in the market, but I guess the year. We lived through last year is making us a little bit cautious.
And we were looking at it was a cautious optimism and certainly <unk> and its driven by the effect of day markets continues to be good but remember aluminum continues to penetrate.
In automotive.
We see gains in share.
Share of.
Illumina illumina and vehicles and Thats.
Further amplifying the strength of the underlying market.
And then some of the auto Oems reported so far talking to other supporting the suppliers and they're going to take a hit on their own cash flow is that part of your confidence in that $100 million free cash flow outlook are the payments from the Oems a little better than the order flow optics at this point.
No I wish they were but I think they're dedicating there are simple to other suppliers if needed more than we do.
But Joe.
Notably no visible change in that regard Josh.
Josh.
Okay.
Great. Thank you for the time, they'll generosity doesn't extend to us.
Which is a good sign which is a good sign.
Yes.
Thanks.
Thank you. The next question comes from the line of Chris Terry from Deutsche Bank, Sir Your line is open.
Thank you.
Zero, Mark and Peter and well done on the cash flow in 2020 in particular.
I had a couple of questions.
Just in terms of the impact from from the orders I know you've touched on this a little bit already but what are you, saying conceptually is that over the course of 2021 do you think that there's an ability to catch it up and the impact should be relatively modest even though you have included something that can can turn.
So the first quarter.
But you think there's nothing alarming at this stage you indicated that there could be setbacks are their own and you probably catch it up through the year.
Yes, I think it's fair to say that.
$10 million, we're highlighting as a headwind in Q1 is really a one off.
Well Q1 is not over yet but.
That said the strike factories, it's done it's behind us.
Whether it is done it's behind us its newest melted the roseville festivals. So that people can come to work in trucks can leave and deliver to customers. So that's behind us the semiconductor shortage I think the signs are encouraging that.
Worst is behind us, but we we have to see so.
If the semiconductor is don't get worse I think there is a fair chance, we can close the GAAP and recover what we.
In Q1.
Okay. Thank you and then just for the business overall in terms of Europe versus U S. You touched on some of it.
Specific end markets, but just wondering sort of high level and maybe focusing several years out.
Which of the markets.
More encouraged by just from a regional point of view, where you know when you think about the ESG trends in some of the bigger picture trends in the industry, you're pretty comfortable being roughly 50 50, you're exposed to the two regions or is there a preference to go further into one than the other.
So at a macro level.
<unk> proven true.
Through many many cycles.
It rebounds from the crisis stronger than Europe does.
But thats a very high level consideration, if I look specifically for us can in Europe looks very good.
Just as in the U S, but remember we've got twice as much cash.
Sheet roughly exposure in the U S than we do in Europe.
With the mood Tvs are stronger.
Europe.
<unk> continues to be strong and were exposed to read the higher end of the market and Thats also going very well.
We've seen a crisis with.
The impact.
The consumers as being differentiated and dose customers of that we'd be buying to call them, which we all tend to be more shielded from the crisis.
Than others. So we continue to see strength in Europe in booth can sheet and auto sheet.
Total structures as well so we're quite optimistic it feels like overall, the industrial markets in Europe will take longer and it will be a little bit more challenged.
The recovery process in the U S. We're seeing tid in the U S. B very strong at each kilo a week in Europe, and I think that trend will.
It is likely to continue because again Europe recovers typically less quickly from crisis in America dose the only thing I'd add there Chris.
ESG trends in Europe are stronger so maybe that gives a little bit of a boost to Europe, but in the.
Second thing I would add is that.
Again, we have really benefited from the diversified platform that we have and we don't want to we don't want to give that up so we'll maintain the balance that we have going forward.
Thank you.
One might be for pay day.
Working capital for the first half to you that I mean, you've given the guidance for the key items to think about the free cash flow.
For the full year just wanted maybe you can talk to.
How are you thinking about that progression and maybe some of the working capital considerations sure sure happy to do it. So first I just wanted to.
Take a step back.
Comment on kind of I think what was really great performance over the last couple of years on trade working capital.
If you look at the numbers, we generated a lot of cash in 2019, we generated a decent amount of cash in 2020 from trade working capital. So we're coming off of the back of two strong years of performance.
As our business ramps and as our growth projects come in there's definitely going to be a consumption of trade working capital.
And I think you saw evidence of that in the fourth quarter.
We're kind of if you look at the trade working capital on the cash flow statement, you'll see it's kind of a use of about $30 million right. So.
When we look at 2021.
We expect net trade working capital is going to be a use of cash in the year.
It's a little early to define what that use means because in terms of a quantum and thats because.
Obviously, it's hard to see right now for.
For the same reason that were kind of not giving EBITDA guidance, it's hard to see what these ramps are going to look like does aerospace come back in the second half that could be a big differentiator. So.
I think we can say that we believe it's going to be a use in the year.
Given our historic performance and what we see in front of US right now, but I think where we need a little more time to quantify what that user is going to be.
Okay. Thanks, and then just one more if I can just on <unk>.
Eric.
Just wondering if you could give us a bit more of a flavor of kind of conversations you're having with those companies and maybe the timing of.
When you'll know how the back half shapes up and just remind us how far out you negotiate deliveries.
Yeah, So Chris typically we've got six months of good visibility.
And up to six months of good firms visibility.
So we are not yet.
Moving to where we can see exactly of the.
Yes.
The second half of the year will unfold.
The thing that makes it difficult from our customers is because these are long supply chains. It is difficult to exactly assess what product is available at what stage stage.
In the production process between us and the final aircraft.
Sure.
Therefore, it's difficult.
For us to get a good feel for when Reis Destocking is over and they really need to realign build rates with.
Supply rates, so that's where we are is still.
Obviously, the uncertainty will dissipate as we get closer to the through July.
At the moment, it's still uncertain as to what happens in the second half.
Okay. That's it from me thanks, guys. Thanks, Chris.
Thank you. Our next question comes from the line of Christian Georges from Society Generale, Sir Your line is open.
Thank you very much and good.
Afternoon.
I was going to ask you a question on your auto extrusion.
I see the shipments in the fourth quarter were flat.
Flat compared to the third quarter.
Testing the.
Europe in particular, we've seen.
Just wondering increase late fourth quarter.
Because the OEM.
So much reduced inventories that boosted demand from today as you said that's the case for you in.
Looking to the next few quarters should we expect to perhaps see a sharp increase in shipments in the profit.
Q2 activity.
Yes so.
We had a very strong peak.
In.
June July and I think the issue with the inventory is being depleted may have been different from for us and for others in steel or.
So that's.
That's one factor.
The other factor is a platform in the U S where we are.
Quite exposed that has suffered more from the semiconductor shortage. So that is also explaining a little bit why we don't see that continued growth in the fourth quarter. I think this is temporary and again I mean aluminum is penetrating the calls where relative typically sell well.
Semiconductors are issue is behind US, we will see a resumption of growth.
Okay.
On the automotive, but on your role.
Shipments of 62000 tons Thats, the best quarter <unk> had to date.
If we protect ourselves.
And of the year or into 2022.
What do you reckon this number would be roughly.
We're looking at.
10, southern tons increase within 12 months or is it perhaps to optimistic.
Well the year is not over and we are we don't like to give that level of precision in our outlook, but I would expect rolled products' shipment to continues to grow maybe not at the same clip as what Youll see right now in one quarter or again, one quarter doesn't make a trend.
And also we're very focused on the net.
<unk> the value add and maximizing the profit. So we are not going after every ton.
And we really want to go after the.
Most profitable products, where we bring something different to the market. So we expect to see continued growth.
And expect to see continued margin improvement.
Segment.
Okay perfect. Thanks for that.
The things he is an increasing amount of.
Recycling in your mix.
Your target is.
Does this.
Come with potentially some lower costs for you.
Youre setting price yes.
Good question increased channel absolutely.
We're doing so we're very excited about sustainability because it's good for the planet, but also because it makes more money for us and our shareholders that's true.
Theory, Bolton backfill, so, yes that lowers for us the cost of aluminum and that's how we make money and we justify investing in more recycled capacity.
Great. Thank you very much true.
Thank you. Our next question comes from the line of Matthew Fields from Bank of America. Sir Your line is open.
Hey, everyone.
I wanted to ask.
A couple of things.
You, obviously did good work cleaning up your highest coupon.
With your refinancing.
The next priority for the capital structure in 2024 notes, which also have a high coupon and stepped down in may or what sort of what's the next iteration.
Yeah. Good question so.
We really we like the position that we sit in right now because as you know our nearest maturity is 2024.
And so we've got the luxury of kind of taking our time in finding the right opportunity to do a financing as you saw on our February financing.
We were extremely pleased to achieve a 375% dollar coupon.
We're looking at the capital structure, we're looking at kind of all of the different components of that that stock and as we see opportunities to jump into the market and kind of get attractive financing, we will certainly evaluate those but we haven't made any decisions on that at this point.
Okay fair enough.
Obviously, you've got a lot of latitude initially below 4%.
So the next thing is basically the can you talk a little bit about the contract reset, but all the signs are just so I'm bullish on that market I think coke and Pepsi warned about.
Price increases of around 10%.
So many capacity addition, bye bye.
And it can produce there is one of them was just bought in this back I mean, all the signs are there.
Do you sort of get concerned about your capacity in the can sheet market in North America is the bottlenecking you did at muscle Shoals adequate when you feel the need to maybe invest in more capacity. So yeah, no. That's a fantastic opportunity for us and I grew more and more optimistic every quarter that goes by.
I am not concerned about our ability to increase our capacities as I mentioned earlier, we're well on track for our 75000 tons objective, we could be doing more.
And I think we'll be doing more within the framework of what we've decided to do if we want to go further we have some investments to make.
And we'll make those investments when we get to a very good return on that and we know what they are we know what we need to do so it's just a matter of aligning the planets and getting getting us in a place where we're very excited from a value creation standpoint, the deal flow communities we have.
And I think that time will come.
It's not only dependent on us it's going to be in lockstep with our customers, but I think this is a as.
From points out is very good backdrop for us for us and others who've done market context.
Alright fair enough. Thanks, very much and good luck. This year. Thank you. Thanks, Matt.
Thank you and our next question comes from the line of Sean <unk> from Deutsche Bank. Sir Your line is open.
Hi, guys and congrats on your inaugural sustainability linked bond offering thank you.
Two quick questions if I may.
So firstly do you expect to continue to reap labor savings related to European government assistance during 2021, and if so could you. Please provide a rough magnitude relative to the benefits received in 2020, yes.
Yes.
Good question Shawn So obviously, if you look at the shape, so its $22 million for the full year.
The biggest portion of that happened obviously in the second quarter and then it tailed off in the third quarter and you can see we kind of cited the number in the fourth quarter right as we go into.
Into 2021 with really all operations, except for aerospace running back at numbers that are are at rates that are well in excess of where we were in 2019.
That number will be a much smaller number than the program still exists obviously across Europe. So we will get some benefit from it in <unk>.
The aerospace and the A&D segment, but it will be I'd say, if youre thinking about it for a full year, it's probably.
Less than $5 million for the full year I would think would be a decent number probably $1 million or sell a quarter something like that.
Okay. So nothing material I appreciate the clarity.
And then just following up on the capital structure.
Is it fair day.
Consign they pursue additional sustainability linked offerings moving ahead as you move to refi your cap structure, considering your heightened focus on ESG lately.
We had a very good experience as you know in the in the financing we just did.
We like the concept of putting our money where our mouth is so.
No.
We believe our story kind of lends itself to some of the trends and sustainability that are out there and so I think.
We are prepared to kind of put.
I guess, our cost at risk to achieve the goals that we've set for ourselves. So I think it's logical that we would that we would continue to pursue that.
That's great as always very helpful. Thank you and good luck in 2020 from Sean.
There are no further questions at this time turning.
Turning the call over to Mr. Jean Marc Germain CEO of <unk>, Sir Please continue.
Well. Thank you very much all for attending and as you can see I hope we've demonstrated that <unk> is able to generate significant free cash flow in good weather or bad weather and we look forward to a less exciting year in 2021, we still very substantial free cash flow generation. Thank you everyone Goodbye.
Ladies and gentlemen, this concludes today's conference call. Thank you all for participating you may now disconnect.
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