Q1 2021 Constellium SE Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the <unk> first quarter 2021 results conference call. At this time all participants are in a listen only mode. After the speaker presentation there'll be a question and answer session to ask a question. During the session you will need to press star one on your telephone please be advised that.
Today's conference maybe recorded if you require any further assistance. Please press star Zero I would now like turn the conference over to your Speaker today, Ryan Wentling head of Investor Relations. Please go ahead.
Thank you operator, I would like to welcome everyone from our first quarter 2021 earnings call on the call today are Chief Executive Officer, Jean Marc Germain and our Chief Financial Officer, Peter Matt.
After the presentation, we will have a Q&A session.
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 1995.
Such statements include statements regarding the company's anticipated financial and operating performance.
<unk> 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 from 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 day to the presentation.
We undertake no obligation to update or revise any forward looking statement as.
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 summer.
Thank you Ryan and good morning, good afternoon, everyone and thank you for your interest in Australia.
I'd like to turn to slide five and discuss the highlights from our first quarter results.
With 385000 tonnes, that's down 2% compared to the first quarter of 2020.
This decline was primarily as a result of lower aerospace shipments and lower packaging shipments from the strike and adverse weather in muscle Shoals.
Want to highlight that our automotive shipments increased 10% year over year, and both rolled and extruded automotive shipments reached record levels. Despite the automotive shutdowns in the quarter, resulting from the shortage of semiconductors.
Revenue decreased 7% to $1 3 billion euros.
This decline was primarily due to weaker price and mix and lower shipments in aerospace, partially offset by higher metal prices remember, while our revenues are affected by changes in metal prices, we operate the best through business model.
Minimizes our exposure to metal risk.
Our net income of 48 million euros compared to a net loss of 31 million euros in the first quarter of 2020.
As you can see in the bridge on the top right.
<unk> EBITDA was 121 million euros, a decline of 26 million euros, driven by lower results at N T from weak aerospace demand, partially offset by stronger performance at <unk> and <unk>.
These results include more than 10 million euros of negative impact from a combination of the strike at muscle Shoals.
Worse weather in the U S southeast and the effects of the semiconductor shortage on automotive production.
Free cash flow was strong at 46 million euros into Fausto.
As you can see the chart at the bottom right, we have delivered significant and consistent free cash flow over the past two years, we look forward to extending our track record in the coming quarters and years.
Now, let's turn to slide six let's look at our sustainability performance in 2020.
At <unk> from the health and safety of our employees is our top priority. Our safety results are amongst the best in industry and we remain committed to continuous improvement.
<unk> achieved a record low recordable case rate of 182 incidents per million hours worked in 2021.
Well this is something to be proud of we will continue to push for further improvement.
I also want to highlight our 33% reduction in waste sent to landfills compared to 2015, and specifically and specifically called out our team at muscle Shoals for an excellent job.
Despite showing improvements in energy efficiency, a result was significantly negatively impacted by lower levels of production due to the COVID-19 pandemic.
We look forward to getting back on track towards our target of a 10% reduction from 2015 levels.
Gross stadium continues to receive external recognition of our sustainability efforts.
<unk> certifications at our plants in Zynga necessary Zack that failed in gross mining and.
Further we achieved vehicle that is platinum rating of double AA rating from MSCI and prime from ISS.
Next I would like to provide our 2020 results for the two sustainability performance targets or SPT contained within our landmark sustainability linked bond.
For greenhouse gas emissions intensity.
We have reached zero point 703, two turns a few two equivalent to a ton of sales.
This improvement was despite lower operating levels at our plants that negatively impacted our results.
For recycled input all use of recycled aluminum declined roughly 6% from 2019 to 586000 tons.
This was due to lower activity in shipment levels from 2020 from the COVID-19 pandemic.
As we announced in February we expect to achieve our target of 685000 tons of recycled inputs, primarily through an investment in recycling capacity in Europe, we remain on target to hit each of these spt's at the relevant measurement day.
Over the course of 2021, we will develop our 2030 sustainability strategy, which will establish a new set of sustainability targets and the steps to achieve them.
With that 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.
As Mark noted group adjusted EBITDA for the first quarter of 2021 was 121 million euros.
Turning now to slide eight let's break down these results starting with the PARP segment.
Adjusted EBITDA of 68 million euros increased 3% compared to the first quarter of 2020.
Volume was a 3 million euro headwind as shipments decreased 1% year over year.
Packaging rolled product shipments declined 5% due to the onetime events at muscle Shoals, the John Mark mentioned.
Automotive rolled products shipments increased 11% to a record 63000 tons.
Costs were a tailwind of 8 million euros, primarily due to favorable metal costs improve recovery and reduced labor costs.
FX translation, which is noncash.
Headwind of $3 million in the quarter due to the weaker U S dollar.
Now turn to slide nine let's focus on the A&P segment adjusted.
Adjusted EBITDA of $19 million decreased 62% compared to the first quarter of 2020.
Volume was a headwind of 32 million euros on 57% lower aerospace shipments year over year. In contrast, tid shipments increased 23% on strong demand in both U S and Europe.
And mix was a headwind of 28 million euros due to a lower share of aerospace shipments relative to tid.
Costs were a tailwind of 28 million euros, primarily.
Early related to lower maintenance and labor costs and favorable metal costs Lastly.
FX translation was a $1 million euro headwind in the quarter.
Now turn to slide 10, and let's focus on the F&I segment.
Adjusted EBITDA of 38 million euros increased 10% compared to the first quarter of 2020 volume was a 6 million euro tailwind on strong demand automotive extruded products.
Extruded shipments increased 9% to a record 34000 tons, while industry extruded shipments increased 6% price and mix was a 5 million euro headwind primarily from the industry business.
Costs were a $3 million euro tailwind on strong cost control, notably lower labor costs.
I want to highlight our 540 euros per tonne of adjusted EBITDA, which is back to our historical levels of profitability.
Now turn to slide 11, where I want to highlight our continued strong performance on cost across each of our businesses and at corporate.
<unk> delivered strong cost performance despite several extraordinary events.
T continues to manage costs very well, despite lower levels of aerospace shipments.
And a F&I also performed well despite higher levels of activity.
In the first quarter of 2021, we flexed our cost by 73% cost Flex you will recall represents a change of costs over the change of revenue.
Excluding metal and depreciation we reduced cost by approximately 55 million euros compared to the first quarter of 2020, notably lower labor costs maintenance costs and professional fees.
We continue to work on reducing cost of our capital structure.
Our February refinancing reduced our run rate cash interest by approximately 20 million euros, we will continue to evaluate opportunities to further optimize our capital structure costs.
I want to commend the entire <unk> team.
For its continued discipline around cost.
Now I'd like to provide an update on horizon 'twenty two horizon 'twenty two is actually a number of strategic business optimization initiatives.
On our structural cost savings initiatives, we now expect to deliver our $75 million target by the end of 2021.
Full year earlier than targeted.
With COVID-19, hopefully moving into the background, we have reinvigorated our efforts around a number of initiatives, including metal savings operational excellence and procurement savings.
We strongly believe that each of these initiatives provide years of cost improvement opportunities. We look forward to continuing to update you on our progress and I remain excited about the significant opportunities that are in front of us.
Now, let's turn to slide 12, and discuss our balance sheet and liquidity position at.
At the end of the first quarter.
Our net debt was $2 billion.
This was flat compared to the end of 2020 as unfavorable non cash FX translation.
That 46 million of free cash flow generation in the quarter.
We remain committed to deleveraging at the end of the first quarter. Our leverage was four six times compared to four three times at the end of 2020.
This increase and Leverages, primarily due to a lower adjusted EBITDA contribution from aerospace and unfavorable FX translation due to the weaker U S. Dollar in the first quarter of 2021 compared to the first quarter of the prior year.
We expect to resume our deleveraging in Q2 2021, as we replace a heavily COVID-19 impacted second quarter of 2020 with a stronger result in the second quarter of this year.
We expect leverage to be well below four times by the end of 2021 and finally, we do remain committed to our long term leverage target of two five times.
As you can see in our depth summary on the bottom left hand side of the page we have no bond maturities until 2024.
I would also like to highlight that we recently completed the extension of the maturity of our Pan U S. ABL to 2026.
Our liquidity was very strong at 982 million euros as of the end of the first quarter. Despite deploying approximately 150 million euros towards gross debt reduction during the February refinancing.
As the threat of COVID-19 subsides, we expect to gradually reduce our liquidity balance to more normal levels over the course of 2021 and 2022.
We remain firmly committed to free cash flow generation and gross debt reduction and I will now hand, the call back to zone Mark.
Thank you Peter let's turn to slide 14. Please.
I want to highlight our diverse and balanced portfolio of end market exposures for free.
Similarly, 80% of our LTM revenue targeted markets with secular growth characteristics.
Secular growth is largely driven by sustainability mega trends, including light weighting and transportation the electrification of the automotive fleet and.
And the development of a circular economy.
We continue to believe that this aspect of our investment story is underappreciated by investors.
Turning now to packaging packaging is a core market for <unk> and represented 41% of our LTM revenue.
Demand from our current customers remains strong in both North America, and Europe cans of convenience marketable and sustainable.
And consumers increasingly prefer cash.
To meet this demand our customers have announced new lines in both the U S and Europe. These new lines are expected to drive demand growth for can sheet for years to come.
Now, let's move to automotive.
Automotive represented 28% of our LTM revenue.
From stadium as well 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 continued efforts to lightweight will drive demand for our automotive products, including auto body sheet crash management systems and battery enclosures.
The near term demand from our automotive customers remains strong and we have thus far seen only limited impact from the shortage of semiconductors we.
Where possible Oems are prioritizing the production of light trucks, Suvs and luxury cars, where end consumer demand remains strongest and were from studio is most present.
Based on our current visibility of the semiconductor a shortage, we expect to have an impact in the second quarter similar to what we experienced in the first quarter, we will closely monitor automotive market trends.
Let's turn now to aerospace aerospace represented 9% of our LTM revenues, we remain confident that the long term fundamentals driving aerospace demand growth remain intact.
Crude and growing passenger traffic and greater demand for new more fuel efficient aircraft.
Aerospace Oems have maintained reduced build rates, our aerospace shipments continue to be at levels below build rates, which suggests the supply chain continuous destocking.
While we are seeing encouraging signs, including increased passenger traffic in the U S. This has not yet translated into more holders older book, but this can change quickly and we are prepared to meet higher demand.
In other specialties, we continue to execute on our strategy of expanding in niche products in a diversified range of markets in general These markets are dependent upon the health of the industrial economy in Europe, and North America, and all benefiting from a strong post COVID-19 economy rebound.
And recent trade actions.
In Tid markets are strong in both North America and Europe.
European extrusion demand is very strong across most end markets.
Turning now to slide 15, we detail our key messages and financial guidance.
<unk> delivered solid performance in the first quarter of 2021, we exceeded the adjusted EBITDA guidance range that we provided in February we continued to deliver strong cost performance across each of our businesses.
Also extended our track record of consistent and significant free cash flow generation.
As I mentioned earlier I believe there are many opportunities for <unk> to benefit from very real sustainability driven mega trend.
These trends can provide demand growth in all end markets low yields to go.
I remain optimistic about our prospects for 2021, we are now providing full year guidance for both adjusted EBITDA and free cash flow.
For the full year of 2021, we expect adjusted EBITDA of between 510, and 530 million euros in free cash flow in excess of 100 million euros.
As a result, we expect to make substantial progress in our deleveraging objective in 2021.
As always we remain committed to the safety of our people operational execution free cash flow generation.
Disciplined capital deployment and shareholder value creation.
With that operator, we will now open the Q&A session.
Thank you Anthony reminders.
Question, you will need to press star one on your telephone to withdraw your question press the pound Keith Please standby, while we compile the Q&A roster.
Our first question comes from Curt Woodworth with Credit Suisse. You May proceed with your question.
Thanks, Good morning, John Mark and Peter.
Correct.
Yeah.
I was wondering if you could quantify some of the headwinds you experienced in the first quarter between right.
Brian.
Impacts on net.
And it seems like.
With respect to the guidance you're assuming.
At least at this point not much change from order entry in aerospace and I assume some continued.
Maybe calendar on auto with respect to semiconductor. So I was wondering if you'd also just.
Can you provide a little bit more granular detail you could items on the guidance.
Yes.
Yeah, So Kurt I can start and then maybe from a margin jump in so in the in the first quarter.
Sorry can you hear me.
Okay.
In the first quarter.
The headwind that we've talked about is about 10.
$10 million plus it's somewhere in that range as a result of the.
The challenges at muscle Shoals, the bad weather at muscle Shoals, and then also the chip issue, which affects obviously.
Our auto businesses in PARP, and and then <unk>.
The other thing to highlight in terms of headwinds. If you think about this on a year over year basis is A&P right because when you look at the Delta year over year, obviously, the aerospace business was way down relative to last year and.
And I think that kind of articulate is really the biggest delta in the year over year.
The change that we have.
Yeah.
I think when you look forward to.
Two issues in muscle Shoals the weather.
And.
The strike all behind Us obviously.
And we said you know 10 million plus so we didnt break down to three elements.
So the <unk> is a best way that'd be wrong. So on a go forward basis, we think in Q2, we should be exposed steel to the semiconductor outage, so maybe sort.
<unk>.
Would be the best way to to kind.
Kind of put a number around it so.
Really material.
We're explaining it because theres a lot of talk have you seen the price. We see prediction line is going down. The fact that we see for Q2 for US is that amount and I think over time the situation will improve so no to material amount, but it is baked into our guidance.
And can you talk a little bit about your expectations for aerospace in the back half of the year.
I think it's a little surprising that order entry Hasnt picked up given that we've had some pretty significant destocking in <unk>.
Airbus has been pretty good from a 100 and take the build rate up in the back half of this year. So I'm just curious what your yes, yes.
Yes, no it's absolutely true that the sentiment is improving I mean, we see it in passenger traffic, we see it with our customers.
Trying to ramp that we're planning to ramp up production, we don't see it getting the order book order book, depending on space and all that is three to six months.
So.
Very difficult to call an inflection right I would say political two seats in the next three to six months for us, but it doesn't take us until the end of the year. So it could happen at any time and I'll stop short of.
Calling the inflection point.
We are ready when it comes and it is going to be very good for us, but we certainly do not see it further deterioration in aerospace.
Segment.
Okay, and then with respect to packaging can you comment on.
Progress, you're making with respect to some of the contract renegotiations.
Yes.
Yes. So we are index, yes. So we're in we're in very good shape I've commented over the past few quarters that I was becoming more.
More and more optimistic about our pricing.
And I continue to be.
And now we're looking at what happens in a $23 24, three which we are focused on at the moment.
See you continue the trend towards.
Better sharing of the value creation in the can sheet is academy King.
You had a supply chain. So that's good for us on a go forward basis.
And do you see scope to increase your <unk>.
Non.
Your line capability, there I know that from the Debottlenecking net at muscle Shoals.
Valuate it any longer term.
On the mill.
But.
Yes, so we see continued.
Before Trinity four of Debottlenecking and increased shipments now substantial debottlenecking, which would require substantial investment will be a conditional upon the execution of fully satisfactory contracts.
That increased capacity with customers. So we're working on it.
But even absent substantial stepped up we see a very nice gradual true.
<unk> improved pricing and improved volume.
Next 234 years.
Okay.
And then just final one from me and any updates on some of your EV initiatives with respect to either battery box.
Net partnership.
The penetration rates in that market.
Thank you.
True.
As you know we were very pleased with the.
Progress we are seeing now firmly in the numbers in our <unk> segment and pizza was highlighting that's well back to the historical levels of profitability and that has come on the back of quite a bit of tightening of thorough operations and a focus on what projects. We we select and go after so we have been very solid.
As I mentioned.
In the past that battery technology.
That's really to the batteries themselves right that the casings of it as boxes right.
To assemble them out to make them your steel.
Nascent or emerging so we have a couple of projects going on but they are not yet to substantial thought of either selling not our results year to date and note even if our outlook, but we are planting the seeds and we will see.
Gross.
Great. Thank you very much.
Thank you.
Thank you. Our next question comes from Christian Georges with Society Generale. You May proceed with your question.
Thank you very much good morning.
Can I just keep going on the what you were saying about the packaging.
I'm, making.
Because.
<unk> seems to be improving steadily.
With regards to day.
In Europe, and the U S with some of the new age drinks and indeed, the new lines, which are being installed.
Putting two dozen markets need to.
So most of the supply additional capacity.
To satisfy the demand, yes, it's already does need more supply.
As you saw.
Connie keys going back into cash shoot from the milling, Tennessee says is essential.
Increasing capacity in the North American market and you've got overseas competitors.
<unk> from the different places in the world. So the market is not in a place with demand can be met.
But all of us have a role to play at different times in the cycle and depending on how the investments ramped up to continue to meet that demand, which you look at it on a global basis.
You could have a 50% growth in can sheet.
I've said in a five seven years, so all of us will be.
Current stages, a day right time for each of us will contribute to this expansion intention.
And Christian again, as we said in the past.
The returns have got to be there for us to do it right. So we're definitely not going to build and they will come we're going to build in connection with kind of solid contracts and good visibility on the returns we can generate.
Great.
If you put the same questions to you.
With them with your grades.
Obviously at the woman's as being a bit of a.
The slow down music sheep's availability, but let's say, we go back to normal underlying rates, which seem to be quite true.
In price you've now.
<unk>, the German company, because coming about telematics.
And so on.
Again, that's what point we saw that.
So everybody was going to be 60% of the U S market.
We do we support them.
We routinely yoga and that to us.
So need to in the medium term short term for more capacity for automotive rolled products.
Yes.
Good question I mean, the same sort of applies that pizza gate for can sheet.
We will expand our capacities when we.
Sure, we get the right returns and.
And they are underwritten by very strong customer context contract will not there yes, if you look at our.
Current.
Shipments of 63000 tons from the first quarter for automotive sheets, we've got 300000 tons of capacity globally right. So well net.
<unk> did for us profitability returns Couldnt before revenue so we want to make sure we maximize that.
Then as you know there is a trade off between how much cash needs how much auto sheets, we want to make.
Again to optimize your overall recent non capsule for the company and then after that once all of that is optimized then we can ask ourselves okay. We're ready to.
Go for a significant expansion we are not there yet and we're really focused now on getting the returns from the investments we've made in maximizing the free cash flow generation and returns to shareholders.
Okay, Great and then my last question is.
With you with some more income.
<unk> in the U S for <unk>.
<unk>.
<unk>.
But you don't Jeremy I think I mean.
Is there any impact on you for this is there any impact on your line is going this low rate or is it neutral.
So there is there is an impact and we're shipping from Germany to the U S. So we're subject to salaries.
So that's the law.
But those volume said as capacity was very much needed in Europe. So we're able to redeploy the capacity in Europe and.
Conversely.
Those end to dumping duties were really Doggy day.
I guess, some axes that wisdom.
<unk> hundred 80 day more level playing field, so our operations in the U S.
She out of Ravenswood benefited from it because we all know competing against people that play by the same rules and you see some of that.
E fulfillment.
Higher pricing in the <unk>.
Volume.
So it's also my pleasure antidumping duties are a good thing from study them because the level the playing field deal selective targeted.
And they tend to.
Benefit does that play by the rules and the continent's while they operate in.
So as opposed to the.
Because either those Texas came about this in March.
The impacts would be more more present.
Our U S operation in Q4.
So yes, there is a process for these antidumping duties to be full day I'll leave it there is quite public.
The.
The beginning of the.
The possibility of antidumping duties, so face to meet net last year.
So.
At this point in time when <unk>.
Destination is launched and.
And does the first 57 nations to.
The supply chain has adjusted to new customers look at it and see if.
If I could choose to buy their I'm at risk.
Suppliers also start relocating their production to other geographies. So it's a continual process by the time they are.
Chile Levy.
The market is already adapted.
Okay. Thank you. Thank you very much.
Thank you. Our next question comes from David Gagliano with BMO Capital markets. You May proceed with your question.
Hi, Thanks for taking my questions I just wanted to ask a.
A bit of a longer term question in terms of the.
Pre COVID-19 target 700 million euros, which was I think a target for 2022 now that we are.
Where we are in this process and obviously packaging seems to be doing better in auto.
Semiconductor issues aside.
Sounds like it's probably back to where it was historically so.
Is it really the question is what do you think it'll take to get back to that 700 billion Euro target say for example by 2023.
So David Thats, a good question and good morning.
As we mentioned and I'll reiterate and confirm what do we mentioned in prior calls.
<unk> 700 billion target, we already hedged about every category except for aerospace.
As we discussed earlier, knowing when the inflection happens and when the aerospace goes back to a more normal level as we feel impossible still low sodium hotels to fill right now.
So is it possible in 2023.
In June when aerospace stuffs to begin, but as we said, we don't need to aerospace to fully return to pre COVID-19 levels like we had in 2019, where our profitability. In this segment was north of 200 million euros, because again of the progress we've made up because progress is a very spectacular I mean, Peter was saying we were.
Net of all targeted full year full year at the end of 'twenty. One we'll have that 75 million euros of fixed cost reduction are locked in.
Ed can sheets and im more to 700 million cash. If you did include some pricing benefit, which we will have.
Going into 2022.
Automotive as you said it was going to be a bit careful with the chip shortage and all that but it pretty.
Pretty much on track with better so at Ti diesel so petzel noticed any.
Expecting it to be.
So all in all I'm very confident about.
Given us.
Most of the ingredients to the 700 I just don't know when we get enough of aerospace to push us although the citizens with me involved.
But it won't be there.
Okay. That's helpful not to.
Pressure on it too much but.
I'm going to do a little bit anyway, just given you know a lot of this is pointing the right direction, except arrow.
The hesitancy to go back to that 700 million target by 2023. For example is there anything else there that we should be thinking about or is it just a matter of when you start to see that forming in the order books in Aero then.
And we will we will get a reinstatement of that target.
I think at scale to all of our investors that we tend to be cautious on guidance and we take it very seriously.
<unk>.
The fog.
As dissipated okay from.
COVID-19 COVID-19 fog has dissipated that's why we started getting.
Next quarter guidance now, we feel more comfortable giving full year guidance, we don't feel comfortable yet, giving three year guidance, we used to give it but we very much want to go back to that.
To that situation and I, just kind of tell you when that's going to be the case I I hope.
Hope to.
Visibility continues to improve.
Certainly seems to be.
But I can't think of a promise in terms of when we'll be able to reinstate loans from guidance David.
Yes perfectly understandable just really wanted to gauge your.
Your conviction and that's really all I need a day here. Thanks I appreciate it. Thank you thanks David.
Thank you. Our next question comes from Brian <unk> with Deutsche Bank. You May proceed with your question.
Hey, good morning, guys. Thanks for taking my question I just wanted to come back quickly on the guidance.
And just trying to.
Hi Fi.
About 10 million headwind for <unk>.
Hey, good into Q.
Doug you 40, Yeah guidance include that day Duane.
So Q.
Do you have anything on baby it into the guidance all suites, you Anfal Q.
Yes, so good volume growth so.
The 10 million of headwind in Q1 is actually less of that from Q2, because we don't have to strike anymore. We don't have the bad weather anymore. So.
So it's just a fraction of that drive value.
$3 million, maybe in Q2.
And.
I think that's why we have a range of $5 10 to 513, right. So that may be a little bit of that is still in the second half of the year, but not as much.
Okay.
I mean, you should.
Looking to the industry.
There was almost I thought what we see coming out in the past weeks also and with <unk>.
Or the OEM.
From on the facility from me in.
Although on the view and the impact could be.
Turning to <unk> and click on any 2020 Q.
Would you mind, just like maybe given your view on these all is it too early for you too.
Two comments on day, yeah, So I think that.
The closures that we know about that we've seen in the price of oil that is accounted for in our guidance.
No.
Yes.
Especially specific line ends up being shut down from nine months. Obviously, it's not included in our guidance, but we don't think it's a highly profitable.
So.
That's where I would.
I would leave you the kind of disruptions, we're seeing now if they were to continue.
So low.
Line stretch.
Full of weeks.
Walter.
I think thats embedded within the range, we've given low currently.
Okay. Okay.
I just have one more question and then.
On the call just Brian I know you mentioned, the 75 million and that would be by this.
Realized by one year.
And then from what you had indicated solid but just.
How much from those calls improved main tillman.
Is that.
Something that we can just take you choke on going forward.
And is there anything else that you can add in 2022 and 2023.
Coming back from the previous question would maybe bring you called out to that target.
Doug.
Yes, so so the $75 million that we talk about these are structural cost reductions so they're either fixed cost reductions or their variable cost reductions, where we're kind of structurally changing something so I'd say its a sustainable cost reduction.
Hopefully one thing that you've gathered from what we've said so far is that.
This is a this is a target that we've achieved but where it will be.
Kind of putting together additional targets that we do think we've got a long runway of other kind of cost saving initiatives to layer in over time that are going to as I said in my in my prepared comments are going to help us for for years to come here.
So we don't so so yes, you should assume their permanent and.
I mean, there are some inflationary pressures in the business in different places, but they're really fairly limited at this point.
So we feel pretty good about the ability to sustain them.
Okay, great. Thank you.
Maybe just one line on the on the free cash flow I know you guys guided.
Doug.
Above.
Amy.
Any clarification on either timing, it's Rob again, you said, okay, <unk> already achieved but actual days with $46 million.
Do you expect to Q&A from Q2, maybe.
Like many of our free cash flow would you expect to be at.
Got it above that one day.
Yes, well I think again, our guidance is 100 right. So.
Our more than 100 so.
I think you should assume that it's spread more or less evenly.
Over the time for the for the time being as we kind of.
Work hard over the course over the next several quarters, we're going to try to beat that number obviously, but today.
We wouldn't commit to more than kind of greater than $100 million.
And Corey you have noted our capital expenditures in the first quarter are all free low.
Full year.
Guidance is that's usual rights when you tend to have more should shutdowns outages maintenance big projects being done in the summer months and.
The holidays break right. So you would ex.
We benefited from that from the free cash flow in the first quarter, we won't have that benefit too because we'll be catching up on the capex and the SEC.
Yes.
Okay that makes sense. Thank.
Thank you.
This volume of course, thank you.
Thank you. Our next question comes from Josh Sullivan with low benchmark you May proceed with your question.
Hey, good morning, David.
Yes.
Can you just update us on the investments.
The UBC recycling you previously outlined.
Just how does that expansion into recycling planed overall capacity does it help with some of the bottlenecks and extending can sheet at all.
Yes, Josh so it's certainly a UBC recycling, it's still slow automotive recycling project.
We are in the us.
The final stages of the detailed engineering.
So you should be able to announce.
Location and all that.
Well before the end of the zone.
No doubt about it.
It will not help.
The can sheet volumes.
Two lower cost base for can sheet as recycled metal is less expensive than primary metal, which will also help us on the automotive side.
<unk> business, making the business more sticky with customers because more and more customers you know to Moody's are looking for closed loop recycling with the can send back they'll process scrapped.
The original mills.
Think of it we send them goes blank Cindy Stanford door out of a blank have you seen even good process dropped yet you come back it creates a circular.
Closed loop recycling is good for everybody. So we expect that to help us be.
Less.
Lower cost.
The lower carbon footprint have you seen because it was displacing primary metals.
And.
Closer connectivity relationship with our customers.
That helps with the revenues, but it does move.
<unk> with the customer side.
Got it.
And then just can you talk about to start up.
Go ahead.
Can you just talk a little bit about the the recovery in F&I.
Is that mostly driven by industrial cover Europe overhead absorption costs, new auto programs just some more.
Color there just on the recovery was little better than we had expected as all of the above Josh I mean, we will.
He was very happy.
A year ago.
Volume of.
Just before the citizens a small chunk of cash.
With the progress made at C&I in quite frankly.
Keith added <unk> those numbers, we're seeing now we would have seen much sooner right six nine months sooner so yes.
Good execution on the programs.
On the new projects are good execution from the existing.
Business reduction in waste.
The improvement in the speed and efficiency.
It's a mix of projects as well, but that please only to a small extent as you know most of these projects.
Five seven years in duration, so in any given year.
We knew 15 or 20% of the business.
The team is covering now older basis, delivering strong performance and I believe that small gene can continue to expand in the future.
Got it.
And then just one last one on it.
On A&P.
Some strength in European defense.
And I guess it depends in general can you just can you just highlight some of the programs. There that are that are showing some strength.
A three year across the board I mean defense is strong and we've come into their needs being strong through.
Through the crisis from before we price it.
We're seeing a lot of activity.
Also in.
In the industrial space in the gold space.
Engineered the place for a very.
Advanced and machinery like.
So as semiconductor manufacturing and all that so we provide fleets. So that's true.
Yeah.
Of which the machinery that makes the semiconductors I've made.
He has strength.
Recreational.
Segments in the U S like the pleasure boat, so we see strength.
Transportation around the Drexel traders and.
So it's really a profitability some very.
Wide and broad recovery will seek on both sides of the Atlantic.
And Josh just to remind you that the defense tons small tons, but theyre highly remunerative alright.
Alright.
Got it. Thank you I think for the time.
Thank you.
Thank you. Our next question comes from from <unk> with Deutsche Bank. You May proceed with your question.
Hey, guys nice quarter and congrats on that.
Moving up your horizon.
That's great.
Thanks for the question. Thank you.
We've been hearing many companies have been having a difficult time.
Rehiring or hiring laborers are you seeing that anywhere in the U S or elsewhere in your markets.
Yes, we have.
It puts a little bit of a constraint on the some of our operations we have lost some sales.
But that wasn't very sporadic basis, because we could then three highest we cleanup trades people quickly enough.
It's not a it's not a massive ed weighted remora.
Anecdotal at this stage, but we are watching it very carefully and we are.
Being a little bit more prudent and we're.
Trying to hire them.
Even if we don't need it right now so that we have the resources secure because we're quite optimistic about what's coming at us for the rest of the year.
Right that makes sense.
<unk> seen that in the U S or are you also seeing that in other markets. It's more pronounced in the U S.
<unk>.
But there is some evidence also in Europe. It does also have an element which is with all the.
Well, Phil benefits and all that that we see on both sides of the Atlantic for some people.
That's up from Sterne employee then to go back to work quite frankly, so thats alright, that's also a bit of a chattering that happens from both sides of the ocean.
Well, it's good to hear you're aware I mean, keeping in line.
And then just one more if I could on the recycling are there opportunities for you guys to expand recycling through tuck in acquisitions in conjunction with your organic growth.
We're trading I guess increase your internal consumption as you grow or are you focused solely on greenfields.
Yes, so each brownfields really.
We won't have it next to our plants, where we get the cash sitting in the molten metal competencies, but yes.
Yes acquisitions can be looked at.
No matter.
What makes the most sense from a capital deployment.
10 points and obviously when you buy something that's already working you accelerate the ramp up but.
But at the same time, you can go to be a.
Facility that allows you to lower it.
To make the products, we need to make sure.
Most sophisticated than what you've seen a lot of recycle only shops right. So you've got.
The specs.
Almost as tight as well looking for but we will.
We're keeping our ear to the ground and.
And unfortunately to your range, we'll look at Eaton to benchmark it against what we need to do internally, which is adjusted.
Alright.
Good day here you know a lot of your markets are recovering.
Thanks, very much for answering my questions.
Thank you Sean.
Thank you. Our next question comes from Karl Blunden with Goldman Sachs. You May proceed with your question.
Hi, good morning, and thanks for the time.
Good morning Collyn.
I know you spoken a lot about aerospace and.
We're seeing some travel a return but.
The order rates still relatively low.
I guess the question is have you changed your long term assumptions about that end market or have you changed the amount of capital that you'd like to commit to that end market relative to the strong opportunities youre seeing in can sheet and autos.
Yes.
We're not putting a tremendous amount of capital in aerospace we have a very good industrial setup.
We have very established positions with the Oems, we'd go to stronger IP portfolio.
We will we'll tool for aerospace.
We certainly want to continue to take care of our assets.
Assets and maintain them, but we will not need to put a lot of capsule in the ground.
<unk> expense showed an all new products in aerospace, we've got everything we need to.
So.
Regarding the first part of your question, which is does it lead us to reevaluate our long term.
<unk> aerospace.
Not yet I mean, we are in the process of working on our strategic plan now.
And.
We will have discussions with <unk>.
By the end of the year.
But we at this stage, we continue to see aerospace as a secular growth market from us.
To say that given where we're starting from right, which is 50% down compared to where we were but I do think aluminum is low to potential.
As a material of choice and I do think that we will see a travel resume growth.
There is a lot of debates about where the business travel will come back to the same levels as in the past and maybe it's going to be.
Longer recovery, but there is more and more economy activity. There is still the need for people to me.
More and more business people.
In the world.
Maybe each of us will struggle, a little bit less but would be many more of us.
And when you take the 10 year view I think we still have very favorable market for aerospace and for aluminum in aerospace.
Again, that's our thinking at this stage.
And quite frankly doesn't have dramatic implications for us because as I mentioned, we have what we need to be able to seize the opportunities when they come back.
I just wanted to revisit you mentioned our clinic with the noncompete Rolling off can now compete for some contract in can sheet. It sounds like it's not impacting the pricing or margin opportunities in this space at this point in time is that that.
Is that something that you would expect to continue just given the well balanced supply and demand are these tight conditions or.
Are there any risks to that that application.
Things are never linear right. So there's always bumps in the road.
But I think <unk> is a very.
Disciplined organization very focused on the cash.
Solidification and shareholder value creation onshore as well so.
The.
Uh huh.
There was a price at which it makes sense to make and she didn't know the price at which it doesn't make sense.
We all operations.
Let's say.
Yes.
Finally, maybe this one is more for a low Peter on the balance sheet.
I think you've done well in with some liability management transaction.
Accessing different parts of the debt market as you look at it today, there's quite a bit of callable debt.
Where does that fit in terms of priorities do you want to put a couple of stronger quarters behind you for us or find capital market conditions to be attractive as they are today.
Yes. Thanks.
So.
Youre right, we do have quite a bit of callable debt outstanding the way. We look at it is we've got a lot of tools to potentially use and we're going to be opportunistic and I think one of the nice things that we've done of cash.
Company is we've kind of put ourselves in a position to be opportunistic growth.
The nearest maturity we have is in 2024.
So.
As we as we expect to be free cash flow positive, we're going to use some portion of that to repay debt. We will from time to time look at liability management transactions, where we can create significant savings.
And one of the things, we're really focused on is bringing our our cash interest down to a number that's less than 100.
So that's something we'll continue to chip away at through some of these opportunities and some of the debt repayments, but we don't have any definitive plans right now.
Access to the markets.
That's helpful framework. Thanks, Peter.
Yes.
Thank you. Our next question comes from Curt Woodworth with Credit Suisse. You May proceed with your question.
Okay.
Steve Your line is on mute please UN mute.
Yeah.
Yes.
Hey, Kurt.
Yes can you hear me.
Now, yes, okay sorry.
Just a question on metal pass through when you look at <unk> premiums are obviously up.
Pretty significantly but on top of that shape premiums billet premiums up as well.
Is there any timing issue with respect to potential margin squeeze on that or do you have full pass through.
Look forward yes.
So generally speaking remember John.
Mark said in his prepared remarks, we pass through the cost of metal.
Higher metal prices typically mean for us assuming stable scrap spreads that they mean slightly.
Better profitability.
Falls to EBITDA, So we have a benefit there.
We do have some instances in the kind of short term because they tend to be shorter contracts, where we don't have the ability to pass through premiums, but they tap these tend to be kind of six to 12 month contracts and when we go back to renegotiate the contracts, we tend to get all or some of that back.
Again from a from a base kind of metal standpoint, we feel we're in pretty good shape from that vantage point and should be able to avoid margin squeeze.
With respect to billet premium.
You are right billet premiums are higher.
In most of our businesses.
We can pass through the billet premium so we do have some instances where we cannot.
That's a.
That's.
Negotiation that we have with our customers.
But generally speaking we can pass that through.
Thank you and I'm not showing any further questions. At this time I would now like to turn the call back over to Jean Marc Germain CEO from selling them for any closing remarks.
Well. Thank you everybody for attending Nicole and again, we look forward to updating you on our progress towards our newly issued guidance.
July thank you so much and a good day.
Thank you ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
Right.
Your line.
Okay.
Okay.
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