Q3 2021 Constellium SE Earnings Call

October 27, 2021

Good day and thank you for spending by welcome to the can sell in the third quarter 'twenty 'twenty. One 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 to press.

Star one on your telephone if you require any further assistance. Please press star Zero I would now like to hand, the conference over to your first speaker today, Ryan Wentling director of Investor Relations. Thank you. Please go ahead.

Thank you operator, I would like to welcome everyone to our third quarter 2021 earnings call on the call today are our chief executive officers of Merck 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 1095, 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.

And today. 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. Thanks, Ryan Good morning, and good afternoon, everyone.

And thank you for your interest income stadium.

Let's turn to slide five and discuss the highlights from our third quarter results I would like to start with safety. Our number one priority while year to date recordable case rate was 1.8 million hours worked in line with our record performance in 2020, I would like to specifically recognize via thoughts.

Significantly exec Zynga and <unk>.

Each of these locations achieved more than 1 million hours worked without a recordable case in the third quarter.

Shipments were 395000 tons.

12% compared to this third quarter of 2020 revenue increased 35% to $1 6 billion euros. This was.

<unk> really due to higher metal prices and higher shipments remember, while our revenues are affected by changes in metal prices, we operate to the best business model, which minimizes our exposure to metal risk.

While net income was 99 million euros compares to a net income of 20 million euros in the third quarter of 2020.

Strong end market demand, particularly from our packaging and industrial customers and solid cost control helped us overcome the reduced contribution from aerospace the continued impact from the semiconductor a shortage and increased inflationary pressures I.

I am very pleased with our team's strong execution again this quarter.

Looking forward, we are updating our 2021 adjusted EBITDA guidance to a range of 550 to 560 million euros that compares to our previous guidance of $5 45 to 560 million euros.

We extended our track record of consistent free cash flow generation was 40 million euros in the quarter, bringing our total to 121 million euros through the first nine months, we continue to expect free cash flow in excess of 125 million euros in 2021.

Moving now to leverage as you can see in the chart on the bottom right.

Our leverage declined to three six times at the end of the third quarter down at food turn from the first quarter and Thats, a multi year low.

We remain committed to reducing our leverage to our long term targets of two five times.

We are also acting on our commitment to reduce gross debt with a recent announcement of the redemption of $200 million of our 2026 notes.

Overall, I am very proud of our third quarter performance, we delivered strong adjusted EBITDA solid free cash flow generation and further deleverage deleveraging in excess of our expectations with that I will now hand, the call over to Peter for further details on our financial performance Peter Thank you Jean Marc.

And thank you everyone for joining the call today, let's turn to slide seven.

For the third quarter of 2021, <unk> achieved 143 million of adjusted EBITDA, an increase of 14% compared to the third quarter of 2020.

Compared to the third quarter of last year PARP adjusted EBITDA of $9 1 billion euros increased by 9 million euros A&P adjusted EBITDA of 20 million euros increased by 10 million euros and <unk> adjusted EBITDA of 32 million euros decreased by 1 million euros.

Holdings, and corporate costs of 3 million euros increased by $1 million compared to last year.

For the first nine months of 2021, <unk> achieved 434 million of adjusted EBITDA.

23% increase compared to the first nine months of 2020, PARP and A&P adjusted EBITDA increased compared to the prior year on strong overall performance, while <unk> adjusted EBITDA declined due to weaker automotive shipments as a result of the semi conductor shortage.

Now, let's focus on our segment performance turn to slide eight for the PARP segment.

Adjusted EBITDA of 94 million euros increased 10% compared to the third quarter of 2020.

Volume was a $17 million tailwind as shipments increased 9% compared to the third quarter of 2020.

Packaging shipments increased 12% on strong demand, while automotive shipments decreased 8% on continued effects from the semiconductor shortage, we continue to expect.

Our strength in packaging to offset the weakness in automotive.

Price and mix was a headwind of 8 million euros on a lower share of automotive shipments costs were a tailwind of $1 million euros as favorable metal costs, offset higher maintenance and labor costs.

FX translation, which is noncash was a headwind of 1 million euros in the quarter due to a weaker U S dollar.

Now I'll turn to slide nine and let's focus on the A&P segment adjusted EBITDA of 20 million euros increased 91% compared to the third quarter of 2020 volume was a tailwind of 38 million euros Tid shipments increased 86% on strong broad based demand.

And in both North America, and Europe, while aerospace shipments declined 13%.

Price and mix was a headwind of 31 million euros due to a lower share of aerospace shipments relative to tid.

Costs were a tailwind of $3 million euros, as improved productivity and favorable metal costs, offset higher maintenance labor and outside processing costs.

Now turn to slide 10, and let's focus on the F&I segment.

Adjusted EBITDA of 32 million euros decreased by $1 million compared to the third quarter of 2020 volume was a $3 million euro tailwind as industry shipments increased 24% on strong broad based demand, while automotive shipments decreased 16% due to.

Demand from the semiconductor shortage.

And mix was a $5 million euro headwind due to increased share of industry shipments relative to automotive and cost was a 1 million euro tailwind on solid cost control.

Now turn to slide 11, where I want to highlight our continued strong cost performance.

On the top left of the slide you can see that our cost flex was 96% in the third quarter.

In other words, our cost including metal costs increased 96% for every euro increase in revenue in light of the inflationary pressures. We are experiencing we are pleased with this result, and each of our businesses demonstrated strong cost performance.

We are seeing increasing signs of inflation across the business specifically in energy alloying agents transportation and labor some of the inflationary pressures are likely structural but we expect many to be transitory.

In the meantime, we are working on numerous mitigation strategies to help to offset these costs.

Importantly, our significant efforts in reducing structural costs by 75 million euros serve ryzen 22 have provided a solid foundation from which to manage the current inflationary pressures and support future profitability, we will need more time to fully assess the impacts on our future results.

But we expect these pressures will have a greater impact in 'twenty two than what we are experiencing in 'twenty. One as we have already secured the vast majority of our inputs for 2021.

Based on our current outlook outlook, we expect the inflationary impacts to be manageable and to a large extent offset by higher pricing. This includes the effect of signing new contracts at higher prices.

And the inflation protection or cost pass throughs within existing contracts. We are also having success implementing inflation protections in our new multiyear contracts.

Lastly, I would like to address magnesium availability, China has produced 80% to 85% of the world's magnesium, but now is operating at approximately 50% of those levels.

This shortage continues for too long, many industries and supply chains will be impacted.

Based on where we stand today, we expect to be able to meet our contractual requirements for the fourth quarter and we believe we are in good shape for the first quarter.

We have less clarity further into 'twenty, two and the situation remains quite fluid.

While it is important to recognize that there are some factors that are out of our control like Chinese production levels or a force majeure at a U S. Supplier, we are taking internal mitigation actions and we are taking steps to secure the magnesium we need, albeit at elevated prices. So that we can continue to support.

To our customers.

Now, let's turn to slide 12, and discuss free cash flow.

We generated 40 million euros of free cash flow in the third quarter, bringing our year to date total to 121 million euros.

As you can see at the bottom left of the slide we delivered on our commitment to generate consistent strong free cash flow since the beginning of 2019, we have generated over 450 million euros of free cash flow.

Looking forward, we expect to generate in excess of 125 million euros of free cash flow in 2021, we.

We expect relatively muted free cash flow generation in the fourth quarter as a result of timing of Capex spending and continued inventory build to help meet customer demand.

We remain committed to significant sustainable free cash flow generation.

Now, let's turn to slide 13, and discuss our balance sheet and liquidity position.

At the end of the third quarter, our net debt of 2 billion euros declined slightly compared to the end of 2020 as free cash flow generation was partially offset by 60 million euros of FX translation.

Our leverage reached a multi year low of three six times at the end of the third quarter. We continue to expect our leverage to end the year at or below three five times.

As you can see in our depth summary, we have no bond maturities until 2026 yesterday, we announced the redemption of $200 million of our five 875% senior notes due 2026, which is expected to save US approximately 8 million euros of annual interest cost.

And is consistent with our objective of reducing gross debt.

In total our capital structure actions in 2021 are expected to save $38 million of annualized cash interest we are rapidly approaching our cash interest target of less than $100 million euros per annum. This is a fantastic achievement or.

Our liquidity was strong at 900 million euros as of the end of the third quarter. As we have noted on recent calls we will continue to gradually reduce our excess liquidity as the risk of Covid receipts I will now hand, the call back to Joe Mark.

Thank you Peter Let's turn now to slide 15, and just yourself portfolio and our end market outlook.

I would first like to highlight.

Diverse and balanced portfolio of end market.

On the left you can see the breakout of our LTM revenue across our four end market.

The packaging market is strong in both North America and Europe.

We expect mid single digit demand growth in the medium to.

This growth is underwritten by new can lines announced by our customers in both North America and Europe.

The can sheet market continues to improve and we have continued to secure long term strategic agreements with our customers.

These agreements reflect the substantial value that we bring to the market as a major domestic supplier in both Europe and the U S.

As I mentioned last quarter, we're investigating a number of initiatives to increase can sheet capacity across our packaging platform to serve this growing market.

Expect this will be achieved through both debottlenecking and additional investments.

Moving now to automotive.

Automotive demand continues to be hindered by the semiconductor shortage.

<unk> experienced production stoppages throughout the third quarter and we expect these to continue into the fourth quarter.

We believe underlying consumer demand remains strong, especially for light trucks, Suvs and luxury vehicles, where from stadium is greater exposure.

And it's still now to aerospace demand for our products has remained at a low level. However, optimism in the aerospace supply chain is increasing while it's difficult to pinpoint the precise timing, we expect to show year over year growth in aerospace shipments in the coming quarters.

Although the longer term, we remain confident that the fundamentals driving aerospace demand growth remain intact, including growing passenger traffic and greater demand for new more fuel efficient aircrafts.

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 all dependent upon the health of the industrial economies in Europe and North America.

Specialties markets are generally strong in both Europe and North America.

Across each of these four end markets, we have demonstrated to our customers the value that can stadiums products spring.

Over the past two years, we have been able to increase pricing and obtain contractual protections.

As Peter mentioned earlier, we expect these price increases to largely offset the inflation we are experiencing.

Obviously, we'd prefer to be facing the current inflationary pressures, we are much better equipped to manage them.

Let's turn now to page 16.

As you can see on the left slide side of the slide our diversified portfolio benefits from favorable market trends across each of our segments.

Several of these are secular mega trends driven by sustainability.

<unk>, the circular economy light weighting and electrification in transportation and the aluminum can is the preferred.

<unk> package.

We also continued to benefit from the recession resilience of can sheet.

Demand Street again during the Covid crisis, and the diversification benefits that I'll focus on other specialties provides.

Aluminum is a major contributor to the circular economy aluminum is infinity recyclable and does not lose properties, when recycled and lakes and like paper or plastic.

As one of the largest recyclers if aluminum in the World and stadium plays a key role in these critical trend.

We are planning to build an disadvantage through our investment in a recycling center in Europe. As you know, we initially plan to add a minimum of 60000 tons of slab making capacity.

We are now investigating a larger facility.

Approximately 130000 tons of capacity the capital spending for a project like this would be spread over approximately three years and would not impact our deleveraging journey.

This is a strategically important project for Pennsylvania.

With increased use of aluminum comes a greater need to recycle end of life scrapped.

Be doing alfalfa to contribute to the circular economy.

By using recycled includes purchased at a discount to primary aluminum and testing our own set we will increase our security of supply and reduce our reliance in Virgin missiles, including aluminum and other alloys.

We will also be able to meet customer requests for higher recycled content and loose Youtube footprint products.

At <unk>, we are increasingly aware of our environmental footprint and the same can be said for our customers.

And all the way to the end customer consumers. Therefore, we expect our customers to be increasingly selective about the footprint of the metal they choose to use.

Our ability to offer these products will be a competitive advantage.

As he said environmental focus is likely to continue to intensify over time.

Moving on to all the favorable market trends aluminum is inherently lightweight strong and corrosion resistant. These traits provides a strong value proposition for transportation applications, notably for light weighting and fill the electrification of the automotive fleet.

Provide solutions across a wide spectrum of transportation applications, including auto body sheet automotive structures rail and other transportation extrusion aerospace sheet and plate and tid sheet.

We expect electrification in transportation to continue to gain traction as I have noted in the past electric vehicles contain more of the aluminum products that we produce like ABS crash management systems and battery boxes that internal combustion engine vehicles electric vehicles are increasingly represented.

Enough customer portfolios in both <unk> and <unk> with <unk>.

Recent example is our supply of structural components for the F 150 lighting.

Proud to sit both fold uniques electrification of the F 150.

Lastly, cans are increasingly by the beverage packaging material of choice with more than 70% of new beverage launches in Cannes. This compares to only 30% back in 2014.

Aluminum cans are inherently sustainable, bringing physically recyclable with the lifecycle that return them to the shelves.

You are 60 days.

We believe there is substantial additional opportunities both cans, notably Stillwater wine and other alcoholic drinks.

Before I conclude I would like to highlight the fact that some stadiums sustainability efforts are being increasingly acknowledged most.

Most recently sustainability axiom foods, our ESG risk rating, placing us at the top of our peers and within the top 5% of the diversified metals industry.

We believe this is strong validation of the progress that we've made in recent years and I look forward to sharing more details about our 2030 sustainability strategy early next year.

Turning now to slide 17, we detail our key messages and financial guidance I am very proud of course stadiums. So it's relative performance while successfully navigating an environment that has been more challenging than we expected in July we delivered adjusted EBITDA surpassed 2019 levels.

Coming substantial headwinds importantly, we extended our track record of free cash flow generation and we further deleveraged deleveraged our balance sheet.

Looking forward I believe there are many opportunities to.

To benefit from secular Mega trends.

Australia is part of the solution we have.

<unk> already taken actions to capture of some of these opportunities and we will continue to plant the seeds for future growth in a disciplined manner.

For 2021, we are targeting adjusted EBITDA of five <unk>, and 560 million euros and freak actually in excess of 125 million euros.

<unk> focused on operationally.

Performance cost control free cash flow generation and shareholder value creation with that operator, we will now open the Q&A session. Please.

Yourself from the queue. Please press the patchy standby, while we compile the Q&A roster.

Your first question is from the line of Emily Chang with Goldman Sachs. Your line is open.

Good morning, Joe Mark and Peter Congratulations on a good quarter. My first question is just around the recycled material that you're currently using in your portfolio can you give us a sense as to how much you are using.

And then when you think about using scrap material as your raw material input can you use that across every different end market or is there still demand for Virgin alloy materials out there with different applications.

Good morning, everybody and thank you for your encouragement with Q3.

So scrap yes, it's a very important inputs, we use about 600000 tons of it so clearly.

We shipped one 6 million tons of products. So there's a lot of opportunity for us to expand in the script.

Script, essentially can be returned into <unk>.

Emerging like materials through our processes and obviously that is cutting some money that's why we're buying it at a discount.

But it's a very profitable undertaking and thats why we want to extend our capacity that's why we are.

We're not seeing a project to grow that's recycling by another 130000 tons.

Coming couple of years now.

We can use <unk>.

The amount of scrap that you can use defense in the chemistry of the scrap in the chemistry of the end product, you will making and some applications need more.

Less tolerance in terms of how much different ingredients or alloys can be.

The material that youll setting to your customers. So as a rule of thumb in can sheet you can have very high recycled content.

You can have some quite a bit of recycled content to move teeth in aerospace, it's more challenging, but we do recycle a lot of the supply chain right. So in terms of.

<unk>.

Scrap generated in our process downstream by the process focused and as if we implement good closed loop, we can recycle this into themselves, but typically the aerospace alloys are very tight tolerances for chemical composition that make them more difficult to use recycled metal and then the other.

There are niches.

Does it different stories, there with something that can become a data could it be a recycled inputs and others set out most of the trading but again. It is in the 600 that were using in the $1 6 million and third we're shipping there is a lot of growth for us and the 130 is certainly a big step.

The last step in our journey to improve our recycled content.

Thanks, Marc that's really clear and one follow up just around the magnesium discussion.

And it looks like <unk> got the material on hand, but in terms of the cost inflation impact how quickly can you pass that through to your customers.

So as Peter said I mean, we are in reasonably good shape in terms of availability and what.

Some of you it may sound like a visibility <unk> great actually this is a market where a lot of the business instead of on a quarterly basis. So we are not straying too far from historical practice, but yes, we are buying at a higher price than we used to so it's going to be a headwind going into next year.

I wish it wasn't there, but it is but we have to phase III.

I think it's difficult to say.

What the prices will be over the course of next year, because as I mentioned and most of that he has done and the quality basis and our ability to pass it through is.

You've got to think of it.

<unk> of different ways, we have some contracts so you're going to direct the best Okay.

Okay.

We've got quite a few contracts so good general inflation protection and as you know there was already quite a bit of inflation in 'twenty, one general inflation compared to 2020 and that will trigger price increase is broad based price increases in 2002.

Then in the current environment. We're in we've also been able.

In addition to.

Through magnesium in some cases.

Through general inflation, we've been able to step up our pricing.

Just because of supply demand is helping us and will providing good products.

Good reliability.

And the markets are growing so overall.

<unk> be some timing effects and not all of it will be able to pass through in the year, but over time, we will recall the what's happening.

Head of us in 2022.

Whilst again since you have moving pieces I feel pretty comfortable and I think Peter mentioned that most we will be able to.

Vault at all.

The increase in the cost of magnesium.

Understood that's very clear. Thank you. Thank you.

Your next question is from the line of Josh Sullivan with the Benchmark Company. Your line is open.

Hey, good morning, and congrats on the quarter here, Thanks, Kevin and good morning.

Okay.

Up on the recycling.

Expansion here.

The inflationary environment on the raws how.

The scrap market for aluminum looking into getting more competitive how do you guys keep a moat around that as you expand.

Yes.

I think.

We.

It's worth talking about inflation recycling aluminum diesel hedge against inflation.

Timothy right because.

We get more of the process.

The the moat.

Recycling is the fact that we.

People in all situations right.

All of the most legitimate ultimately on the scrap and converted into metal because we got the huts meals to make that product into something that customers can use.

I think what were doing is were kind of cutting the middleman because every aluminum so sorry fall row.

<unk> yeah.

Aluminum.

Inherently profitable to recycle and that's the beauty of the material.

Yes.

You should try to recycled plastics.

It is customary to try to recycled paper at East coast.

Aluminum there is profit and recycling aluminum.

So every piece of aluminum that says there.

People care to recycle will be recycled because each profitable. So what do we do think of it as we are cutting the middleman.

We're getting access to the sources of scrap and putting it directly into furnaces and converting it into the products that our customers want as opposed to that product going into somebody else's furnaces, but then they don't have the hot mill and they can't make the product that the customer as well.

So I think this is a very defensible situation.

Cheryl defensible situation, because there's not that many customers out there and certainly in the west hasn't been a new us getting the best three years. So we feel very comfortable that we are in a very legitimate place to make money by recycling out of them.

Josh maybe just to jump in a little bit.

I think it's we expect that its not unreasonable to think that.

With the ESG trends out there that there will be increased recycling rates or pressure on increased recycling rates, which will of course.

More scrap feed.

And secondly, and I think importantly, when you look at the growth in the end markets that we're seeing as the as we're kind of producing more aluminum for these end markets theres going to be more scrap, but that's produced that needs to be recycled. So I think there should be a bigger pool of scrap to draw from.

Okay.

And then is there any arbitrage can do between the north American market versus the European market given the straddle. Both I mean can you move any of your magnesium supplies between the two so if there is an arbitrage opportunity.

Yeah.

We can if needed, but we don't think we really need to.

Yes, I mean, we really we like that we think both markets have good fundamentals and we really like the model that we've always articulated to you that we like to produce in the market for the market right. So to the extent that we can source our material in.

The market then we will do that.

Thank you for the time.

<unk>.

Your next question is from the line of David Gagliano with BMO capital markets. Your line is open.

Hi, Thanks for taking my questions.

Given the.

Magnesium, there's a decent focus lately I was wondering if you can.

Drill down a bit more into the magnesium commentary.

Don't mean to harp on it, but just where does.

Consulting sources magnesium are there differences between North America and Europe.

How much exposure do you have after the first quarter you mentioned that.

Quarterly contracts, but in terms of supply.

Not on cost of supply availability in terms of the visibility after the first quarter.

And then sorry for all the questions, but then the last one of the mitigation efforts you mentioned that you are taking mitigation efforts.

Just talk a little more specifically about what those efforts are.

Sure.

David well, that's quite a question in a long time, so I'll try to cover it as best as I can and pizza with the healthy.

So we by magnesium from China, but also by from a number of other suppliers.

In other countries.

Gives us some protection in terms of making sure we get the magnesium we need.

The way we are reasonably comfortable for the beginning of the year.

And.

We in terms of mitigation efforts.

Vis vis the crisis.

First one is.

You too.

Everything so.

The broad diversification of our suppliers that first one which I just explained.

One is we also use secondary mag, alright, recycled magnesium, but which is not exposed to what we're describing.

Third one is by improving our use of borrowed metals recycling, we reduce the need for housing in general right.

Fourth one is.

Bye.

Choosing to sell more or less of diesel that product to the extent. We can that also helps us consume less magnesium because not all that dissimilar magnesia factor.

Factor of 10.

Yeah.

In terms of med comms and depending on what product you are making.

The.

One I guess on that.

<unk>.

As conservation depending on our practices.

We can come to.

Magnesium.

Obviously, the more expensive it is more incentivized.

To conserve it.

And there's a lot of focus gassed out just to make sure that we have.

Conservative as best as we can so all of these give us quite a bit of.

<unk>.

A little bit too comfortable given the size of the crisis, but that gives us quite a bit of extended.

Life for most security of supply and availability.

In the context of this crisis.

And David the only thing I'd jump in to add is that.

Obviously, what we're trying to do is fill out the near quarters first so it's not like kind of once you get past the first quarter, we have we have no.

Supply at all.

Kind of tapers off from there, but I think based on what we see in.

Kind of based on some of the at least the most recent news out of China, We feel like we will be able to chip away at this as we move through the period.

Period sorry.

Okay. That's that's helpful. Just one quick follow up and then another quick one after that.

Can you just give us a sense of the percentage magnesium you buy directly from China versus the rest of the world.

If the environment was to stay where it is can you give us a sense as to.

I don't know if its volumes are overall volumes or how much would actually taper off after the first quarter in terms of your ability to.

To produce.

That's my follow up.

I don't think I want to go into too many specifics because it starts to be commercially sensitive.

Sure.

Well I would just say that we are less exposed to China than what they are what they represent in total production.

In the world.

Quite a bit.

And when Peter Youre seeing tapering off.

As I mentioned a lot of these contracts out quality right. So we are now focused on making sure we get to Q1.

The prices are very elevated so we're a little bit.

Keen to secure Q4 volumes at the current prices given the fact that we believe.

With all the measures we are describing and also the fact that the Chinese production, resulting as a result to some extent.

Thank you.

The current shock.

We'll progressively.

Progressively taper off as well so well.

We're having a balanced approach we want to make sure that we are able to get the magnesium we need to supply our customers and then we're trying to find this not just a way around that.

That happens.

Okay, and then just real quick last one on my side.

The 2020 to inflationary cost pressures overall, obviously a lot of moving parts there, but is there a way to frame the potential for 2022 in terms of for example, if we use the cost Flex Bar chart on slide 11, just as a reference.

Given what you know now what's a reasonable range for those cost flex bars for 2022 overall.

So David I would say.

Look.

What we're prepared to talk about today of kind of where where we are for 'twenty, one and as we said in the prepared remarks, I think we feel very good on 'twenty one because.

We've locked in a lot of our locked in basically all of our cost for 'twenty one right. So in terms of key inputs.

Come to some conclusions on it maybe just a few side points. If you take something like energy, we called out energy.

As an area, where we have elevated costs.

Kind of in the 22 horizon, but remember we buy our energy forward, we have kind of a multi year look forward. So we're buying energy forward. So we're kind of layering in energy cost. So if you think about when energy prices really move this year we.

We had already bought a substantial portion of our energy costs.

Costs for 2022, when that move happens so yes, we will experience higher energy cost, but we can.

Spec to layer them in over time, and it won't all impact 'twenty two.

So anyway, hopefully that gives you a sense.

But it's just it's really hard to tell.

Define 22 right now.

And as Peter was mentioning there's plenty of moving pieces and we're right in the middle of our budgetary process. So as we do every year, we will be able to give you a good feel for 'twenty two.

The ratio of Q4, it resolves all budgets all behind Us and we know where we are spending to date.

It's a bit premature.

Okay understood. That's helpful. Thank you.

Yeah.

And your next question is from the line of Curt Woodworth with Credit Suisse. Your line is open.

Yes, Thanks, Good morning, Hi, Martin here.

Hey, Kurt.

First question is just on the can sheet side I know you made a lot of progress with respect to.

Repricing some of these legacy contracts, but can you just give us an update on.

What percent of your contracts have been reset at higher margins and secondarily I know you said in the past that you really want to add any incremental capacity and meaningful fashion until kind of the base business is fully be priced.

So can you also just kind of discuss maybe timeline around.

Future growth in can sheet and.

Would that be done in tandem with this recycling investment and any color on capex for recycling investment alright.

Alright, Okay, Kurt so.

On the pricing side everything that we have.

Could this year comes in at higher prices and country.

Okay.

So setting that is setting us up very nicely for 'twenty two 'twenty three onwards.

We are seeing is customers willing to.

Engage in more strategic longer term relationships.

Which.

We are welcoming because to your second question I think around the capstone investment we want to have visibility over the long run and make sure that if we commit capital to new capacity, we don't committed.

Just because the markets are good today and may not be so good tomorrow, we want to be sure we have.

Good returns on our investment.

Are backed up by a very solid contracts with additional volumes at higher prices and Thats, where we are now so we expect.

I think I've mentioned that three months ago, we all working on every opportunity we can see we announced plans to debottleneck.

<unk>.

Reasonably investments in a brownfield fashion to increase our capacity and we believe we'll be in a position to.

Commit that to customers is somewhere.

In the Q1 Q2 of next year.

And we will obviously update you as to where we stand by that time.

So I think the backdrop in can sheet.

Very good very solid and Thats very exciting for us in terms of our ability to grow pricing, which we've done and now grow volumes, which we need to invest doors as we do that we are very cognizant of the fact that.

Deleveraging continues to be our number one priority. So whatever we do will be done in a way that doesn't <unk> deleveraging journey.

You kind of draw the parallel between the scrapping.

<unk> investment and.

In can sheet.

It kind of go hand in hand, but if you think of the scrap recycling investment basically we are building a new plant.

Yes.

I think just take plan right. So that's.

Two to three year undertaking right so well.

<unk> started production somewhere in the second half of 'twenty four.

Debottlenecking initiatives and can sheets will be progressive and will increase our capacity sooner than that and will continue further than that right. So think of something that is not like a step change, but a more gradual increase capacity, which is very good as well because you put a little bit of dollars into capex and you've got a few.

Pounds out of it then you continue.

<unk> on the.

The cash flow stream.

You may keep very digestible for us as a company.

The only other thing you asked about Capex so what.

What we've said historically Curtis kind.

Rule of thumb 1000 euros per tonne remember.

Yes for the scrap investment excuse me.

And remember that there are inflationary pressures are on capex too, but we're keeping that in mind as we kind of go into this and we're confident that the returns are going to be compelling.

On this investment.

And to Mark's point, it'll be spread over three.

Three years.

Okay, and then when we look at scrap spreads obviously widened here.

Very dramatically in the past three quarters, roughly <unk> 30.

And you commented you have 600000 tons of scrap processing so.

Can you comment on your ability to monetize that I know historically, there has been some offset with respect to.

Third party scrap that's from the <unk>. So you have a net loss there, but it seems like it would be a pretty material tailwind for you.

Yes so.

I think the scrap spreads are referring to.

We see the used beverage cans spreads improve.

Improve.

These are spot prices and again, we run our business. We will we don't want to be exposed all the time to spot prices and we're happy we're not.

Given.

Sometimes they go the right way, sometimes they don't so whatever happens is more muted than the spreads that you're reading.

So whatever right.

And that's just one category of scrap other stripes may not behave the same way.

Scrap spreads in America by the way.

Globally.

And then Mel plus as I mentioned, a number of times is has to be covered by that scrap spreads.

Depending on the different grades of scrap recycling, you have more or less milk clothes and typically those that have the wider spreads all of the ones that have the higher milk loss and as you know I mean aluminum prices are quite high. These days so the Netflix and premiums are so the melt loss.

Of the melt loss is much higher than it was historically.

So yes, I mean overall, we are getting some scrap spread benefit.

600000 tonnes or whatever are supposed to that huge variation.

Okay. Okay.

That's helpful. And then just one last one on auto.

Look at sort of the volume cadence even relative to 19, it's been down the past couple of quarters. So it seems like.

Clearly the chip shortage and the big issue here, but at the same time.

Fit for growth you've had some nomination growth structures can you kind of frame what the upside opportunity is here in auto and then any sense for.

Maybe what is your utilization rate in auto relative to what you could ship.

Availability was there.

No.

Youre right I mean, we took a note about arrow into kind of 100 million euros of EBITDA would be seeing in Aero, but auto is also very good and by the way that's why I'm quite happy with the performance. We are having this quarter because you look at it will back to pre COVID-19 levels were actually better than pre COVID-19 in Q3 and in Q2.

<unk> Aero being an adult rooms and auto.

Separating from the chip shortage. So the chip shortage I think we mentioned three to 5 million euros and we are.

Kind of a little bit in Q2, right, we're a little bit more than that.

Q3, so quality to 20 million euro headwinds and we don't know when it's going to subside. In addition.

We can produce more and we're ramping up with new contracts.

So we do have.

Clearly north of 20 million euros on an annual basis.

Headwinds for lack of.

Yes.

Demand constrained demand in auto.

And we've got $100 million.

In can sheet, so sorry, I didn't catch it in Aero.

So you just had the two and you compare it to our guidance.

By 50% to <unk> 60.

We should be in a good place with markets retail.

Great. Thank you very much so.

And your next question is from Brian <unk> with Deutsche Bank. Your line is open.

Hey, good morning, everyone.

Most of my questions have been high.

Most of my question have been answered, but just a few follow up.

Yes, yes.

How much do you use I believe this is mostly useful outflows.

Ken.

Is that correct.

So.

It's used in.

Most seen Ken.

Ken and stuff right. So the lift of the cans and there is also some usage for automotive.

Sure.

In Earth <unk> site panels dolls.

Yes, the 5000.

So yes in our jogger in supply.

Yeah.

How should we use.

<unk>.

A question, we don't want to answer and we can't really answer either because it depends on what sources will using and thats part of the mitigation strategy right. Some of it we buy kind of embedded in the sheeting goods or the ability to revise some of it we buy directly and to our guests receive fees. Some of it is the second <unk>.

Some of it is.

Depending on how we use our testing centers, we may use more of that so.

Yeah.

It's part of the secret sauce right. So we have nothing to add.

The detailed ingredient list.

Okay.

Fair enough.

Another question to go back to the recycling just no.

And Jenny Hi.

Can you you are using a lot of carbon.

Carbon restocking for the Ken.

Can you put that.

Maybe a range of patterns in Asia.

Is that 70, 80% of all the content that users FICA and also would be maybe.

And I kind of Wonder Ccs range.

So.

Yes, I think directionally.

You've got buddies in can sheet that intention.

<unk> is more recycled content and stock has.

<unk>.

Yes.

So the number you are quoting around 70, 80% is generally your rightful Buddy stuck and then everything else becomes lower and lower.

Okay makes sense.

From my side and kind of shifting as I was in Tokyo.

Yes.

This shift in Iowa.

Yes.

Almost all of the new toy.

Good to see some improvement.

<unk> taken.

Longer.

What's your view on the silky Boeing seems to have announced.

Slower ramp up or being built right. Alan This morning, just when do you think <unk> timing and maybe the shape of the recovery going into kind of the temperature.

So.

I think last time I mentioned, we're seeing some green shoots and we'll continue to see them materializing yet.

Increases in volumes year on year, and now Q3 shipments are lessened narrowed than they were in Q3 last year.

But that said.

We are seeing destocking coming to an end, but it is important to annuities, especially for you guys thats different.

Different companies in industry that not all of us.

Two.

Interject ourselves in the supply chain at the same point in time.

You may have destocking over in one category of materials and still not finished and deal with it.

What we believe is going to happen is we're getting close to the inflection point.

Slightly pinpointing pinpointing is difficult.

But it feels like.

Somewhere in 2022, we should see.

With the increased build rates that Airbus has studies, we should see.

Higher demand for our products.

Those products.

That's why I was commenting on the segments where.

We're expecting to see in the coming quarters.

Year on year increases in shipments.

How do we tap ins I mean, historically when <unk>.

Destocking is over and we're just talking stops again.

It can happen in a span of.

Eight weeks.

So you don't see coming and all of a sudden.

Ramping up production again, and that's what we've got to be ready for and Thats clearly.

In addition to the great job that the in key team has done managing on the way down to have a significant challenge being.

Ratings and sales to the rent that very shortly at very short notice.

Most likely sometime in 2022.

Thank you.

Just one on that Kevin if you can comment do you think.

The infection ponds with Stockton.

Two.

<unk> Q <unk> monarch need of the yeah. The company that you bought.

Bought back nine to 12 months away.

Sorry can you repeat the question you cut out a little bit.

Sure.

Inflation bond in seeing improved volume into next year.

I think the APA and I.

I would say <unk>.

Closeouts into to the April 2022.

So.

I think we I think we just don't know.

Fair enough. Thank you.

I think on the inflation side, we will see some impact starting in Q1 right.

Thats.

Indisputable, but we will.

Yes, we will see how it progresses through the year, yes, yes.

Yes, that's right definitely starting in Q1, and our hope would be obviously some of the transitory effects weighing over the course of the year. So it moderates a bit.

And your next question is from the line of Matthew Fields with Bank of America. Your line is open.

Hey, everyone.

I don't know if I missed it but.

Would you be willing to give some clarity on the timing of your $130 million investment as it is at 22 and 'twenty three.

To get there.

The facility ready for 2024, and I assume that this.

This new facility will be at <unk>.

Yeah. So the timing is of the three years 'twenty to 'twenty three 'twenty four.

A bit more in 'twenty, three then that would be in 2024.

So maybe Tony.

That would be the kind of profile.

But much less much less in 'twenty two.

Yeah.

Most of it will be 'twenty three 'twenty four.

And the precise location is not fully decided yet.

For different reasons, but one of the reasons and with different options and we want to make sure we maximize our opportunity for us.

For subsidies, yes, okay. Okay.

Critical path.

Circular economy in Europe, and Europe is very great ambitions in terms of reducing carbon footprint. So we are contributing to that and we're hoping to be rewarded for it.

So there could be some kind of offset to the capex deployment.

Possibly yes.

Really the goal.

Alright, and then I apologize for the 25th question about magnesium but.

Given that.

On the at least on the can side magnesium heavier used in and an tab stock do you see some kind of.

Negative mix impact and maybe <unk> from your sort of.

Mitigation efforts to kind of choosing to sell more of the products that use less of the magnesium.

Well I mean first priorities to support our customers. So we'll see we'll work through that with them.

Yes.

Can you answer that question.

In great detail.

Sorry.

Okay, alright, well, thanks, very much and good luck for the rest of the year.

Okay.

Yeah.

And your next question and last question is from Sean <unk> with Deutsche Bank. Your line is open.

Hi, good morning, congratulations on the <unk>.

Copy SG rating relative to peers by semiotics.

Thank you Sean.

I'll.

Start with aerospace for a second.

I appreciate your comments earlier and could you just remind us of your place in the supply chain in terms of the lag to a new airplane.

And you know beyond that sort of.

How long do you think the restocking cycle.

Yeah, obviously it operates at a bit of a lag too.

OEM being built so if you could talk about that or I appreciate it.

So on the aerospace side in terms of the supply chain, it's probably we always say it's.

12 to 24 months between the time that we produce with <unk> being on the obviously the short side and the time that it ends up on an airplane.

So.

And so that's kind of how we would how we would answer that one in terms of the.

The recovery, which is I think what youre asking about charm.

Once it starts we see it as being a.

Kind of a fairly gradual increase and let me characterize this a fairly gradual increase from the vantage point of.

Build rates, but the impact on our supply chain.

Like it has been in historical cycles will be pretty strong poll at the beginning right because.

Fly chain tends to drain itself and then all of a sudden.

Manufacturers need more material, so our expectation is that well.

When they start to pull we're going to see kind of a fairly strong poll.

Until they get on a rate that is kind of close to approximating build rate.

That's good to hear I appreciate that.

And you know you've shown you have a pretty flexible business model.

Are there any other sort of alloys that youre seeing out there that are showing potential supply constraints.

And yeah, any weakness there and Ernie do you think.

You could potentially offset it with lower capex.

Well, so what I'd say is there are other alloys over the out there you hear about manganese and you hear about silicon, but the order of magnitude.

Our mix is much lower so.

And the.

Our view at least at this point is that the risk around supply is much lower so we are not super concerned about that right now.

Got you and what is the interest cost savings year over year.

So well so we will have will reduce our cash interest we should be close maybe the easiest way to answer. This is that cash interest next year should be right around $100 million.

Yeah.

That's great.

Just last one for me are you still focused on generating cash and deleveraging aside from maybe.

The investment here.

Absolutely.

Absolutely I mean, we take out $2 five target very seriously and the sooner the better.

So, yes, and as I mentioned I mean, we've got plenty of exciting opportunities. We wanted to make sure that we fit them into like that that takes us to $2 five.

A reasonable clip so the recycling investments are talking about in Europe.

The expansion can sheet capacity.

None of that will strengthen our objectives to get deployed sooner rather than later.

Alright, Thank you very much.

Thank you Sean.

Well, thanks, everybody for attending the call and as.

As I mentioned I'm very pleased with our performance so far I mean, we've.

We've come back to pre Covid levels. Despite the aerospace despite us annuities surely in the future, we're seeing inflation headwinds but.

Pricing model.

Work on making sure we get paid for what we make should offset most of that most of that so I'm very confident with our long term ambition to five.

Leverage and I look forward to updating you on our progress at the end of <unk>.

At the beginning of next year. Thank you so much everybody.

Bye bye.

Ladies and gentlemen. This concludes today's conference call. Thank you for joining you may now disconnect have a great day.

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Good day and thank you for spending by welcome to the <unk> third quarter 2021 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.

Ask a question during this session you will need to press star one on your telephone if you require any further assistance. Please press star zero.

I'd now like to hand, the conference over to your first.

Hey, Ryan Wentling director of Investor Relations. Thank you. Please go ahead.

Thank you operator, I would like to welcome everyone to our third quarter 2021 earnings call on the call today are our Chief Executive Officer, 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.

<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 in the forward looking statements. Please refer to the factors presented under the heading risk factors in our annual report on form 20-F.

I would now like to hand, the call over to Mark.

Thanks, Ryan Good morning, and good afternoon, everyone and thank you for your interest income stadium.

Let's turn to slide five and discuss the highlights from our first quarter results I would like to start with safety our number one priority.

Year to date recordable case rate was one eight per million hours worked in line with our record performance in 2020, I would like to specifically recognize the it folks at significantly exec Zynga and <unk>.

Each of these locations achieved more than 1 million hours worked without a recordable case in the third quarter.

Shipments were 395000 tons.

12% compared to the third quarter of 2020 revenue increased 35% to $1 6 billion euros. This was primarily due to higher metal prices and higher shipments.

Remember, while our revenues are affected by changes in metal prices, we operate to burst through business model, which minimizes our exposure to metal risk.

On net income of 99 million euros compared to a net income of 20 million euros in the third quarter of 2020.

Adjusted EBITDA was a record 143 million euros, 14% above the third quarter of 2020, and 3% above our results from the third quarter of 2019 pre pandemic.

I am very pleased with our team's strong execution again this quarter.

Looking forward, we are updating our 2021 adjusted EBITDA guidance to a range of 550 to 560 million euros that compares to our previous guidance of $5 45 to 560 million euros.

Moving now to leverage as you can see in the chart on the bottom right.

Our leverage declined to three six times at the end of the sales quarter down a full turn from the first quarter and that's a multiyear low.

We remain committed to reducing our leverage to our long term targets of two five times.

We are also acting on our commitment to reduce gross debt with a recent announcement of the redemption of $200 million of our 2026.

Overall, I am very proud of our third quarter performance, we delivered strong adjusted EBITDA solid free cash flow generation and further deleverage deleveraging in excess of our expectations.

I will now hand, the call over to Peter for further details on our financial performance Peter Thank you Jean Marc and thank you everyone for joining the call today, let's turn to slide seven.

For the third quarter of 2021, <unk> achieved 143 million of adjusted EBITDA, an increase of 14% compared to the third quarter of 2020.

Compared to the third quarter of last year PARP adjusted EBITDA of $9 4 million euros increased by 9 million euros.

Adjusted EBITDA of 20 million euros increased by $10 million euros, and <unk> adjusted EBITDA of 32 million euros decreased by 1 million euros.

Holdings, and corporate costs of 3 million euros increased by $1 million compared to last year.

For the first nine months of 2021, <unk> achieved 434 million of adjusted EBITDA of 23% increase compared to the first nine months of 2020.

And A&P adjusted EBITDA increased compared to the prior year on strong overall performance.

<unk> adjusted EBITDA declined due to weaker automotive shipments as a result of the semiconductor shortage.

Now lets focus on our segment performance turn to slide eight for the PARP segment.

Adjusted EBITDA of 94 million euros increased 10% compared to the third quarter of 2020.

Volume was a $17 million euro tailwind as shipments increased 9% compared to the third quarter of 2020.

Packaging shipments increased 12% on strong demand, while automotive shipments decreased 8% on continued effects from a semiconductor shortage, we continue to expect.

The strength in packaging to offset the weakness in automotive.

Price and mix was a headwind of 8 million euros on a lower share of automotive shipments costs were a tailwind of 1 million euros as favorable metal costs, offset higher maintenance and labor costs FX translation, which is noncash was a headwind of 1 million in the quarter.

Two a weaker U S dollar.

Now I will turn to slide nine and let's focus on the A&P segment adjusted EBITDA of 20 million euros increased 91% compared to the third quarter of 2020 volume was a tailwind of 38 million euros Tid shipments increased 86% on strong broad based demand.

And in both North America, and Europe, while aerospace shipments declined 13%.

Price and mix was a headwind of 31 million euros due to a lower share of aerospace shipments relative to tid.

Costs were a tailwind of $3 million euros, as improved productivity and favorable metal costs, offset higher maintenance labor and outside processing costs.

Now turn to slide 10, and let's focus on the F&I segment.

Adjusted EBITDA of 32 million euros decreased by $1 million compared to the third quarter of 2020 volume was up $3 million Euro tailwind as industry shipments increased 24% on strong broad based demand, while automotive shipments decreased 16% due to.

Demand from the semiconductor shortage.

Rice and mix was a $5 million euro headwind due to increased share of industry shipments relative to automotive and cost was a $1 million euro tailwind on solid cost control.

Now turn to slide 11, where I want to highlight our continued strong cost performance.

On the top left of the slide you can see that our cost flex was 96% in the third quarter.

In other words, our costs, including metal costs increased 96% for every euro increase in revenue in light of the inflationary pressures. We are experiencing we are pleased with this result, and each of our businesses demonstrated strong cost performance.

We are seeing increasing signs of inflation across the business specifically in NRG alloying agents transportation and labor some of the inflationary pressures are likely structural but we expect many to be transitory.

In the meantime, we are working on numerous mitigation strategies to els to offset these costs.

Importantly, our significant efforts in reducing structural costs by $75 million sort of ryzen 22 have provided a solid foundation from which to manage the current inflationary pressures and support future profitability, we will need more time to fully assess the impact on our future results.

But we expect these pressures will have a greater impact in 'twenty two than what we are experiencing in 'twenty. One as we have already secured the vast majority of our inputs for 2021.

And the inflation protection or cost pass throughs within existing contracts. We are also having success implementing inflation protections in our new multiyear contracts.

Lastly, I would like to address magnesium availability, China has produced 80% to 85% of the world's magnesium, but now is operating at approximately 50% of those levels.

This shortage continues for too long, many industries and supply chains will be impacted.

Just on where we stand today, we expect to be able to meet our contractual requirements for the fourth quarter and we believe we are in good shape for the first quarter.

We have less clarity further into 'twenty, two and the situation remains quite fluid.

Of our customers.