Q4 2021 Constellium SE Earnings Call
Good day, and thank you first standing by and welcome to the comps tell you fourth quarter and full year.
The results are.
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 Lake Washington.
If you require operator assistance. Please press star Zero I would now like to hand, the conference over to your first speaker today, Jason Hershiser director of Investor Relations. Thank you. Please go ahead sir thank.
Thank you operator, I would like to welcome everyone to our fourth quarter and full year 2021 earnings call.
Our call today, we have our Chief Executive Officer, John Marc Germain and our.
Chief Financial Officer, Peter Matt.
After the presentation, we will have a Q&A session. The copy of the slide presentation for today's call is available on our website that can sell M. Dot com on 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 private Securities Litigation Reform Act of 1995.
Such statements include statements regarding the company's anticipated financial and operating performance future events and expectations and may involve known and unknown risks and uncertainties.
For a summary of specific risk factors that could cause results to differ materially from those expressed in the forward looking statements. Please refer to the factors presented under the heading risk factors in our annual report on form 20-F.
All information in this presentation is as of the date of the presentation.
We undertake no obligation to update or revise any forward looking statement as a result of new information future events or otherwise except as required by law.
In addition, today's presentation includes information regarding certain non-GAAP financial measures.
Please see the reconciliations of non-GAAP financial measures attached in today's slide presentation, which supplement our ifr S disclosures.
Now I'd like to hand, the call over to John Mark.
Thank you, Jason and good morning, good afternoon, everyone and thank you for your interest in a consortium.
To start by thanking each of our 12000 employees for their relentless focus on safety and their commitment to serving our customers in these challenging times I'm extremely proud of what we were able to achieve in 2021 and I look to the future with great optimism.
Now, let's turn to slide five and discuss the highlights from our fourth quarter performance.
Shipments were 385000 tonnes, that's up 3% compared to the fourth quarter of 2020 revenue increased 37% to $1 7 billion euros. This was primarily due to higher metal prices.
Remember, while our revenues are affected by changes in metal prices, we operated pass through business model, which minimizes our exposure to metal price risk.
Net income of 7 million euros compared to a net income of 26 million euros into first quarter of 2020.
Adjusted EBITDA was 147 million euros, 33% above the fourth quarter of 2020 and were above our implied guidance range.
Strong end market demand, particularly from a packaging and industrial customers and better than expected cost performance helped us overcome continued weakness you noted moody's caused by the semiconductor shortage and inflationary pressures across the business I am very pleased with our strong execution this quarter.
We extended our track record of consistent free cash flow generation was $14 million erosion you too.
Lastly, we demonstrated our commitment to reduce gross debt with the redemption of $200 million about 'twenty 'twenty six notes in November .
So now turn to slide six for our full year results.
Beginning with safety, our recordable case rate was $1 85 per million hours worked and very close to our record performance last year. While this is best in class performance, we remain committed to continuous improvement in this most important area I would like to specifically recognize you have folks that juncture and that you're in.
In the fourth quarter.
Jackson reached more than three years without a recordable case and <unk> achieved more than 1 million work hours without a recordable case.
For the full year, our shipments were one 6 million tons or 10% compared to 2020 as all of our end markets, except aerospace showed strong year over year growth.
Revenue increased 26% to $6 2 billion euros. This was primarily due to higher metal prices and higher shipments.
Net income of 262 million euros compared to a net loss of 17 million euros in 2020.
Yeah.
Adjusted EBITDA was 581 million euros, 25% above 2020, and notably 3% above 2019, our last full pre COVID-19 year.
This performance is a record for the company and a record for a pump and <unk> segments I am, particularly pleased with this result, given the fact that the aerospace and automotive are still running below 2019 levels.
We delivered also the 16th year of positive free cash flow was a total of 135 million euros in 2021, and we remain very confident in our ability to maintain and improve this performance in the future.
Our leverage declined to three four times at the end of the quality of the end of the year down more than a full turn from the first quarter of 2021, and that's a multiyear Lou.
Overall, I am very proud of our fourth quarter and full year 2021 performance, we delivered strong adjusted EBITDA solid free cash flow generation and substantial deleveraging.
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. Please turn now to slide number eight.
For the fourth quarter of 2021, <unk> achieved 147 million euros of adjusted EBITDA, an increase of 33% compared to the fourth quarter of 2020.
Compared to the fourth quarter of last year PARP adjusted EBITDA of 88 million euros increased by 6 million euros A&P adjusted EBITDA of 30 million euros increased by 17 million euros and <unk> adjusted EBITDA of 31 million euros increased by 9 million euros holdings and corporate costs of $2 million.
<unk> decreased by 4 million euros compared to last year due to a number of one off adjustments in the quarter and cost reduction initiatives.
Yes.
For the full year 2021, <unk> 581 million euros of adjusted EBITDA of 25% increase compared to the full year of 2020 compared to the fourth quarter of last year <unk> adjusted EBITDA of 344 million euros.
<unk> increased 53 million euros to a record level A&P adjusted EBITDA of $111 million increased by $5 million euros.
In <unk> adjusted EBITDA of 142 million euros increased by 54 million euros also to a record level holdings and corporate costs of $16 million euros decreased by 4 million euros compared to 2020, we continue to expect holdings and corporate costs to run at approximately 20 million.
<unk> per annum.
Now turn to slide nine and let's focus on our parts segment performance.
Adjusted EBITDA of 88 million euros increased 7% compared to the fourth quarter of 2020 volume was flat as higher shipments in packaging and specialty rolled products were offset by lower shipments and automotive rolled products packaging shipments increased 5% on continued strong demand.
Automotive shipments decreased 18% on continued impacts from the semiconductor shortage.
This trend was roughly consistent with our experience in the third quarter of 2021.
Rice and mix was a headwind of 3 million euros on a lower share of automotive shipments and a weaker packaging mix.
Costs were a tailwind of 7 million euros as favorable metal costs more than offset higher maintenance and labor costs.
FX translation.
Which is noncash was a tailwind of 2 million euros in the quarter due to a stronger U S dollar.
For the full year 2021, PARP generated record adjusted EBITDA of 344 million euros volume was a tailwind of 56 million euros with higher shipments in packaging automotive and specialty rolled products compared to 2020.
Price and mix was a headwind of 4 million euros due to weaker mix in both packaging and automotive.
Costs were an 8 million tailwind due to solid cost control and favorable metal costs FX translation for the year was a headwind of 7 million euros due to a weaker U S dollar.
Turning now to slide 10, and let's focus on the A&P segment.
Adjusted EBITDA of 30 million euros increased 142% compared to the fourth quarter of 2020 volume was a tailwind of 16 million euros.
Shipments increased 34% on strong broad based demand in both North America, and Europe , while aerospace shipments were flat.
Price and mix was a tailwind of 10 million euros on better tid mix and pricing while costs were a headwind of 10 million euros on higher labor costs, including additional costs in anticipation of improved aerospace demand.
Ex translation was a tailwind of $1 million in the quarter due to a stronger U S dollar.
For the full year 2021, A&P generated adjusted EBITDA of 111 million euros volume was a tailwind of 33 million euros with higher shipments in tid offsetting lower aerospace shipments.
Price and mix was a $55 million euro headwind with lower shipments in aerospace compared to 2020.
Costs were a tailwind of 29 million euros due to strong cost control and favorable metal costs.
Partially offset by higher labor costs FX translation for the year was a headwind of 2 million euros due to a weaker U S dollar.
Turn now to slide 11, and let's focus on the <unk> segment.
Adjusted EBITDA of 31 million euros increased by 45% compared to the fourth quarter of 2020 volume was a $1 million euro tailwind as industry shipments increased 17% on strong broad based demand, while automotive shipments decreased 16% due to reduced them.
Man, resulting from the semiconductor shortage.
As noted in our comments on the automotive demand in PARP, our fourth quarter experience was roughly similar to that of the third quarter.
Price and mix was a $10 million euro tailwind due to stronger industry mix costs was 2 million euro headwind with higher labor energy and other costs offsetting fixed cost actions.
For the full year 2021, <unk> generated adjusted EBITDA of 142 million euros volume was a tailwind of 35 million euros with higher shipments in both automotive and industry price and mix was a tailwind of 18 million euros on a better mix in autumn.
Out of structures and better industry pricing.
Costs were a 1 million euro tailwind due to solid cost control.
Turning now to slide 12, where I want to update I want to give an update on the current inflationary environment, we are facing in.
In the fourth quarter, we experienced more significant inflationary pressures than in previous quarters nonmetal costs like labor energy maintenance and transportation were all higher compared to last year.
And looking at the business unit bridges. However, it is clear that increased price more than offset inflationary pressures in the quarter.
Our businesses have continued to focus on cost control and again delivered strong cost performance in the quarter.
This continued discipline should help us combat cost increases in 2022.
Looking at 2022, we expect inflationary pressures to increase in the near term as you know we operate a pass through business model. So we are not materially exposed to changes in the price of aluminum are most significant cost input.
We do though expect the cost of alloying elements to be significantly higher this year given some of the challenges we discussed on our third quarter call and the need to secure supply we have made significant progress in securing our 'twenty two 2022 supply and are not currently concerned about our ability to do so.
We are experiencing higher labor costs, but these are manageable, thus far and our bigger challenge is in finding people at all levels across the company.
With respect to energy our hedging strategy gives us some protection on energy costs, given the fact that we buy our energy on a forward basis.
But we do expect energy costs to be up materially this year, particularly in Europe .
We are working hard to mitigate these inflationary pressures our horizon 2022 initiatives have reduced structural cost increased efficiency and reduced input consumption.
Commercial side, many of our existing contracts have inflationary protection such as PPI and players. We are also signing new contracts with better pricing and inflationary protections.
While inflation will be significant in 2022, we believe it is manageable and that it will be largely offset by improved pricing and our relentless focus on cost control.
The net impact of inflation and the actions we are taking to offset it are included in our guidance for 2022.
Now, let's turn to slide 13, and discuss our free cash flow, we generated 135 million euros of free cash flow, including 14 million euros in the quarter. This is despite significant working capital build as shipments rebounded across a number of our businesses this year and higher capex.
As you can see on the bottom left side of the slide we have continued to deliver on our commitment to generate consistent strong free cash flow.
Since the beginning beginning of 2019, we have generated over 460 million euros of free cash flow, while also reducing our factoring balance by over 100 million euros.
Looking at 2022, we expect to generate free cash flow in excess of 150 million euros, we expect capex to be between 250, and 260 million euros. We expect cash interest of approximately 100 million euros, which represents a milestone for the company and reflects the significant.
<unk> actions, we have taken to reduce gross debt and cash interest, we expect cash taxes of 20 to 25 million euros.
Now, let's turn to slide 14, and discuss our balance sheet and liquidity position.
At the end of the fourth quarter, our net debt of 2 billion euros declined slightly compared to the end of 2020 as free cash flow generation was.
It was partially offset by 77 million euros of FX translation, and the cost of our balance sheet actions or.
Our leverage reached a multi year low of three four times at the end of the fourth quarter are down <unk> nine times versus the end of 2020.
We remain committed to deleveraging and to achieving our two five times leverage target.
As you can see in our debt summary, we have no bond maturities until 2026 and November in line with our objective of reducing gross debt.
We redeemed $200 million excuse me of our five 875 senior notes due 2026.
As previously noted our capital structure actions in 2021 reduced run rate cash interest expense by 38 million euros per annum. We are proud of the progress we have made on our capital structure and have the financial flexibility. We are building in the company.
Our liquidity was strong at 773 million euros as of the end of the fourth quarter.
As we have noted on recent calls we will continue to gradually gradually reduce the extra liquidity. We added during the COVID-19 pandemic and with that I will now hand, the call back to Joe Mark. Thank you Peter So, let's turn to slide 16, and discuss our current end market outlooks.
<unk> remains generally very strong in the markets. We serve we are benefiting from sustainability driven secular growth trends such as consumer preference for infinity recyclable aluminum cans light weighting in transportation and the electrification of the automotive fleet.
<unk> is well positioned today with our diverse and balanced portfolio to capture these growth.
Starting with packaging.
Packaging is a core market for <unk> and represented 43% of our revenue in 2021 the growth in demand for aluminum cans is underpinned by consumer preferential cans. This older alternatives such as plastics.
<unk>, our infinity recyclable, making them the most sustainable beverage packaging container and a well understood participant in the circular economy.
Packaging market is strong in both North America, and Europe , we expect mid single digit demand growth in the medium term, which is supported by <unk> capacity additions in both regions and we are doing our best to meet the needs of our customers.
We are continuing to investigate a number of initiatives to increase can sheet capacity across our packaging platform to serve this growing market.
We expect this will be achieved through booth debottlenecking of our operations and additional investments in the future.
Now, let's move to automotive.
Automotive represented 26% of our revenue in 2021 custodian is well positioned in both sheet and extrusion to benefit from the secular shift to aluminum in automotive and the electrification of the automotive sheet.
Liquid vehicles need to be light to meet their range of objectives, which makes aluminum the logical material of choice for auto body sheet crash management systems structural components and battery and closures. We also expect continued light weighting of internal combustion engine vehicles to meet increased regulation.
The societal focus on sustainability and demand for improved safety and performance.
Near term automotive demand continues to be hindered by the semiconductor shortage Oems experienced production stoppages throughout the fourth quarter. We expect these to continue in the first half of this year and to improve in the second half from an end market demand perspective that whether we remain very positive.
Even these end markets dealer inventories are low and we believe underlying consumer demand remains strong, especially for light trucks, Suvs and luxury vehicles, where from stadium as greater exposure.
Let's turn now to aerospace aerospace represented 6% of our revenue in 2021 will be to historical levels demand for our products remained at a low level in the fourth quarter remember aerospace used to be 15% of our revenue in 2019.
Optimism in the aerospace supply chain is increasing and the Destocking appears largely complete more recently major Oems have announced build rate increases the timing is still uncertain, but we expect to show year over year growth in aerospace shipments in the coming quarters.
Over the longer term, we remain confident that the fundamentals driving aerospace demand remain intact, including growing passenger traffic and greater demand for new more fuel efficient aircraft.
Turning lastly to other specialties other specialties represented 25% of our revenue in 2021, we continue to execute on our strategy of expanding 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.
It is also of note that many of the sustainability driven secular growth trends impacting our older coal markets are very much at play here as well for example light weighting is driving increased applications for Illumina I mean rail trucks boats anything that moves in.
In addition increased investments in renewable energy is increasing demand for our extruded products space.
Specialty markets all generate strong today in both Europe and North America.
Turning now to slide 17, we detail our key messages and financial guidance for 2022.
<unk> achieved very strong performance in 2021, we delivered record adjusted EBITDA of 581 million euros that surpassed 2019 levels I am very proud of our entire team as they delivered solid operational performance and strong cost control. Despite the many challenges we faced importantly.
We extended our track record of free cash flow generation and further deleveraged our balance sheet.
Looking forward I believe there are substantial opportunities for <unk> to benefit from sustainability, driven secular growth mega trends, which are creating significant momentum around sustainable packaging light weighting and fleet electrification.
We will continue to work closely with our customers and deliver value added products that helped reduce our carbon footprint.
<unk> is part of the solution in the circular economy as we previously announced we are expanding our recycling footprint with significant investment in new European recycling Center was 130000 tons of capacity. We are very excited about this investment as it will strengthen our business helped us be a further solutions provider.
To our customers with increased recycling and contribute to a more sustainable future. It is a triple win for consortium for our customers and for the environment.
Looking to this year, we are well positioned to deliver another year of strong performance in 2022 packaging and industrial markets remained strong and we are starting to see signs of a recovery in aerospace.
Moody's is still facing issues with semiconductor shortages to start the year, but we are expecting automotive to improve in the second half of the year.
While we are facing significantly inflationary pressures in 2022 as Peter highlighted we are confident in our ability to offset most of these impacts was improved pricing and a relentless focus on cost control.
For 2022, we are targeting adjusted EBITDA of 600 to 620 million euros and free cash flow in excess of 150 million euros.
We remain focused on operational performance cost control free cash flow generation and shareholder value creation, I am very optimistic about the future.
Before we open the Q&A session I wanted to remind everyone of our upcoming analyst day on April six 2022, we're holding the event at our facility in muscle Shoals, Alabama, where we expect to update you on our business.
Our plans for the future, establishing new long term guidance.
<unk> 2030 sustainability strategy and of course for a tour of the facility all of that in the presence of a very strong executive team with that.
Operator, we will now open the Q&A session.
Okay.
To ask a question you will need the breadth star one on your telephone did withdraw you question are you for your question has been answered westbound.
Your first question comes from the line of BB Douglas Yano from BMO capital markets. Your line is now open.
Alright, great. Thanks for taking my questions and congratulations on the strong results and solid outlook just wondering when I look at <unk> results compared to the implied guidance three months ago EBITDA beat.
<unk> zone on guidance by 20 to 30 million euros, it's a pretty big number, especially.
If that were to be annualized then when I look at the 2022 guidance it implies about 2% to 5% growth versus the <unk> actual result.
Annualized and that's despite the fact that fourth quarter is typically the weakest quarter.
And then you flagged positives in each of your yes.
Significant positive each of your three major buckets for 2022, So my questions are.
What changed versus three months ago that caused consulting to beat by so much in four Q and then number two.
What are the implications in terms of upside potential for the for the full year 2022 guidance. Thanks.
Good morning, Dave Thanks for the question and congratulations so on the first part of your question. Yes. It was a significant beat we are very pleased and we clearly surpassed our own internal expectations.
In the context of strong demand stronger than we were even seeing and excellent execution.
All facilities. So we're very pleased with that.
And.
We hope to be able to maintain that level of performance that we really had an excellent quarter from an operations standpoint.
Now looking forward one thing that Hasnt escaped any of US is inflationary pressures and we benefited I think Peter commented on it in his remarks.
If you look at pricing.
As better pricing in 'twenty, one than we had in 2020.
But inflation kicked in already at the end of the year and only partially because a lot of our contracts full supply reset.
On the first of January so we had a little bit of the impact of inflation that we have the full benefit of price increases going forward into next year, we are going to have the full impact of inflation.
And we know that oil prices are going up as well.
The compression due to our price to our pricing.
Price increases on the inflationary cost pressures sorry the.
The compression is there so that's going to put a bit of a denver on our ability to grow EBITDA and thats what were reflecting in our guidance, we got pretty good visibility obviously as to what all prices all for the year. Both on the input side and then the flip side and Thats why Youll see an increase in EBITDA that may be a little bit.
While modest in what we've been delivering in the past Peter anything you want to add no I think that's great.
Right.
Yes.
Okay, and so that factors then obviously all the cost pass throughs that you flagged multiple times on this call and in the past.
So I guess you know is there a way to frame a certain level.
It seems pretty conservative to me I'm trying to gauge.
What your assumptions are embedded and therefore for example.
Timing of an aerospace recovery time, even automotive recovery I know you gave us the mid single digit growth on the packaging side.
So maybe I can shed a bit more light on the inflation and the pass throughs.
We are in long term relationships with our customers and obviously, we discuss we negotiate new contracts with discuss existing contracts and we look for solutions that work for us and our customers.
So whats important also to understand is that we will not be passing through all the inflationary pressures all at once on January one right there would be a rent up and what is that through in 'twenty two will be passed through in 'twenty three.
I think we need to look at the long term perspective here in terms of how you are.
Alright, that's whose work and.
Clearly what that means is we.
We expect.
To fully pass through all of the cost pressures, we are feeding but that will.
Bleed over into 2023, that's one then on the assumptions we have are related to our guidance, we're expecting every quarter some recovery in aerospace compared to the same quarter of the prior year and we expect aerospace to be back to pre COVID-19 levels or thereabouts by 2024, So it's a gradual.
Increase in terms of automotive.
We expect that the.
Chip shortage gets resolved in the second half of the year and if you remember we said.
US about 5 million euros every quarter for the first year. So we expect that kind of drag on our earnings to continue in Q1 Q2, and then abate in Q3, Q4, and then packaging and the consolidated continuing and the challenge is more of that.
Producing everything that our customers want so I hope that gives you a bit more color as to what's embedded in the guidance.
Okay. That's helpful. Thanks.
Youre welcome.
Your next question comes from the line of Timna Tanners from Wolfe Research. Your line is now open.
Hey, good morning.
Right.
Yes, a little bit more color on some of that contact revision opportunity that you talked about just to understand that a little bit more and then also the.
I mention of Debottlenecking and expansion and packaging. If you can elaborate on those opportunities and maybe the size many investment there.
Certainly so.
<unk>.
We've been on a multiyear journey to <unk>.
Improve the value, we bring to our customers and make sure its recognized and translates into higher prices. So we're very happy with the progress we've made and that's one of the good things about that inflationary environment.
He puts wind in our sales in terms of getting better pricing in the marketplace. So look at it as a continuing journey and we've had nice price increases in 'twenty. One I think it's well known that there is even more contracts that come up for renewal in 'twenty. Two so they have come up for renewal they have been renewed.
Good better or improved prices compared to the fast. So we are quite pleased with the progress, we're making and that is truly in a.
Packaging and that these tools will you know automotive ride together nice gradual ramp.
Pricing rigor.
Regarding the Debottlenecking of further investment in capacity.
No.
No.
When you look at how much the can sheet market is growing worldwide.
In the U S in Europe with all the new can lines. There is substantial need for more can sheet capacity and today.
Yeah.
As an industry.
We have a fantastic opportunity to ramp production and meet the needs of the growing needs of our customers. We will talk more about the options. We are considering when we have our analyst day on April 16, our muscle Shoals.
But let.
Let me say that we are very excited about the future and we've grown our capacities.
In the past in muscle Shoals, and we think we have opportunities to further grow them, both in Europe and North America at this time so.
They tuned for until April six please.
So.
On the first part of the question, though just to think about the contracts like can you give us any framework on how much is how much of the contracts are coming due or how to think about how much is pure pass through because it's a little confusing. If you talk about the ability to have some that are passing through inflation, but others are lagging I'm just trying to get at I understood.
How to quantify that Shaw and we don't want to go have you seen two specific details because it's commercially sensitive but.
Think of our contracts and I'm talking more specifically about packaging, but that could also apply to automotive right tipping.
Typically five year duration. So on any given year you should have about 20% of your contracts that renew and we said 2022 is a higher a year of renewals.
Okay, so a bit more than 20%.
<unk>.
Would be the would be the answer.
When we win.
When we renew contracts.
We've been in a positive price environment. So there was a step up in pricing.
That stepped up in pricing.
<unk>.
We will kick in versus say I don't look at it as an.
Inflation pass through because.
It's driven by supply demand and all of that.
And these contracts you'd negotiate them over many years, so what renews on January one 2022, we didnt negotiate it in December 2021, right. We negotiated in December 2020 in full the food full six months thereafter, so the inflation was not very much in the picture then.
But we have inflationary protections in those contracts, which means that by and large.
There is a step up in price in 'twenty, two and then you've got inflation protection kicking in in 'twenty three on the basis of what inflation would have been observed in 'twenty two.
Very much what we're living through so I hope that helps you understand a bit more how the mechanics of that.
The combination of inflation pass through.
And our pricing power or quite frankly, he's working in two main segments.
Got it so there's a lag effect all else equal if inflation is static here, we'll see.
Theoretically margin expansion into 2023, it sounds like yes, we are seeing compression in 'twenty, one as a result of that and an expansion in 'twenty two.
Okay all right. Thank you.
No.
Your next question comes from the line of Emily Chang from Goldman Sachs. Your line is now open.
Good morning, John Mark and Peter and Thanks for the update today. My question is just my first question is around the automotive segment.
The color there around your expectations for that segment.
Meaning for the rebound in the second half.
But can you perhaps provide some color on what youre seeing there in terms of ordering activity from the Oems and the difference between different regions and how that sort of trending versus 2019 levels.
Yeah, So we will still subdued compared to 2019 levels.
And.
We do not expect to be at full capacity by the end of the year because of all these disruptions we're seeing.
And it's very choppy.
You've got customers that you to put it very heavily for a month and then the following month and MSA will shut down for a week.
It's been really choppy I mean, just to give you. An example, I think in bowling Green, So North America, where we've we've had quite a few disruptions.
Down 20 days in the in.
In the quarter.
Alright, so that down, but I mean the plants.
Middle full 20 days out of 90 in the quarter. So that's and sometimes it is a very short notice.
So it is still very choppy.
But the underlying demand is strong and whenever they can make calls all trips that they will.
Got it that's helpful and my second question is just around the recycling footprint can you remind us what the latest update here is on the European recycling Center expansion.
Remind us of the timing of when that additional volume should hit and the anticipated margin improvement.
Yes.
Sure. So we're making a good progress it's a significant investment needs at the meeting and all that sort of timeframe is the startup of production in the second half of 2024, but very quickly ramped up to full capacity right. So you should expect.
24, he's a nominal start 25 is 80% plus of capacity in 2006 yards at 100%.
<unk>.
Margin expansion.
The way to think of it as we said it's about a 1000.
Euros, but telling us.
Investment.
<unk> thousand euros of.
Capital expenditures and working capital build and all that.
Dawn of installed capacity and we want to meet our 20% into Hello, <unk> until rates of return. So that gives you an idea of what contribution he has to EBITDA on a go forward basis.
Great that's very clear. Thank you sure. Thank you.
Your next question comes from the line of Josh Sullivan from the benchmark Paul Your line is now open.
Good morning, Josh.
Josh.
Just the comment on aerospace with expectations. So it would be back to pre COVID-19 levels by 2024, how does that contemplate your new Airbus contract and then separately. If we look at the structure of that new contract in the long term nature of it are there any new features that would ramp differently then what happens.
Historically in a restocking cycle.
Yeah that's.
Good and difficult question to answer because the commercial <unk>.
<unk> sensitivity of it.
I think when we say, we expect 2024 to be back to pre COVID-19 levels. It's in the market.
And I think we've been successful without customers at better serving them.
Maybe we can do a little bit better for that but we have to earn it.
So I would.
That's how I would.
The best answer it I think the feature we very much value our relationship where Airbus are very important to us and we want to be very good supplier to them and we'd beat even though somebody walks for us being good and that should mean that maybe we can grow a little bit faster than their.
And their needs.
Got it.
And then just on the alloy and agent needs do you have concerns with actually getting supply of the alloys or is it just a matter of having to absorb the higher prices, which are just going to be potentially pass on to customers.
Yes.
Josh it's really around the pricing and it's at this point, we feel pretty good about the supply in Q3, clearly the supply was a concern.
We worked really hard over the last quarter to kind of get that right and I think now most of the alloys that we're seeing the kind of disruptions.
We're have now been resolved so.
Flow of materials coming.
But the prices have remained stubbornly supply.
Hi.
And so we're going to experience either Mark said, starting in the first quarter when these contracts.
<unk>.
Perfect.
But we are just as an aside.
We're not standing.
They're just taking this we're obviously working a lot on.
Increasing recycling recycled content, where we can because there we can kind of effectively displace the need to purchase some alloys were working on conservation.
So we're working on a number of things to lots of them the blow.
And it's and this is in our guidance to maybe the last point to make.
Okay. Thank you.
Your next question comes from the line of Craig Woodward from Credit Suisse. Your line is now open.
Yes, hi, good morning, Mark and Peter and congrats on the quarter.
Kurt.
So I just kind of wanted to circle back to one of the initial question.
And to some degree when you look at seasonality and some cost cost pressure on the business in the fourth quarter, yet you're still Annualizing EBITDA 590 million.
And you clearly have a lot of operating leverage inherent in the business this year and the inability to recapture some of the inflation as you said so.
I'm just kind of curious what you see as kind of the puts and takes because it seems like.
Just from your exit rate this year you'd be on a seasonally adjusted basis you'd be above the low end of guide.
For next year.
So.
Yes, maybe just kind of help frame the puts and takes on the upper low point and then the ability to which you can parse out the $30 million of EBITDA growth by segment in terms of.
What segments do you think are going to grow faster or slower would be helpful. Thank you.
So Curt maybe maybe a way to help frame. This is to focus on Q1.
So that will give you some context of what we're seeing in the near term and.
I'll remind this audience that we typically do not like to talk about kind of quarterly performance, but in this instance, maybe to help you understand the cost pressures, we will do that so if we just go back and look at the first quarter of 2021.
We had 121 million of EBITDA right and we also called out there was a $10 million extraordinary.
So if you kind of adjust for that you're at 131 for the first quarter of 'twenty one.
As we see the first quarter of.
22, shaping up given some of the pressures, we should definitely be able to beat the $1 31.
But we will have a hard time, beating the sequential quarter. So the 147 that we just did.
And so hopefully that gives you a sense for.
You know kind of the range of what we're expecting in the first quarter and some guidance on how it might kind of play out given some of the cost pressures that are going to run through the year.
In terms of.
Kind of looking forward and.
Where the where the incremental EBITDA comes from.
Remember.
We are expecting based on what Mark was saying and what we said in the prepared remarks, we are expecting an uptick in aerospace shipments in <unk>.
Every quarter as we go through the year and those are highly remunerative tons, so that should be a nice benefit for us.
Automotive, if we get that benefit in the second half, which we're expecting then that should also be a nice bump for us in terms of EBITDA.
And I would say.
Packaging is.
We're we're running as you know we are running pretty full on packaging, but.
As we continue to work on costs, there and so forth, we will get some benefit on the packaging side too.
Mark if you'd add any maybe I'll just add that you do in this inflationary times, we've got the timing element.
And.
We're going to.
As we pass through inflation with the mood TV lagging a bit more than packaging.
That's also kind of help frame how.
We think about 2022.
Okay.
<unk>.
And then in terms of packaging.
Historically, there has been some benefit.
The widening of scrap spreads have widened pretty dramatically in the last couple of quarters here.
I'd say, maybe it's been somewhat evident in your EBITDA per ton performance in part, but obviously you talk about the mix effect from lower automotive and in place very pressures, but.
Can you can you talk to maybe more specifically about packaging this year in terms of.
There was a benefit of the scrap spread widening honestly the beverage can companies are talking about pretty significant can't cheat conversion costs going up.
I know I believe you have a fairly heavy reset year this year.
But any color you could give with regard to kind of packaging dynamics would be great. Thank you.
Yes.
Im assuming youre talking specifically as it relates to scrap right.
Correct, Okay yeah.
So maybe just just rewind a little bit to remind you on scrap so.
First of all not all scrap is created equal right and so.
Some scrap comes at a bigger discount than others and then there's also obviously the cost of discounted or too hard to convert it into a usable form for US and then the last thing I'd note is that today, we have a stronger footprint of recycling in North America than we do in Europe right. So just a couple.
Things to keep in mind, now having said that.
Recycling and you noted this are we noted this in our in our comments on favorable metal costs recycling definitely was a contributor in the quarter.
Scrap profit was definitely a contributor and it helped us in part no question about it.
But again the way we're looking at this is it's part of a.
Our basket of benefits that we're putting against some of these inflationary pressures that we're facing.
So.
So yes, it helped us.
And kind.
We expect it's going to continue at the kind of rent levels roughly around where it is today.
But but we wouldn't we wouldn't say it's a it's not.
Changing the story a PARP I guess, maybe it's the way to put it and maybe Curt to add to what Peter said.
In 'twenty, one it was a benefit right compared to 'twenty, but going forward, we do not anticipate scrap spreads to widen and all that but we do anticipate energy codes, which are a big part of the conversion because it pizza was talking about to be higher.
The net impact of that may be a little bit less scrap profits so to say 'twenty two than we added in 'twenty one.
Okay and can you comment on how much of your can sheet is repricing, maybe this year and next year.
Yes, I think I said more than 20% in aisles, just earlier in one of the questions and less than 30%.
Okay. Good ballpark.
Okay. Thanks very much.
Your next question comes from the line of Colleen Lang from equity. Your line is now open.
Hey, good morning.
I think one of the comments go back up on the question.
We expect also to recover in the second from.
The year, how do you see them.
Would you expect like the regular seasonality that.
For Q.
<unk>.
Hey, Corey.
<unk>.
Well, it's an assumption more than a definitive prognostic right the essential needs of recovery.
Q3, Q4, which means that we would expect Q4 next year to be better than Q4 this year.
And typically you know that our auto is stronger in the first half than second half so maybe the more balanced year.
The way I look at it for 2022.
Okay. Thank you and just another question can go back on your comments I believe you mentioned expecting 2024 back to the 2019 is Jake Mccann.
Can you just comment.
Specific to Q2.
It's more of an industry comment.
Okay.
Finally industry command like would you like what's your view on the impact on Copenhagen Me Thomas.
I believe you know.
I think one of your highest.
I'll take that.
Yep Yep. So we think we should be able to replicate our margins that we had back in 2019 or thereabout right. So we said trend trend line. We said 700 to 800, maybe <unk> 50 to <unk> 50.
Euro per ton would be the.
The kind of a fib four A&P over oriented overall, yes.
We'd be the overall kind of guidepost for our margins and N T.
Okay. That's helpful and just one last if I can actually on the E&P I think you have seen significant improvement in demo volume and price and mix for Tid do.
Do you think that Q2 should continue and I did Jan and maybe like 2023 as well. So I think we've reached a very nice performance level.
Our objective now is to maintain that.
It's putting pressure on the system because the same assets that produce tid also the assets that produce aerospace and if aerospace.
Rose gradually or if it grows all of a sudden that puts a different type of pressure on tid. So our objective is to try and maintain the tid levels, where they're at now.
And accommodate for the growth of our aerospace.
Great. Thank you.
Your next question comes from the line of Christian Georges from site General Your line is now open.
Yes, Thank you Vincent and thank you for the call.
On your free cash flow you did over $100 million again.
Alright.
He's done how.
How does he more than 10 million.
Yours.
Is that.
Kind of like a low conversion level.
So look it's gutenberg consensus.
Does that suggest 171 billion.
At the end of next year of about 200 median debt reduction I mean not.
It realistic to expect you to have a really high level of conversion to <unk> next year.
Well first of all Christian.
We just call out what happened in 2021, we did have some FX translation that worked against the debt reduction and remember that we had some costs associated with the.
With some of the refinancings that we did that also kind of worked against the absolute debt reduction number.
Looking at 'twenty, two again, our guidance is greater than $150 million and we are very confident in our guidance and we'll do as well as we can.
I'd say assume 150 million euros or better of.
Free cash flow and therefore debt reduction everything that we're going to.
Everything that we're going to generate from a free cash flow perspective, we're going to put it into debt reduction until we get to about two five times leverage target.
So.
171 billion something you would say you would judge as Shannon Joel.
I'm going to stick.
Well, we're going to we're going to try to get as low as we possibly can but I can tell.
Selling you our guidance.
Kind of a $150 million or better so far.
1981 take $150 million off of bottom up about where we should be.
Okay that makes sense.
Another question is on this.
Automotive rolled.
Business.
If I go back to it because I'm not sure what you were saying we've been subdued since 2019. So we're running at about 55000 tonnes this quarter.
With the peak season.
See you back in Q1 'twenty one.
Say that the second half of 2022 Devens.
Given the incredibly.
Brilliant.
Demand for so much of your rights.
<unk> are going.
Through the roof.
I mean, what would be is this.
You said mountains in second half, you're seeing that would be normal for the past two years would you be running at like 65 72000 tons per quarter, you said, it really seek top level, so our maximum capacity and rolled our automotive products Chris choice.
280000 tons a year.
Which means you never quite get there right you need a little bit of buffer.
But you know shipping.
Up to 17 in any given quarter is possible.
As a consequence.
And obviously that's not included in our guidance right. So that would be upside if the markets recover strongly in faster.
Okay. So it's 210 seven tons a quarter.
Is your packaging type of food.
<unk> 70 on the simpler to use.
18 months I know you guys spoke to us in April , but you're on on road products you're pretty much.
If I say to you, yes, we are pretty much at capacity and Thats why were going to be talking about capacity expansions.
And again, we'll be talking about it in the context of we want to remain at that two five times.
Average target all the time.
It's going to happen in the medium term, it's not even more long term targets medium term target we wanted to stay around that.
And we think that there are plenty of very attractive growth opportunities for us that will require some capital investment, but we will make those capital investments and continue to maintain that leverage level and actually delever over time, because this is a company that I think we've demonstrated can do.
Generate meaningful free cash flow in about any market situation right at market Downmarket pandemic crisis recovery.
And we want to maintain that economy muddle through good times and bad times.
Thank you very much thanks for yourself Thanks Christian.
Your next question comes from the line of Karl Blunden from Goldman Sachs. Your line is now open.
Hi, good morning, Thanks for taking the time just a question.
Maybe more for Peter on the liquidity side, you have been reducing your liquidity post pandemic.
Pandemic induced borrowing would you say that.
$500 million to $600 million is the right level for the company to run with I know that was the 2019 level, but you have some growth.
Ambitions you also potentially have some working cap needs associated with the supply chain uncertainty. So just wondering how you think about what the right level is going forward.
We'd be very comfortable at that level and I think as we've said in the past we could comfortably run the company even at lower levels from that but but I think.
We'd be very comfortable at that level and I think that's a.
Very likely the type of place we go to in the interim.
Okay. That's really helpful. As we think about debt reduction and just with regard to inflation for this year as you look at what the variables are that could lead to the most variation versus your guidance. So what should we have on our mind as we work through our models.
Well I think.
So again metal is a pass through or just remember to remind everyone al.
Alloys, we've kind of locked in a lot of the pricing there. So we're we still have some to buy but and.
And we're hopeful that that price is going to move favorably, but thus far it has not but there's obviously some risk there.
Labor, which is our labor is our second biggest increment of cost and labor we benefit from contracts that we today know where we're going to be on our labor costs for 'twenty. Two so we should be.
We should be in reasonably good shape there.
And then on energy so energy remember, we buy forward, we are going to see some significant increases in energy costs. This year.
Just given the kind of wave energy curve as have shaped up and some of the needs that we have there.
I would say that that is maybe one place with some of the challenges going on around the world.
Just with the energy transition and geopolitically.
Could have some.
Slightly higher costs. There then what's built into our.
Into our guidance.
If things turn the wrong way.
So on energy do you basically build and strip prices just what you see in the market today.
Well no we have I mean, we have actual costs that were contracted so we would build in those costs and then for whatever is outstanding we would factor in something more along right what you're saying.
For the UN contracted volumes, okay. Thanks, very much I appreciate it.
Youre welcome.
There are no further question at this time I will hand, it over back to John Martin Chairman and CEO of <unk>.
Well. Thank you very much everyone great to talk to you today and I look very much falloff to updating you on our future and.
Establishing a new long term guidance.
April <unk> 2022 we hope you can come to vessel shows all the way to be available.
<unk> bought in technology options. Thank you so much and have a good day.
This concludes today's conference call. Thank you for participating you may now disconnect.
<unk>.
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Okay.
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