Q1 2023 Constellium SE Earnings Call
Hello, and welcome to the can study in the first quarter 2023 results Conference call. My name is Alex they'll be cool, thanks, Nicole to stay.
You'd like to ask a question at the end of the presentation. You can press star followed by one on your telephone keypad.
I'd like to withdraw your question you May press Star followed by two.
I'll now hand over to you Jason Hershiser, Alright of Investor Relations. Please go ahead.
Thank you Alex I would like to welcome everyone to our first quarter 2023 earnings call on the call today, we have our Chief Executive Officer, John Marc Germain and our Chief Financial Officer, Jack <unk>.
After the presentation, we will have a Q&A session a.
A copy of the slide presentation for today's call is available on our website that can sell M. 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.
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.
<unk>, our <unk> disclosure.
I would now like to hand, the call over to John Mark.
Thank you, Jason and good morning, good afternoon, everyone and thank you for your interest income stadium.
Let's begin on slide five and discuss the highlights from our first quarter results I would like to start with safety. Our number one priority we delivered best in class safety performance in the first quarter with a recordable case rate of one six accidents per million hours worked in the first quarter, we had several site.
<unk> achieved safety milestones with anniversaries for a number of years of two eight without a recordable case I want to congratulate all of our employees on this excellent performance, but the safety journey is never complete and we all need to remain focused on this critical priority.
Our performance in the quarter was excellent we are always focused on maintaining and improving our safety performance and we see the accidents happen.
Turning to our financial results shipments were 389000 tons down 3% compared to the first quarter of 2022, mainly due to lower shipments in bulk.
Revenue of 2 billion euros decreased 1% compared to last year as improved price and mix was more than offset by lower metal prices.
Remember what our revenues are affected by changes in metal prices, we operate the best through business model, which minimizes our exposure to metal price risk.
Value added revenue, which reflects our sales excluding the cost of metal with 754 million euros at 16% compared to the same periods last year.
Our net income of 22 million euros in the quarter compared to 179 million euros in the first quarter of 2022.
As you can see in the bridge on the top right. Adjusted EBITDA was 166 million euros slightly below the first quarter of 2022.
<unk> adjusted EBITDA was a new quarterly record and increased 20 million euros compared to last year, while F&I. Adjusted EBITDA is a new first quarter record and increased 6 million euros versus last year <unk> adjusted EBITDA decreased 27 million euros in the quarter.
Looking across our end markets aerospace demand was very strong with shipments up over 50% compared to last year automotive shipments in both rolled and extruded products were up double digits in the quarter versus last year.
Packaging shipments were down in the quarter due to inventory adjustments across the supply chain and lower end demand.
Continued to face significant inflationary pressures with Jac.
Which Jack will discuss in more detail.
But thanks to our pricing power contractual protections improved mix and solid execution by our team we are managing the current environment quite well.
Moving now to free cash flow, our free cash flow in the quarter was negative 34 million euros, which was in line with our expectations. We continue to expect to generate positive free cash flow this year of greater than 125 million euros.
We remain committed to generating positive free cash flow and deleveraging as you can see on the bottom right of the slide our leverage at the end of the first quarter was two eight times or down zero point full times from the end of the first quarter of last year.
Overall, I am very proud of our first quarter performance.
Looking forward, while there are uncertainties on the macroeconomic and geopolitical fronts, we like our end market positioning and we are optimistic about our prospects for the remainder of this year and beyond based on our current performance and our current outlook, we're raising our guidance and expect adjusted EBITDA in the range of six.
152, 680 million euros, and free cash flow in excess of 125 million euros in 2023.
We also remain confident in our ability to deliver on our long term target of adjusted EBITDA over 800 million euros in 2035.
I will now hand, the call over to Jack for further details on our financial performance.
Thank you Mark and thank you everyone for joining our call today.
Please turn now to slide seven now.
Ali you added revenue of our bar was 774 million euros in the first quarter.
16% compared to the same quarter last year.
Looking at the first quarter of 157 million euros of this increase was due to improved price and mix in each of our segments.
Volume was a headwind of 20 million due to lower shipments in park.
Ali metal impacts were a headwind at 40 million euros due to inflation on input costs, such as hard to nursing alloying elements as well as weaker scrap performance in the quarter compared to the same period last year.
The balance of the change was due to a favorable FX translation tie to a stronger U S. Dollar.
There are two important takeaways takeaways from this slide.
First we grew our value added revenue by 16% compared to last year and second we continue to have pricing power.
Price and mix and price specifically is the biggest increment of our year over year variance and helped us offset inflationary pressures.
Now I'll turn to slide eight and let's focus our PARP segment performance.
Adjusted EBITDA of 55 million euros decreased 33% compared to the first quarter of 2022.
Volume was a headwind of 11 million euros with higher shipping automotive more than offset by lower shipments in packaging and specialty rolled products.
Automotive shipments increased 19% in the quarter versus last year as new platforms continue to ramp up and demand generally appear stronger.
Packaging shipments decreased 11% in the quarter versus last year due to inventory adjustments across the supply chain in both North America, and Europe and lower demand.
Price and mix was a tailwind of 47 million euros, primarily on improved contract pricing, including inflation related pastures.
Costs were a headwind of 64 million euros as a result of higher operating costs due to inflation operating challenges at muscle shoals, and a favorable metal costs.
As we discussed last quarter, our muscle Shoals team is highly dedicated and we're working hard to recruit and train new hires but this will take some time.
Ex translation, which is noncash was a tailwind of 1 million euros in the quarter due to a stronger U S dollar.
Now I'll turn to slide nine let's focus on the A&P segment.
Adjusted EBITDA of 73 million euros increased 37% compared to the first quarter of 2022.
Volume was a tailwind of 9 million euros with higher aerospace shipments more than offsetting lower tid shipments.
Aerospace shipments were up over 50% versus last year at the recovering aerospace markets continues.
Shipments in Tid went down 15% versus last year, reflecting a slowdown in certain industrial markets, partially offset by strong demand in other markets like defense.
Price and mix was a tailwind of $50 7 million on improved contract pricing, including inflation rate related pass throughs, and a stronger mix with more aerospace.
Costs were a headwind of 48 million euros as a result of higher operating costs due to inflation and production increases.
FX translation or there was a tailwind of 2 million euros in the quarter due to a stronger U S dollar.
Now, let's turn to slide 10, and focus on the <unk> segment.
Adjusted EBITDA of 43 million euros increased 17% compared to the first quarter of 2022.
Volume was a 1 million euro tailwind with higher shipments and automotive more than offsetting lower industry shipments.
Motive shipments increased 13% in the quarter versus last year as we continue to experiencing proofing activity level.
Industry shipments were down 5% in the quarter versus last year.
Price and mix with a $23 million euro tailwind, primarily due to improved contract pricing, including inflation related pass throughs.
Costs were a headwind up 18 million euro some higher operating costs, mainly due to inflation.
Now turn to slide 11, where I want to give an update on the current inflationary environment, we're facing and our focus on pricing and cost control to offset these pressures in.
In the first quarter and as expected we experienced broad based on significant inflationary pressures across our business as.
As you know we operate a pass through business model. So we're not materially exposed to changes in the market price of aluminum our largest costing but.
That said other metal alloy supply remains tight today and why we're confident about the security of supply some of it does come at a higher cost.
<unk> labor and other nonmetal costs will also be higher this year particular European energy.
As previously noted we purchased interchange multi year rolling forward basis, which has helped us mitigate some of the energy cost pressures.
It helped us to smooth out some of the steep increases in cost.
As of today, our 2023 energy costs are largely secured but at higher average prices.
Both electricity and gas forward energy prices in Europe have come down from their 2022 peaks, but still remain well above historical averages.
Given these cost pressures.
We continue to work across a number of fronts to mitigate the impact on results.
We have demonstrated strong cost performance in the past years, and we will continue our relentless focus in 2023, including continued execution on our previously announced division 25 initiatives.
Across the company, we're working to increase our efficiency reduce our consumption of expensive inputs and lower our fixed costs.
In addition, as we've previously noted many of our existing contracts have inflationary protections such as PPA influencers more surcharge mechanisms and where they do not we're working with our customers to include them.
We are signing new contracts, they are coming with better pricing in a range of inflationary protections we.
We have made very good progress across all of our end markets.
As you can see in the bridge on the right in the first quarter. This year, we were very successful with price and mix the largest incremental pricing offsetting inflationary pressures.
As we mentioned last quarter, we expect inflationary cost pressure to around close to 300 million euros in 2023.
We continue to believe that we will be able to offset most of this cost pressure in 2023, and the rest in future periods with a combination of the tools, we know that and our relentless focus on cost control.
The net impact of inflation and other cost increases and the actions, we're taking to offset them are including our guidance for 2023.
Now, let's turn to slide 12, and discuss our free cash flow.
Our free cash flow was negative 34 million euros in the first quarter, which were which was in line with our expectations.
The result in the quarter reflects a strong adjusted EBITDA offset mainly by higher capital expenditures and increased working capital.
Looking at 2023, we continue to expect to generate free cash flowing assets of 125 million euros for the full year, which we expect to be weighted more towards the second half as well.
We know that last quarter we.
We expect working capital to be a use of cash in the first half of the year and a source of cash in the second half and based on current forecast roughly neutral for the full year.
We expect Capex cash interest and cash taxes in line with our previous guidance.
Now, let's turn to slide 13, and discuss our balance sheet our liquidity position.
At the end of the first quarter, our net debt of $1 9 billion euros increased slightly compared to the end of 2022, given the free cash flow in the quarter.
Our leverage remained at two eight times at the end of the first quarter. It went down four times versus the end of the first quarter of 2022.
We remain committed to achieving our leverage target of two five times and maintaining our long term target leverage range of one five to two five times.
As you can see our debt summary.
We have no bond maturities until 2026, and our liquidity remains strong at $688 million euros as of the end of the first quarter. We're very proud of the progress we have made our capital structure and have the financial flexibility we are building out.
I'll now hand, the call back to John Marc Thank you Jack.
Let's turn to slide 15, and discuss our current end market outlook, starting with packaging.
In packaging the inventory adjustments continued across the supply chain in both North America and Europe , we are starting to see some signs of demand weakness in both regions. As a result of the current inflationary environment. The lack of promotional activity and following a multiyear period of rapid growth.
<unk> during COVID-19.
We are confident in the long term outlook for this end market, though given can make our capacity additions in both regions recent announcements of Greenfield investments here in North America, and the growing consumer preference for the sustainable aluminum beverage can.
Longer term, we expect packaging markets to grow low to mid single digits in both North America and Europe .
We will speak to in these growth in both regions as announced at our analyst day last year.
As Jack noted the company is highly focused on stabilizing the operating challenges we have been experiencing at muscle Shoals.
That we can take advantage of these end market dynamics in North America. We're encouraged by the improved performance. We have seen recently at muscle Shoals and remain very confident in our ability to restore <unk> profitability and performance over the course of 2023.
Turning now to automotive.
OEM sales and production numbers globally are still at a low base compared to pre COVID-19 levels with uncertainty continuing in the older books.
However, we remain very positive on this market and increased demand in bulk and Essonite gives us reason for optimism.
Automotive inventories are low consumer demand remains high and vehicle electrification and sustainability trends will continue to drive demand for light weighting and use of aluminum products.
Let's turn now to aerospace the recovery in aerospace continued in the quarter with shipments up over 50% versus last year, though still below pre COVID-19 levels.
Major Oems have announced build rate increases in the short term and the desire for further increases in the medium term.
We remain confident that the long term fundamentals driving aerospace demand remain intact, including growing passenger traffic and greater demand for new more fuel efficient aircraft.
In addition, <unk>.
<unk> strong in the business and regional jet market and the defense and space market.
As the chart on the left side of the page highlights.
Three core end markets represented 76% of our last 12 months' revenue.
We like the fundamentals in each and as I have said in the past, we like our hand and the options to folds us.
Turning lastly to other specialties, while we do see some weakness in segments like General engineering plate and building and construction demand remains solid in many of our specialties end markets demand has been more resilient than North America and in Europe .
In general these other markets are dependent upon the health of the industrial economies in each region.
In Tid rolled products demand remains strong in markets like defense and in transportation in North America.
In industry extrusion demand is still strong in sectors like solar and rail.
Also of note that many of the sustainability trends supporting growth in our core markets are very much at Lee here.
Specialties as well.
In summary, we continue to like the prospects for the end markets, we serve and we strongly believe that the diversification of our end markets is an asset for the company.
Let's turn to slide 16, where I want to highlight several favorable market trends that we see is tremendous opportunities for our future.
You can see in the table on the left both of the slide.
Majority of our portfolio today is serving end markets currently benefiting from durable sustainability driven secular growth.
The important takeaway here is that the aluminum as a catalyst behind these secular growth given its sustainable attributes.
Aluminum is infinity recyclable and does not lose its properties when recycled as a result, our aluminum will play a critical role in the circular economy and will be a driver of growth in light weighting electrification and sustainable packaging.
As we mentioned before we are continuing to invest in.
And grow our recycling capabilities the recycling center, we are building it.
<unk> is well underway with startup and ramp up on track for 2025.
We also believe the current regulatory environment further supports the long term growth of our products. For example legislation in both Europe and North America. Currently supports the increased adoption of electric vehicles and the increased focus on recycling.
In packaging consumers and Brent owners today consider aluminum cans.
The beverage container of choice.
The aluminum can is more recyclable, then both plastic and glass and can be recycled at a profit. It provides superior marketing tool using the can as a deal bold is lightweight it is easier to transport and store.
<unk> better shelf utilization in the stores.
Aluminum cans are also recession resilient.
Even in today's environment, where we have seen inventory corrections across packaging supply chain and some signs of demand weakness as a result of inflation.
<unk> continued to outperform all of the substrates like plastic and glass.
Light weighting creates significant opportunities across multiple end markets in automotive light weighting is critical to reducing emissions in vehicles with internal combustion engines and also to extend the range for battery electric vehicles.
Aluminum is continuing to gain share in automotive as a result, and castelli amines uniquely position with greater exposure to premium vehicles light trucks, and Suvs all of which tend to have the highest amount of aluminum content as well as opportunities in both rolled and extrusion based solutions.
Electrification accelerates the growth of both <unk> for Illumina to move teeth on average battery electric vehicles used two to three times more aluminum sheet and extrusion than their traditional internal combustion engine counterparts.
More and more of the fleet is going electric in both North America, and Europe , which was supported by legislation and customer incentives.
<unk> is well positioned today with our diverse and balanced portfolio to capture the secular growth fueled by sustainability.
Turning now to slide 17, we detail our key messages and financial guidance.
<unk> delivered strong performance in the first quarter I am very proud of our entire team.
We achieved solid operational performance and strong cost control, despite a number of challenges including significant inflationary pressures.
Looking forward 2023 will be another challenging year, given the extraordinary inflationary pressures, we are facing particularity on European energy costs.
Jack noted we are currently expecting comparable inflationary pressures in 2023 to those we experienced in 2022, but we remain confident in our ability to pass through most of these costs in 2023 and the rest in future periods.
Based on our current outlook, we are raising our guidance for 2003 and now expect adjusted EBITDA in the range of 650 to 680 million euros and free cash flow in excess of 125 million euros.
I also want to reiterate our long term guidance of adjusted EBITDA in excess of 800 million euros by 2025, and I'll target leverage range of one five to two five times and let me add these guidance is based on our current energy positions, including higher forward energy prices.
Today.
As inflationary pressures subside, we believe we will emerge an even stronger company. Our business model provides a strong foundation for long term success and we believe we have substantial opportunities to grow our business and enhance profitability and returns we have a diversified portfolio and our market position.
The consortium team has demonstrated its resilience and ability to execute across a range of different market condition and I am confident we will continue to do so.
We remain focused on executing our strategy driving operational performance generating free cash flow, achieving our ESG objectives.
And shareholder value creation in conclusion, I remain very optimistic about our future.
Alex will now open the Q&A session. Please.
Thank you as a reminder, if you'd like to ask a question you can press star influenced by one on the telephone keypad.
Lots of Petroleum question, you May press star followed by two pieces.
Please ensure you're on mute locally when asking your question.
Our first question for today comes from Emily Chang from Goldman Sachs and Lee. Your line is now open. Please go ahead.
Good morning, John Marc and Jack Thank you for the update today.
I wanted to start with the packaging markets.
I know you've talked a little bit about the Destocking cycle I think last quarter. You also mentioned you are still confident in meeting and.
Total volume targets of packaging them. This year given the contractual threshold do you have in place, but is there any risk to that view at this point and to your customers specifically on what you're seeing that where does <unk> stand on the destocking cycle.
Yes, good morning, everybody. Thanks for the question so on packaging.
We remain confident in our ability to achieve our until targets, but they are.
Towards the low end of the variance that is allowed within our contractual.
Arrangements with customers because we are seeing not only destocking, but as I mentioned some weakness in end demand and I think that's due to two factors one is inflation purely squeezes disposable income for <unk>.
Consumers, but more importantly, there is.
Theres been no promotional activity of late.
These four.
Cans beverages in general and you see that in the.
The results of the beverage companies where.
Pricing is very strong for them, but volume is weaker so I think we're in a place where we believe the market will be still growing.
Over the medium term, but this year is a little bit of a challenge and will be towards the lower end of our expectation.
Our expectations volume wise.
Understood and maybe a second question just shifting gears, a little to the muscle Shoals asset.
I know you mentioned there was some labor inefficiencies that were driving the weakness but were there any other operational issues.
Expect over time as labor inefficiencies pass at that asset should see better profitability.
Yes so.
Yes, we expect to.
Be recovered by the end of the year as I mentioned on the <unk>.
A few of our earning schools I guess since the.
Seems it full it takes time to recruit and train people, we are making progress with less open positions. We are spending a lot of the maintenance of the assets as well. So that's a headwind in op cost variance. When you look at the BOP performance versus last year this quarter versus last year.
But I think we're setting the foundation for a return too.
Solid operating performance and financial performance.
By the end of the year.
<unk>.
Encouraging signs that we're seeing that.
When we look at our indicators theres more and more green lights on the dashboard in terms of the performance of the plant.
And that allows us for instance, even though our can sheet is weak as we mentioned to take plenty of opportunities in automotive and that's one of the beauties of our diversified model, where we can fund market is not doing so well there is other opportunities in other markets that will seizing so I'm quite encouraged by.
But what I would say <unk>.
But truly.
Typically operational performance improves before financial performance improves and I think by the end of the year will be in a very good place.
Great. Thank you.
Thank you.
Our next question comes from Todd with worth of Credit Suisse.
It is now open. Please go ahead.
Great. Thanks, Good morning, John Mark and Jack.
First question is around high.
I guess just around changes to the guidance so.
So it seems like from a cost perspective, you still are seeing.
$300 million target yet.
You did raise the guidance. So I'm just kind of curious maybe what has changed from.
The update you gave towards the end of last year, we were looking for more meaningful decline and then with respect to price cost.
It does seem like you're getting very strong price mix.
This quarter 157, that's a pretty strong run rate, but it seems like you intimated that you still would be negative price cost. This year. So I'm. Just wondering if you could also give us any color on what you think net price.
Embedded in the guidance.
Yes. Thank.
Thank you Chris So let me let me start with your first question and I'll give you a little bit of color here I think as we kind of finished Q1. It really it was a little better than kind of what we had expected just given the favorable trends trends in aerospace and automotive as well as some of the sub segments within the industrial <unk>.
<unk>.
And we do expect some of that to continue into <unk>.
The second one for the second quarter Aerospace and automotive should continue to perform the lower Ken stock demand will likely.
Could also last.
This quarter end.
The visibility for some of the other markets are not kind of where we're used to seeing so and remember you also have the continued cost pressure from inflation as well as from <unk>.
Of activities given the strength in our aerospace and automotive businesses. So that's why we're fundamentally not really changing our existing views and outlook.
Outlooks for the second half of the year and that kind of explains the guidance.
And then on to your second question I think on the cost side, we did call out.
We should expect to see.
High levels of inflation.
About $300 million, we're kind of one quarter into that but we're confident in our ability to.
Has too.
Some of that as well as with the pricing power that we have.
And if I step back I think we will late last year, we were thinking.
We've got this big wave of inflationary pressures are we going to be quick enough to pass that through because there is no question in our mind that we can pass it through but the pace at which we can pass it through as a very significant impact from 2023 outcome and where.
Prudent I think in our assessment of what kind of job, we can do investing it through and what should we see nearly six months after seeing that big wave that the teams have done it.
Excellent job.
Negotiating with customers our customers have been supportive and we're in a much better place than we thought we would be.
Six months ago, three months ago, and Thats why were we.
We see less of a pinch.
Okay.
Then one follow up on packaging for me as well so.
At the Analyst day, you talked about I think 200000 tons of incremental can see by 'twenty five and also noted that duration of these contracts were being extending I think four to five year or so.
Can you comment on.
How much of that have you contracted at this point in time, because obviously the beverage can side there have been some push outs Mccann.
<unk> and then the Capex around that do you still feel comfortable in that I think $1 75 to 200 number you quoted thank you guys.
So yes, so we did communicate last year.
I'd say 200000 tons of additional volumes in can sheet.
Now that's a 26 number because it's a run rate in 'twenty, five, but thats because of the ramp up we are 80% to 90% contracted on those.
As you know there is some variance within the contractual commitments so it could come in a little bit lower but not meaningfully lower.
Weakness persists.
So we feel very comfortable about.
This market the capital deployment plans, we have and remember that these.
Products use the same lines as the automotive line.
You're going to see the finishing lines as to the motive.
So we have versatility in terms and optionality in terms of where we decide to use that capacity. So we feel very good about the outlook and we're essentially.
Close to 90% contracted.
Okay.
Okay. Thanks very much.
Thank you.
Thank you. Our next question comes from my team that tenants of Wolfe Research. Your line is now open. Please go ahead.
Hey, good morning, just a few follow ups.
With regard to the percentage of your.
Tenants that you think you can pass through cost pressures on I think in the past you've talked about 90% to 95% of cost of capacity.
Given year and I know you alluded to some spillage into further time periods is that 90, 95% still a good frame of reference.
Okay.
Yes, I think it's a directional but it's.
And as you can see on the.
On the variance chart you see that.
We are.
Referring to page 11 of the presentation, you see a price and mix variance of $1 38, there is an element of mix in there. So it's not oil price and you see a cost variance of 130 <unk>.
<unk> not only inflation under the right there as.
Other factors like for instance, we are bringing in more people in.
Aerospace and transportation because of the.
Booming demand.
Spending more on maintenance.
Our facilities to make sure we are ready for the future, but overall, that's a yes I think the numbers show our ability to pass through most of the inflation as it happens in the rest of it in the following a period.
Okay, Great and then I know you addressed that can seat expansion with correct, but I just thought of.
It'd be helpful to go back to again, the Investor day, and some of the other abroad gross initiatives you talked about can you give us an update across the board with some of those initiatives that you had laid out for us.
Sure so.
Those initiatives are really the foundation for the over 800 million euros EBITDA guidance. We gave for 2025, so if I look at the different elements there.
Maybe by market. So we talked about can sheet.
2025, it's roughly 140000 tonnes that would be for.
For the year right for the year of 2025, it would be available and I think most of that as I mentioned is 90.
<unk> 90 percentage contracted essentially.
And maybe a little bit of variance depending on our market scope, but that's we feel that's something we feel very good about.
That's why we are spending a lot of money on maintenance and capital expenditures to get ready for that so we feel good about it I think we're a little bit behind given the current market situation.
Overall because of the weakness in.
In cash, but I think the silver lining here is there's two things.
One is you've got the other beverages.
Packaging.
<unk>.
Down much more than cans are.
So that shows that for the brands and the consumers at Kenzo preferred.
Other aspects too.
Silver lining is with the increased focus on recycling.
We know that aluminum pace for a recycling waste plastic and glass don't.
And what that means is as there is more and more legislation bush to recycle more.
Not only will we have more used beverage cans to recycle but also.
There will be more need for cans, because they are a preferred package they cost less recycled and the other packages. So I think the fundamentals here are very strong and it's good to have a very long tail well beyond 2025 of horizon. So we feel very good for can sheet.
They're even though we're a little bit behind now I think we will.
<unk> targets in 2025, and I think there's multiple come after that.
The other Big initiative, we have is a recycling center.
It is going.
On budget on time, though we're very excited about it. So I was visiting a just a couple of months ago. It's amazing how quickly it's moving now that we have.
We've started to be above ground. The construction of these above grabs so thats very exciting and we will start it up at the end of 'twenty four and ramp it up very quickly and I think we see again more recycling.
Being mandated in Europe , that's going to be a tremendous.
Attractive opportunity for us and it's likely to be better than what we thought in terms of financial returns when we announced it.
I think we're going to end up ahead of that and then if I look at the other markets in automotive.
We see continued.
Demand.
And the recent announcements by the Baidu and administration mean essentially.
But charging the growth of electric vehicles, which is the.
An accelerating effect of the adoption of aluminum so thats good for us.
And when I look at the aerospace market.
We've got a very good positions with Airbus and Boeing in the area.
<unk> in the market.
And we will see.
Strong pool, that's going to continue for the next few years. So I think in aerospace as Youll see were ahead.
We are winning are numerous.
Best supplier awards from these are played makers and this is consulting our market share gains so.
We think we're in a very good place.
We and that's why we feel so comfortable about 2025 guidance I don't know Tim Nice I answered your question in my long answer but.
And just wanted an update so thats great. Thank you very much okay. Thank you.
Thank you. Our next question comes from <unk> <unk> of Deutsche Bank. Your line is now open. Please go ahead.
Hey, Joe Lampkin.
I just wanted to go back on the back ends within the trend Thats helpful.
Oh hi.
Okay.
Well I think that.
That can be a lag.
Yes.
Thanks, Kevin.
Hello.
So I'm not sure I heard the question Corey.
Exactly but yes, I mean typically you have the strong first half in <unk>.
Ken stock.
Given the seasonality of the business now we do this year have this lower demand factor and Destocking phenomenon, that's happening and Thats continuing we're seeing it to continue into Q2, so that's going to have a little bit of an impact on volume, but we're hopeful that's going to come back second half.
I think what's going to drive it really which is a known as utilities with the beverage companies will run promotions on up.
No.
Is it my.
Local store the other day and what I used to get for six Bucks five nine bucks for it now so that's a change if they're all promotions I think thats going to spur some multi manually I'll note I think we'll be much more muted environment from a seasonality standpoint than what we're used to see.
Okay. Thanks.
And then maybe a follow up on.
<unk>.
<unk>.
Yes, Nick.
I've been a nonbinding now sounds like Shanghai.
Yes.
So now and then maybe the market why this thank you.
Can you comment.
Paul.
Sure.
Thank you Paul.
Yes.
I don't know the specifics of what you were mentioning the announcements you mentioning about steel dynamics, but in our supply demand projections. We believe we need is in North America as an industry more capacity.
So that capacity.
If need to.
Because of the growth, we see in both cat and automotive and the very substantial share of imports, which we do not believe are competitive will provide a good service levels.
Can makers customers need so we believe that capacity is needed now if it comes sooner than when it is exactly needed that could be a problem, but as I mentioned, we are more than 90% contracted through 2025.
So we're we feel we're in a very good place.
And we've got contracts that run through 2028, so we feel like we're in a very good place.
Alright, thank you.
Thank you as a reminder, if you'd like to ask a question that you can press star one on your telephone keypad.
Our next question comes from Josh Sullivan of the Benchmark Company Josh. Your line is now open. Please go ahead.
Hey, good morning.
Morning, Josh.
Just as far as the record aerospace demand.
Is that broad based across air framers and customers. There is there any particular platform driving the near term revolt results you've seen some other material suppliers talk about inventory stocking for the <unk> hundred 50 does that mean youre aluminum lithium products might be accelerating faster than other products.
So.
Josh we.
We still see narrow body as a key driver for growth.
<unk> hundred 50.
It may come back.
It may.
It may increase the build rates, it's noticed substantial driver just yet we're seeing it's really broad based much more demand I'll remind you that when we went through <unk> are.
Shipments all production went down by 50% when the build rates went down by only 30%. So there is an element of restocking that needs to happen.
Difficult to know how long, it's going to take to restock, but I think what you are seeing through the supply chain is everybody being worried about.
Going to run out of product. So this is <unk>.
Really accelerating the growth.
That he is needed but at the same time.
We are still shipping below what is needed to.
The build rates.
That are announced by the Oems. So we feel like there is a.
Long.
Passive opportunity for us for 'twenty four 'twenty five.
And then just one on the automotive side in 2022, the number of plant shutdowns due to various supply chain issues. How should we think of the recent automotive strength or can steadily I'm just relative to restarting some of that production and inventory catch up versus the organic growth relative to kind of full year.
<unk> expectations.
So I think the full year. So our expectations are both North America, and Europe kind of 7%, having a pretty good 7% and we're growing double digits.
And.
What.
The gap here as a result of a number of factors, but one we should be bolt on these further penetration of <unk>.
Aluminum.
And Thats something that we see continuing to come into play. So we we feel pretty good about our ability to maximize the use of our automotive assets and will not fully sold out just yet. So we think there is some nice upside there going into next year as well.
Thank you for the time.
<unk>.
Thank you.
Our next question comes from Sean One Brian <unk>.
Sean Your line is now open. Please go ahead.
Hi, John Martin Jack Benny Shaun we know, we know youll still at DB either way.
Okay.
That's correct.
So looking.
Looking today, it's great to see that you increase the guidance.
What sort of changed versus your prior outlook that you gave them.
Yes so.
Yeah.
I think the.
Our beat in the first quarter clearly helps us.
Be more comfortable about our ability to pass through the price increases.
But we.
Jack mentioned earlier for the nine months to go we are not really changing our guidance right. We feel like there is still a.
Enough uncertainties around the geopolitical environment.
<unk>.
The older books in some of our segments tend to be short.
We see a lot of strength.
Oh two in Aero for instance, and there is still lease uncertainty around packaging, we're going to have our promotions are not in the summer. So we feel.
Very good about our.
<unk> increased our guidance, but we are not cutting it yet.
Real upside to the next nine months.
Great I agree with you.
And do you think.
The fact that the packaging guys might be seeing some easing inflationary impact.
Generic trend might be.
<unk> and her willingness to lower prices of oil.
Possibly yeah I hope so.
Alright.
And then just some of the Internet.
Got it.
I'm, sorry, I would say that would be an upside if it happened.
Okay.
Right that makes sense and then have you seen inflation easing in any of your other cost bucket.
You've mentioned labor has been up but just within maybe three or any other areas.
So no.
On the energy side in Europe , if you look at the spot prices.
<unk> come down a little bit, but thats really still well above historical averages.
And I think inflation, it's a big category and it's really broad based right. So we're still seeing tremendous pressure on other buckets like labor alloy.
Coatings et cetera. So.
Right.
Okay. Thank you and then.
Great to see.
You've kept your free cash flow outlook.
What are your plans to sort of allocate that free cash flow going forward.
Yes.
Can you build cash or do you think you have to play it.
Well.
So I mean, this goes into the capital allocation priorities, a little bit right and I think.
For US nothing has changed our priority is still to take our leverage down to two five less than two five times and that remains the priority. We were spending more on capex to generate returns additional returns for our shareholders, but deleveraging remains a priority so.
You mentioned in the past that deleveraging counting a couple of different ways. One is from earnings growth.
And secondly from that debt pay down so.
So that gives you a flavor.
Okay, great. Thank you very much for taking my question.
Thank you.
Thank you.
Next question comes from Mike <unk> from BMO capital markets. Your line is now open. Please go ahead.
Hi, Thank you for taking my question just quickly on the A&D segment.
EBITDA per ton.
It was very strong this quarter and I think last quarter, you mentioned margins in that business should be somewhere between 800 900 per tonne.
How should we think about margin going forward.
Over the next few quarters.
Yes.
So.
Obviously <unk> had a stellar performance this quarter and continue to have stellar performance.
<unk>.
Achievements.
I think.
First quarter margin really reflects continued pull from from customers. So more aerospace that's part of the portfolio Arrow in tid, but also more favorable.
Aerospace mix with thing within Aero, if that makes sense and the Tid business is also holding up pretty strong so I think remember that business.
Scotty I remember the business flex quite a bit in terms of cost drawing called it in the down cycle and not all of that has kind of fully caught up upcycling environment like the one we're in.
Today, and obviously thats the benefits.
Beneficial for margins.
We saw.
Some of that in the fourth quarter of last year. It was actually throughout last year and continuing into this year, but overtime, we do expect.
Cost to catch up.
And for.
For for this business unit upcycling environment should still stay very strong.
So in other words, the 800 to 900 catch a kind of an average across cycles for the aerospace and transportation Division.
In a very strong aerospace market going up we will be above that range.
And I think that's what we're seeing now so we would expect for this year.
To be above the 800 to 900 average.
Through the cycle.
Okay.
Okay. Thank you so much.
Thank you okay. Thank you.
Thank you we have no further questions. So I'll hand back to Sean <unk> for any further remarks.
Thank you Alex and thank you everybody for participating today, we are delighted with the outperformance in the first quarter I think is a good foundation for a strong and better than expected 2023.
Thank you everybody and stay safe Goodbye.
Thank you for joining <unk> co you may now disconnect your lines.
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Okay.
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