Q4 2023 Constellium SE Earnings Call
Elliot: Hello, and welcome to the Constellium fourth quarter and full year 2023. My name is Elliot, and I'll be coordinating your calls.
Hello, and welcome to the <unk> fourth quarter and full year 2023. My name is Sally Hansen Albacore thanking you cold stack.
Elliot: If you would like to ask a question during today's event, please press star followed by 1 on your telephone key. And I'd like to hand over to Jason Hirschheimer, Director of Investor Relations. The floor is yours, please go ahead.
Speaker Change: If you'd like to register a question.
Speaker Change: Please press star followed by one on your telephone keypad.
Speaker Change: I'd now like to hand over to Jason Jason Hershiser Director of Investor Relations. The floor is yours. Please go ahead.
Jason Hirschheimer: Thank you, Elliot. I would like to welcome everyone to our fourth quarter and full year 2023 earnings call. On the call today, we have our Chief Executive Officer, John Mark Germain, and our Chief Financial Officer, Jack Guo. After the presentation, we will have a Q&A session.
Jason Hershiser: Thank you Elliot I would like to welcome everyone to our fourth quarter and full year 2023 earnings call.
Jason Hershiser: On the call today, we have our Chief Executive Officer, John Marc Germain and our Chief Financial Officer, Jack well.
Jason Hershiser: After the presentation, we will have a Q&A session.
Jason Hirschheimer: A copy of the slide presentation for today's call is available on our website at Constellium.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 filing. Today's call may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include statements regarding the company's anticipated financial and operating performance, future events, and expectations. It may involve known and unknown risks and uncertainty. For a summary of specific risk factors that could cause results to differ materially from those expressed in the forward-looking paper,
Jason Hershiser: A copy of the slide presentation for today's call is available on our website at <unk> Dot Com and today's call is being recorded.
Speaker Change: Before we begin I'd like to encourage everyone to visit the company's website and take a look at our recent filings.
Speaker Change: Today's call May include forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
Speaker Change: Statements include statements regarding the company's anticipated financial and operating performance future events and expectations.
Speaker Change: They involve known and unknown risks and uncertainties.
Speaker Change: For a summary of specific risk factors that could cause results to differ materially from those expressed in the forward looking statements.
Jason Hirschheimer: 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 this 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 to today's slide presentation, which supplement our IFRS disclosure. I would now like to hand the call over to John Mara. Thank you, Jason, and good morning, good afternoon, everyone. Thank you for your interest in Constellium.
Speaker Change: Please refer to the factors presented under the heading risk factors in our annual report on form 20-F.
Speaker Change: All information in this presentation is as of the date of the presentation.
Speaker Change: We undertake no obligation to update or revise any forward looking statements as a result of new information future events or otherwise except as required by law.
Speaker Change: In addition, today's presentation includes information regarding certain non-GAAP financial measures.
Speaker Change: Please see the reconciliations of non-GAAP financial measures attached in today's slide presentation, which supplement our ifr S disclosures.
Speaker Change: I would now like to hand, the call over to John Martin.
John Martin: Thank you Jason and good morning. Good every good afternoon, everyone. Thank you for your interest in coal stadium, let's begin on slide five I want to start by thanking each of our 12000 employees for their commitment and relentless focus on safety our number one priority our recordable case rate this year of one.
John Mark Germain: Let's begin on slide five. I want to start by thanking each of our 12,000 employees for their commitment and relentless focus on safety, our number one priority. Our recordable case rate this year of 1.95 per million hours worked was slightly higher than last year, but I am pleased to report that we continue to deliver best-in-class safety performance. Our safety journey is never complete, and we all need to remain focused on this critical priority every day.
John Martin: 195 million hours worked was slightly higher than last year, but I am pleased to report that we continued to deliver best in class safety performance.
John Martin: Safety journey is never complete and we all need to remain focused on these critical priority every day.
John Mark Germain: We remain fully committed to achieving our safety target to reduce our recordable case rate to 1.5 by 2025. Now, let's turn to slide six and discuss the highlights from our fourth quarter performance. Shipments were 336,000 tons, down 9% compared to the fourth quarter of 2022 due to lower shipments in each of our segments. Revenue of 1.6 billion euros decreased 13% compared to last year as improved price and mix was more than offset by lower shipments and lower metal prices.
John Martin: We remained fully committed to achieving all safety target to reduce our recordable case rate to 1.5 by 2025.
John Martin: Now, let's turn to slide six and discuss the highlights from our full sportswear performance shipments were 336000 tonnes down 9% compared to the fourth quarter of 2022 due to lower shipments in each of our segments.
John Martin: Revenue of $1 6 billion euros decreased 13% compared to last year as improved price and mix was more than offset by lower shipments and lower metal prices.
John Mark Germain: Remember, while our revenues are affected by changes in metal prices, we operate a pass-through business model which minimizes our exposure to metal price risk. Our value-added revenue, which reflects our sales excluding the cost of metal, was 681 million euros, down 2% compared to the same period last year. Our net income of 11 million euros in the quarter compares to net income of 30 million euros in the fourth quarter of last year. As you can see in the bridge on the top right, adjusted EBITDA was €171 million in the quarter, up 15% compared to last year and in line with our prior guidance. Also, we extended our track record of consistent free cash flow generation with 58 million euros in the quarter. The combination of pricing power, improved mix, and solid execution by our team drove strong results in the quarter, which Jack will discuss later in more detail. Now turn to slide 7 for the full year highlights.
John Martin: Remember what our revenues are affected by changes in metal prices, we operate to burst through business model, which minimizes our exposure to metal price risk.
John Martin: Our value added revenue, which reflects all sales excluding the cost of metal was 681 million euros down 2% compared to the same period last year.
John Martin: Net income of 11 million euros into quarter compares to net income of 30 million euros in the fourth quarter of last year.
John Martin: As you can see in the bridge on the top right. Adjusted EBITDA was 171 million euros in the quarter up 15% compared to last year and in line with our prior guidance.
John Martin: Also we extended our track record of consistent free cash flow generation was 58 million euros in the quarter.
John Martin: The combination of pricing power improved mix and solid execution by our team drove strong results in the quarter, which Jack will discuss later in more detail.
Jack Well: Now, let's turn to slide seven for the full year highlights for the full year shipments were one 5 million tons, all down 6% compared to 2020 to revenue of $7 2 billion euros was down 11% as improved price and mix in each of our segments was more than offset by lower shipments and lower metal prices.
John Mark Germain: For the full year, shipments were 1.5 million tonnes, or down 6% compared to 2022. However, revenue of €7.2 billion was down 11%, as improved price and mix in each of our segments was more than offset by lower shipments and lower metal prices. Our net income of €129 million compares to a net income of €308 million in 2022. As a reminder, last year included €154 million related to the recognition of deferred tax assets that were previously unrecognized.
Jack Well: Our net income of 129 million euros compared to net income of 308 million euros in 2022 as a reminder, last year included 154 million euros related to the recognition of deferred tax assets that were previously unrecognized.
John Mark Germain: Adjusted EBITDA was €713 million, or up 6% compared to last year. This performance is a record for the company and a record for our A&T segment. We delivered our fifth consecutive year of positive free cash flow with a total of €170 million in 2023. We achieved an adjusted return on invested capital of 11.3% in 2023, which is up 30 basis points compared to last year. As you can see on the bottom right of the slide, we finished 2023 with leverage of 2.3 times, or down half a term from the end of 2022. Overall, I am very proud of our fourth quarter and full year 2023 performance. We demonstrated our pricing power again by delivering record adjusted EBITDA and strong free cash flow in 2023. I am also pleased to announce today that our board has authorized a share repurchase program of up to $300 million that expires in December 2026. We expect to begin the program in the first half of this year.
Jack Well: Adjusted EBITDA was 713 million euros or up 6% compared to last year.
Jack Well: Performance is a record for the company and a record for our E&P segment, we delivered our fifth consecutive year of positive free cash flow with a total of 170 million euros in 2023.
Jack Well: We achieved adjusted return on invested capital of 11, 3% in 2023, which is up 30 basis points compared to last year.
Jack Well: As you can see on the bottom right to decide we finished 2023 with leverage of two three times all down a half a turn from the end of 'twenty to 'twenty two.
Jack Well: Overall, I am very proud of our fourth quarter and full year 2023 performance, we demonstrated our pricing power again by delivering record adjusted EBITDA and strong free cash flow in 2023.
Jack Well: I'm also pleased to announce today that our board has authorized a share repurchase program of up to $300 million that expires in December 2026, we expect to begin the program in the first half of this year.
Jack Guo: Now that we are within our target leverage range, returning capital to our shareholders is an important part of our strategy moving forward, and we believe it will help drive shareholder value creation. We look forward to updating you on our progress each quarter. With that, I will now hand the call over to Jack for further details on our financial performance. Thank you, Joe Mark, and thank you, everyone, for joining the call today. Please turn now to slide 9.
Jack Well: Now that well within our target leverage range returning capital to our shareholders is an important part of our strategy moving forward and we believe it will help drive shareholder value creation, we look forward to updating you on our progress each quarter.
Jack Well: With that I will now hand, the call over to Jack for further details on our financial performance.
Jack Well: Thank you Mark and thank you everyone for joining the call today.
Jack Well: Please turn now to slide nine.
Jack Guo: Value added revenue was €681 million in the fourth quarter of 2023, down 2% compared to the same quarter last year. Looking at the fourth quarter, volume was a headwind of EUR44 million due to lower shipments in each of our sectors. Price and mix was a tailwind of €73 million compared to the same period last year, while metal impacts were a headwind of €10 million. The balance of the change was largely due to the sale of our German extrusion business and unfavorable FX translations. For the full year of 2023, the VAR drivers were similar.
Jack Well: Value added revenue was 681 million euros in the fourth quarter of 2023 down 2% compared to the same quarter last year.
Jack Well: Looking at the fourth quarter volume was a headwind of 44 million euros, you feel lower shipments in each of our segments.
Jack Well: Price and mix was a tailwind of 73 million euros compared to the same period last year, while metal impacts were a headwind of 10 million euros.
Jack Well: The balance of the change was largely due to the sale of our German extrusion business and a favorable FX translation.
Jack Well: For the full year of 2023, the var drivers were similar.
Jack Guo: There are two important takeaways from this slide. First, for the full year of 2023, we grew our value-added revenue by 7% compared to 2022. And second, we continue to have pricing power; price and mix, and price specifically, continues to be the biggest increment of our year-over-year variance and helped us offset significant inflationary pressure. Now turn to slide 10, and let's focus on the PARP segment.
Jack Well: There are two important takeaways from this slide.
Jack Well: First for the full year of 2023, we grew our value added revenue by 7% compared to 2022 and.
Jack Well: And second we continue to have pricing power.
Jack Well: Price and mix and price specifically.
Jack Well: Used to be the biggest increment of our year over year variance and helped us offset significant inflationary pressures.
Jack Well: Now I'll turn to slide 10, and let's focus on a PARP segment performance.
Jack Well: Adjusted EBITDA of 82 million euros increased 16% compared to the fourth quarter last year.
Jack Guo: Adjusted EBITDA of 82 million euros increased 16% compared to the fourth quarter last year. Volume was a headwind of 10 million euros with higher shipments in automotive, more than offset by lower shipments in packaging and specialty raw products. Automotive shipments increased 2% in the quarter, despite some impact from the UAW strike early in the quarter. Packaging shipments decreased 8% in the quarter versus last year.
Jack Well: Volume was a headwind of 10 million euros with higher shipments in automotive more than offset by lower shipments in packaging and specialty rolled products.
Jack Well: Automotive shipments increased 2% in the quarter. Despite some impact from the UAW strike early in the course.
Jack Well: Yeah.
Jack Well: Packaging shipments decreased 8% in the quarter versus last year with ink packaging.
Jack Well: <unk> shipments were up slightly in the quarter versus last year, but more than offset by lower shipments of specialty packaging in Europe.
Jack Guo: Within packaging, Ten stock shipments were up slightly in the quarter versus last year, but more than offset by lower shipments of specialty packaging in Europe. PriceAdmix was a tailwind of €21 million, primarily on improved contract pricing, including inflation-related past performance. Costs were a tailwind of €2 million as favorable metal costs, inflation, and energy-related government grants more than offset higher operating costs in the period. FX Translation, which is non-cash, had a headwind of 2 million euros in the quarter. For the full year 2023, HAARP generated an adjusted EBITDA of €283 million, a decrease of 13% compared to 2022.
I said mix was a tailwind of 21 million euros, primarily on improved contract pricing, including inflation related pastures.
Jack Well: Costs were a tailwind of 2 million euros as favorable metal cost inflation energy related government grants more than offset higher operating costs in the period.
Jack Well: FX translation, which is noncash.
Jack Well: As a headwind of 2 million euros in the quarter.
Jack Well: For the full year of 2023 harp generated adjusted EBITDA of 283 million euros, a decrease of 13% compared to 2022.
Jack Well: The drivers of the full year performance were similar to those in the fourth quarter with the exception of costs, which were a headwind of 158 million euros, including all favorable metal cost operating challenges that our muscle shoals facility and significant inflationary pressures faced earlier.
Speaker Change: Now I'll turn to slide 11, and let's focus on the A&P set.
Jack Guo: The drivers of the four-year performance were similar to those in the fourth quarter, with the exception of costs, which were a headwind of €158 million, including unfavorable metal costs, operating challenges at our Muscle Shoals facility, and significant inflationary pressures faced earlier in the year. Now turn to slide 11, and let's focus on the A&T section. Adjusted EBITDA of 76 million euros increased 36% compared to the fourth quarter last year.
Speaker Change: Adjusted EBITDA of 76 million euros increased 36% compared to the fourth quarter last year.
Speaker Change: Volume was a headwind of 13 million euros as higher aerospace shipments were more than offset by lower tid shipments in the quarter.
Speaker Change: Aerospace shipments were up around 10% versus last year as the recovery in aerospace markets continues.
Speaker Change: Shipments in Tid were down 19% versus last year, reflecting a slowdown in most industrial markets.
Speaker Change: Price and mix was a tailwind of 48 million euros on improved contract pricing, including inflation really the past dues and a stronger mix with more aerospace.
Jack Guo: Volume was a headwind of €13 million as higher aerospace shipments were more than offset by lower TID shipments in the quarter. However, aerospace shipments were up around 10% versus last year as the recovery in aerospace markets continued. Shipments in TID were down 19% versus last year, reflecting a slowdown in most industrial markets, price, and mix with a tailwind of €48 million on improved contract pricing, including inflation-related pass-throughs, and a stronger mix with more aerosols. Costs were a headwind of 17 million euros, primarily as a result of higher operating costs.
Speaker Change: Costs were a headwind 17 billion euros, primarily as a result of higher operating costs.
Speaker Change: FX and other was a tailwind of 2 billion euros in the quarter.
Speaker Change: For the full year 2023, A&P generated record adjusted EBITDA of 324 million euros, an increase of 50% compared to 2022.
Speaker Change: The drivers of our full year performance were similar to those in the fourth quarter.
Speaker Change: Now I'll turn to slide 12, let's focus on the F&I segment.
Jack Guo: FX and other, with a tailwind of 2 billion euros in the, For the full year 2023, A&T generated a record adjusted EBITDA of €324 million, an increase of 50% compared to 2022. The drivers of the four-year performance were similar to those in the fourth. Now turn to slide 12, and let's focus on the AS&I section. Adjusted EBITDA of 25 million euros decreased 22% compared to the fourth quarter last year.
Speaker Change: Adjusted EBITDA of 25 million euros decreased 22% compared to the fourth quarter of last year.
Speaker Change: Volume was a 6 million euro headwind as a result of lower shipments in the industry.
Speaker Change: Automotive shipments were stable in the quarter versus last year. Despite some impacts on the UAW strike early in the quarter, the timing impact between certain programs switches and the sale of our German extrusion business.
Speaker Change: Industry shipments were down 33% in the quarter versus last year as a result of weaker market conditions in Europe, and the sale of our German extrusion business.
Jack Guo: Volume was a 6 million euro headwind as a result of lower shipments in the industry. However, automotive shipments were stable in the quarter versus last year, despite some impact from the UAW strike early in the quarter, the timing impact between certain program switches, and the sale of our German extrusion business. Industry shipments were down 33% in the quarter versus last year as a result of weaker market conditions in Europe and the sale of our German extrusion business. Price and mix, with a 3 million euro tailwind primarily due to improved contract pricing including inflation-related patterns, costs were a headwind of €1 million on lower operating costs more than offset by inflation. SX and other was a headwind of 2 million euros in the quarter. For the full year 2023, AS&I generated an EBITDA of €133 million, a decrease of 11% compared to 2022.
Speaker Change: Price and mix was a 3 million euro tailwind, primarily due to improved contract pricing, including inflation related pass throughs.
Speaker Change: Costs were a headwind of 1 million euros, a lower operating costs more than offset by inflation.
Speaker Change: FX and other was a headwind of 2 million barrels in the quarter.
Speaker Change: For the full year of 2023, <unk> generated adjusted EBITDA of 133 million euros.
Speaker Change: A decrease of 11% compared to 2022.
Speaker Change: The drivers of our full year performance were similar to those in the fourth quarter.
Speaker Change: It is not on the slide here, but I wanted to conclude with some quick comments, our holdings and corporate.
Speaker Change: Whole year of 2023, our holdings and corporate expense was 27 million euros.
Speaker Change: We currently expect holdings and corporate expense to run at approximately 40 million euros in 2024 with the increase primarily driven by additional spending with the upgrade of our ERP system.
Speaker Change: Now I'll turn to slide 13, 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.
Jack Guo: The drivers of the full year performance were similar to those in the fourth quarter. It is not on the slide here, but I wanted to conclude with some quick comments on holdings and corporate. For the full year 2023, our holdings and corporate expense was 27 million euros.
Speaker Change: Throughout most of 2023, we were faced with broad based on significant inflationary pressures, although the pressure began to ease.
In some categories in the fourth quarter.
Speaker Change: 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 cost input.
Speaker Change: Labor and other non metal costs continue to be higher for.
Jack Guo: We currently expect holdings and corporate expenses to run at approximately 40 million euros in 2024, with the increase primarily driven by additional IT spending with the upgrade of our ERP system. Now turn to slide 13, 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. Throughout most of 2023, we were faced with broad-based and significant inflationary pressures, although the pressure began to ease in some categories in the fourth quarter. 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 cost input. However, labor and other nonmetal costs continue to be higher.
Speaker Change: Our energy our 2024 energy costs are largely secured and at moderately more favorable levels compared to 2023, although energy prices remain well above historical averages.
Speaker Change: Given these cost pressures.
Speaker Change: We continue to work across a number of fronts to mitigate their impact on our results.
Speaker Change: Have demonstrated strong cost performance in the past years, and we will continue our relentless focus.
Speaker Change: As we previously noted many of our existing contracts have inflationary protection mechanisms and where they do not we're working with our customers to include them.
Speaker Change: As you have seen our results we have demonstrated very good progress across all of our end markets.
Speaker Change: As you can see in the bridge on the right. We were very successful again in 2023 with price and mix the largest incremental price in offsetting inflationary cost pressures and demand headwinds.
Jack Guo: For energy, our 2024 energy costs are largely secured and at moderately more favorable levels compared to 2023, although energy prices remain well above historical averages. Given these cost pressures, we continue to work across a number of fronts to mitigate their impact on our results. We have demonstrated strong cost performance in recent years, and we will continue our relentless focus. As we previously noted, many of our existing contracts have inflationary protection mechanisms, and where they do not, we're working with our customers to include them. As you have seen, we have demonstrated very good progress across all of our MRTs. As you can see in the bridge on the right, we were very successful again in 2023 with price-at-mix, the largest increment in price, in offsetting inflationary cost pressures and demand headwinds. We expect inflationary pressures in some categories to continue in 2024, but at a more moderated level.
Speaker Change: We expect inflationary pressures in some categories to continue in 2024, but at more moderate levels.
Speaker Change: We're confident in our ability to offset a substantial portion of the impact with the improved top line this year and our relentless focus on cost control.
Speaker Change: Now, let's turn to slide 14, and discuss our free cash flow.
Speaker Change: We generated strong free cash flow of 170 million euros in 2023, including 58 million euros in the fourth quarter.
Speaker Change: As you can see on the bottom left of the slide we have continued to deliver our commitment to generate consistent strong free cash flow.
Speaker Change: Since the beginning of 2019, we have generated 820 million euros that free cash flow.
Speaker Change: Looking at 'twenty 'twenty, four we expect to generate free cash flow in excess of 130 million euros for the full year, though we expect this to be negative in the first quarter and weighted more towards the second half of the year similar to last year, given the seasonality in our business.
Speaker Change: We expect capex to be around 370 million euros. This year, which includes higher spending on return seeking projects such as our recycling on casting send their in depth zac.
Speaker Change: The facility is expected to start up on time and on budget in the fourth quarter of this year.
Jack Guo: We're confident in our ability to offset a substantial portion of the impact with an improved pipeline this year and our relentless focus on cost-cutting. Now, let's turn to slide 14 and discuss our free cash flow. We generated strong free cash flow of €170 million in 2023, including €58 million in the fourth quarter.
Speaker Change: We expect cash interest of approximately 125 billion euros, which includes the impact from higher interest rates.
Speaker Change: We expect cash taxes of approximately 55 million euros.
Speaker Change: Lastly, we expect working capital and other to be a modest use of cash for the full year.
Speaker Change: With the expected free cash flow generation of over 130 million euros, we intend to use a large portion of the free cash flow to begin repurchasing shares.
Jack Guo: As you can see on the bottom left of the slide, we have continued to deliver on our commitment to generate consistent, strong free cash flow. Since the beginning of 2019, we have generated €820 million of free cash flow. Looking at 2024, we expect to generate free cash flow in excess of 130 million euros for the full year, though we expect this to be negative in the first quarter and weighted more towards the second half of the year, similar to last year given the seasonality in our business. We expect CapEx to be around €370 million this year, which includes higher spending on return-seeking projects, such as our Recycling and Casting Center in Duprevac. The facility is expected to start up on time and on budget in the fourth quarter of this year. We expect cash interest of approximately 125 billion euros, which includes the impact of higher interest rates. We expect cash taxes of approximately 55 million euros.
Speaker Change: Already in the first half of the year is Sean Mark mentioned.
Speaker Change: We have the ability to begin limited share repurchases in the near term without shareholder approval.
Speaker Change: To fully execute the size of the program, we announced today, we will rely on shareholder approval each year at our annual general meeting, including the one in the second quarter of this year.
Speaker Change: Now, let's turn to slide 15, and discuss our balance sheet liquidity position.
Speaker Change: At the end of the fourth quarter, our net debt of $1 7 billion euros was down over 220 million euros compared to the end of 2022.
Speaker Change: Our leverage reached a multi year low of two three times at the end of 2023 went down five times versus the end of 2022 and within our target leverage range.
Speaker Change: Remain committed to maintaining our target leverage range at one half to two and half times.
Speaker Change: As you can see our debt summary, we have no bond maturities until 2026, and our liquidity remains strong at 373 million euros as of the end of 2023, we're extremely proud of the progress we have made our capital structure and have the financial flexibility.
Jack Guo: Lastly, we expect working capital and other to be a modest use of cash for the full year. With the expected free cash flow generation of over €130 million, we intend to use a large portion of the free cash flow to begin repurchasing shares, starting in the first half of the year, as Sean Mark mentioned. We have the ability to begin limited share repurchases in the near term without shareholder approval.
Speaker Change: Including the ability to begin returning capital to our shareholders.
Speaker Change: Before turning the call back to John Mark I wanted to spend a minute on slide 16 to discuss changes to the presentation of certain non-GAAP financial measures.
John Mark: The changes are based on discussions we had with the staff of the SEC and specifically related to the adjustment for metal price lag, which is noncash and certain non-GAAP financial measures.
John Mark: The changes will be reflected when we report our first quarter 2024 results.
Jack Guo: To fully execute the size of the program we announced today, we will rely on shareholder approval each year at our annual general meeting, including the one in the second quarter this year. Now, let's turn to slide 15 and discuss our balance sheet and liquidity position. At the end of the fourth quarter, our net debt of €1.7 billion was down over €220 million compared to the end of 2022.
John Mark: For the first change moving forward, we will no longer be reporting our value added revenue.
John Mark: For the second change, we will be revising our definition of adjusted EBITDA to no longer exclude the noncash impact of metal price lag, which the staff considers to be inconsistent with the guidance question 100 that all four of them.
Jack Guo: Our leverage reached a multi-year low of 2.3 times at the end of 2023. We're down 0.5 times versus the end of 2022 and within our target leverage range. We remain committed to maintaining our target leverage range of 1.5 to 2.5 times. As you can see in our debt summary, we have no bond maturities until 2026, and our liquidity remains strong at €373 million as of the end of 2023.
John Mark: Compliance and disclosure interpretations on non-GAAP financial measures.
John Mark: While the going forward disclosure of consolidated adjusted EBITDA will no longer remove metal price lag.
We will continue to exclude metal price lag from our segment adjusted EBITDA, which we use for evaluating the performance of our operating segments.
John Mark: And as a reminder, consolidated adjusted EBITDA following the revision.
John Mark: Less metal price lag.
John Mark: Is equal to consolidated adjusted EBITDA prior to the revision.
Jack Guo: We are extremely proud of the progress we have made on our capital structure and of the financial flexibility we are building, including the ability to begin returning capital to our shareholders. Before turning the call back to John Mark, I wanted to spend a minute on slide 16 to discuss changes to the presentation of certain non-GAAP financial measures. The changes are based on discussions we had with the staff of the SEC and specifically related to the adjustment for metal price lag, which is non-cash, in certain non-GAF financial measures. The changes will be reflected when we report our first quarter 2024 results. For the first change, moving forward, we will no longer be reporting our value added revenue.
We will continue to provide investors and other stakeholders with all the information necessary to understand the noncash impact of metal price lag.
John Mark: Our reported results each quarter.
John Mark: For comparability, we have provided tables on slides 17, and 18 show a reconciliation of prior periods adjusted EBITDA under the old definition to the new definition.
John Mark: Moving to adjusted EBITDA guidance.
<unk> will continue to provide guidance excluding metal price lag.
John Mark: In addition leverage as defined by the company will continue to be calculated as net debt divided by adjusted EBITDA, excluding metal price lag.
Speaker Change: Hope that's all clear.
Speaker Change: With that I would now like to hand, the call back to shop Mark. Thanks.
Mark: Thank you Jack.
Jack Guo: For the second change, we will be revising our definition of adjusted EBITDA to no longer exclude the non-cash impact of metal price lag, which the staff considers to be inconsistent with the guidance in question 100.04 of the Compliance and Disclosure Interpretations on Non-Gap Financial Measures. While the going forward disclosure of consolidated adjusted EBITDA will no longer remove metal price lag, we will continue to exclude metal price lag from our segment adjusted EBITDA, which we use for evaluating the performance of our operating sectors. And as a reminder, consolidated adjusted EBITDA following the revision, less metal price lag, is equal to consolidated adjusted EBITDA prior to the revision. We will continue to provide investors and other stakeholders with all the information necessary to understand the non-cash impact of metal price lag on our reported results each quarter for comparability.
Mark: Slide 20, and discuss our current end market outlook.
Mark: The majority of our portfolio today is serving end markets currently benefiting from durables sustainability, driven secular growth in which aluminum light and infinity recyclable material plays a critical role.
Speaker Change: Turning first to packaging.
Mark: Ken Stoke inventory adjustments appear largely behind us in both North America, and Europe can Stoke demand has stabilized in recent quarters, though demand is still relatively low given the current inflationary environment. The lack of promotional activity and following a multiyear period of rapid growth.
Mark: During COVID-19.
Mark: Even in today's environment aluminum cans continue to outperform and we share against all of the substrates like plastics and glass.
Mark: The long term outlook for this end market continues to be favorable as evidenced by the growing consumer preference for the sustainable aluminum beverage can capacity growth plans probe can makers in both regions and the Greenfield investments ongoing here in North America.
Jack Guo: We have provided tables on slides 17 and 18 to show a reconciliation of prior periods adjusted EBITDA under the old definition to the new definition. Moving to AdjustAV.Guidance, the company will continue to provide guidance excluding metal price lag. In addition, leverage, as defined by the company, will continue to be calculated as net debt divided by adjusted EBITDA excluding metal prices. I hope that's all clear. With that, I would now like to hand the call back to Jean-Marc. Thank you, Jack.
Mark: We're expecting growth to return in getting stuck in 2024 and longer term, we continue to expect packaging markets to grow low to mid single digits in both North America and Europe.
Mark: We will participate in these growth in booths regions as announced at our analyst day two years ago.
Mark: I am pleased to rebuild that the recycling and casting center. We are building itself like facility is well underway and booths on time and on budget as Jack mentioned.
Mark: Mr. Shoals operational performance continued to improve during the fourth quarter.
John Mark Germain: Let's turn to slide 20 and discuss our current end market outlook. The majority of our portfolio today is serving end markets currently benefiting from durable, sustainability-driven, secular growth, in which aluminum, a light and infinitely recyclable material, plays a critical role. Turning first to packaging.
Mark: Last month's, though the extreme cold weather and the snow impacted operations and shipments for a full week. The plant is in the process of ramping back up now.
Mark: This will have an impact on our first quarter results.
Mark: Turning now to automotive.
Mark: Auto OEM sales and production numbers globally have increased the last couple of years, but remains below pre COVID-19 levels demand decelerated in the second half of 2023, although each remains healthy.
John Mark Germain: Can stock inventory adjustments appear largely behind us in both North America and Europe. Can stock demand has stabilized in recent quarters, though demand is still relatively low, given the current inflationary environment, a lack of promotional activity, and following a multi-year period of rapid growth during COVID. Even in today's environment, aluminum cans continue to outperform and win share against other substrates like plastics and glass.
Mark: Automotive business was up slightly in the first quarter. Despite some impact early in the quarter from the UAW strike in North America.
Mark: Schumer demand for luxury calls light trucks, and Suvs remains steady.
Mark: Equally electrification and sustainability trends, we continue to drive the demand for light weighting and use of aluminum products in the long term as a result, we remain very positive on this market.
John Mark Germain: The long-term outlook for this end market continues to be favorable as evidenced by the growing consumer preference for sustainable aluminum beverage cans, capacity growth plans from can makers in both regions, and the greenfield investments ongoing here in North America. We're expecting growth to return to can stocks in 2024, and longer term, we continue to expect packaging markets to grow low to mid single digits in both North America and Europe. We will participate in this growth in both regions, as announced at our Annalist Day two years ago. I am pleased to report that the Recycling and Casting Center we are building at our Neufgriesag facility is well underway, and both on time and on budget, as Jack mentioned. At Mussel Shores, operational performance continued to improve during the fourth quarter. Last month, though, the extreme cold weather and the snow impacted operations and shipments for a full week.
Mark: Let's turn now to aerospace the recovery in aerospace continued in the quarter, though demand remains below pre COVID-19 levels major Aero Oems remained focused on increasing build rates for both narrow and wide body aircrafts, we remain confident that the long term fundamentals.
Aerospace demand remained intact, including growing passenger traffic and greater demand for new more fuel efficient aircraft.
Mark: Demand remains strong in the business and regional jet markets and the defense and space markets.
Mark: In addition, we continued to experience strong demand for our <unk> family of products.
Mark: As Jonathan the left side of the page highlights. These three core end markets represented 79% of our revenue in 2023.
Mark: Turning lastly to all the specialties, we expect weakness to continue in most industrial markets and in general These markets all dependent upon the health of the industrial economies in each region.
John Mark Germain: The plant is in the process of ramping back up now, though this will have an impact on our first quarter results. Turning now to the automotive industry. Auto OEM sales and production numbers globally have increased over the last couple of years but remain below pre-COVID levels. Demand decelerated in the second half of 2023, although it remains healthy. Our automotive business was up slightly in the first quarter despite some impact early in the quarter from the UAW strike in North America. However, consumer demand for luxury cars, like trucks and SUVs, remains steady.
Mark: In tid rolled products and industry extrusion demand is generally weak to date, we do expect some recovery in these markets as we move through the year.
Mark: In summary, we like the fundamentals in each of the markets, we serve and strongly believe that the diversification of our end markets is an asset for the company.
Mark: Let's turn now to slide 21, where we detail our key messages and financial guidance.
John Mark Germain: Vehicle electrification and sustainability trends will continue to drive the demand for lightweighting and the use of aluminum products in the long term. As a result, we remain very positive on this market. Let's turn now to aerospace. The recovery in aerospace continued in the quarter, though demand remains below pre-COVID levels. Major aero OEMs remain focused on increasing build rates for both narrow and wide-body aircraft.
Mark: Our team achieved very strong performance in 2023, including record adjusted EBITDA of 713 million euros and strong free cash flow of 170 million euros and importantly, we also further deleverage our balance sheet to a multiyear Lu of two three times and we all know.
Mark: Now within our target leverage range I am very proud of our performance, especially in this challenging environment.
John Mark Germain: 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. Demand remains strong in the business and regional jet markets and the defense and space market. In addition, we continue to experience strong demand for our Airware family of products. As the chart on the left side of the page highlights, these three core end markets represented 79% of our revenue in 2023. Turning lastly to other specialties, we expect weakness to continue in most industrial markets, and, in general, these markets are dependent upon the health of the industrial economies in each region. For TID rolled products and industry extrusions, demand is generally weak today.
Mark: As we look ahead, while uncertainties persist in the macro economy and geopolitical fronts, we're optimistic about our prospects for 2024 and beyond based on our current outlook for 2020 full we are targeting adjusted EBITDA, excluding the noncash impact of metal price lag as Jack commented in the range.
Mark: 740 million to 770 million euros, and free cash flow in excess of 130 million euros.
Speaker Change: We do not give quarterly guidance as you know, but given the softness in some of our end markets to start the year and as a result of the extreme cold weather impact on our operations at muscle Shoals in January we do expect adjusted EBITDA in the first quarter of 2020 full to be weaker than the same period last year.
John Mark Germain: We do expect some recovery in these markets as we move through the year. In summary, we like the fundamentals in each of the markets we serve and strongly believe that diversification of our end markets is an asset for the company. Let's turn now to slide 21, where we detail our key messages and financial guidance. Our team achieved very strong performance in 2023, including a record-adjusted EBITDA of €713 million and strong free cash flow of €170 million. Importantly, we have further deleveraged our balance sheet to a multi-year low of 2.3 times, and we are now within our target leverage range.
Speaker Change: Also we are planning for free cash flow to be negative in the first quarter like last year due to normal seasonality.
Speaker Change: These expectations are of course included in our full year guidance that I just provided.
Speaker Change: Also want to reiterate our long term guidance of adjusted EBITDA, excluding the non cash impact of metal price lag in excess of 800 million euros in 2025, and our commitment to maintain our target leverage range of one five to 2.5.
To conclude let me say again that I am very proud of our results and very excited about our future. We are extremely well positioned for long term success and we will remain focused on shareholder value creation as demonstrated by our recently announced share repurchase program with that Elliot we will now open the call.
John Mark Germain: I am very proud of our performance, especially in this challenging environment. As we look ahead, while uncertainties persist on the macroeconomic and geopolitical fronts, we're optimistic about our prospects for 2024 and beyond. Based on our current outlook for 2024, we are targeting adjusted EBITDA, excluding the non-cash impact of metal price lag, as Jack commented, in the range of 740 million to 770 million euros and free cash flow in excess of 130 million euros. We do not give quarterly guidance, as you know, but given the softness in some of our end markets to start the year and as a result of the extreme cold weather impact on our operations at Mus Also, we are planning for free cash flow to be negative in the first quarter, like last year, due to normal seasonality.
Speaker Change: Call for Q&A question.
Speaker Change: Section.
Elliot: Thank you.
Speaker Change: Like to ask a question. Please press star followed by one on your telephone keypad.
Speaker Change: If you would like to withdraw your question. Please press star followed by two one.
Speaker Change: When preparing to ask a question. Please ensure your devices on mute locally.
Speaker Change: Our first question comes from capture Johnson with BMO capital. Your line is open. Please go ahead.
Speaker Change: Yeah.
Caputure Johnson: Hi, Thank you for taking my question just first on the the general meeting that is going to be held in second quarter is that in may.
Capture Johnson: Yes, that's at the beginning of May.
Capture Johnson: And until then on the share buybacks you can only I guess duty as much as you offset dilution and after the general meeting you could be more aggressive is that fair.
Speaker Change: Generally fair yes.
Speaker Change: And then maybe looking to 25, you read you reaffirm the over 800 million EBITDA target can you talk a bit about what will bridge you between 'twenty four and 'twenty five.
Elliot: These expectations are, of course, included in our full-year guidance that I just provided. I also want to reiterate our long-term guidance of adjusted EBITDA excluding the non-cash impact of the metal price lag in excess of 800 million euros in 2025 and our commitment to maintain our target leverage range of 1.5 to 2.5. To conclude, let me say again that I am very proud of our results and very excited about our future. We are extremely well positioned for long-term success, and we remain focused on shareholder value creation, as demonstrated by our recently announced share repurchase program. With that, Elliot, we'll now open the call for Q&A questions. Thank you. If you would like to ask a question, please press star followed by 1 on your telephone keypad. If you would like to withdraw your question, please press star followed by 0. I'm preparing to ask you a question, so please ensure that your device is unmuted.
Speaker Change: Gotcha, So are number one in it.
Speaker Change: So if you take the midpoint of our guidance and you go to a 2025 years in excess of 800 does it $50 million increase by.
Speaker Change: By now it's minimum increase that we're expecting.
Speaker Change: Large books should have a very large book should have each is Joseph startup of a recycling center in <unk>.
Speaker Change: That is starting as Jack was saying we're on time.
Speaker Change: The jets, starting somewhere beginning of October.
Speaker Change: So to ramp up quite rapidly and that is going to create a lot of EBITDA going into 2025.
Speaker Change: The second aspect is we have.
Speaker Change: Good visibility on our aerospace demand in 'twenty full the challenge for us is to be able to reduce everything that is asked of us and in 2025. There is more coming we know that you will also have noted that we are still something like 15%, 20% below pre COVID-19 levels.
Katja Jancic: Our first question comes from Katja Jancic with BMO Capital. Your line is open, please go ahead. Hi, thank you for taking my question. Just first, the general meeting that is going to be held in the second quarter, is that in May? Yes, that's at the beginning of May. And until then, on the share buyback, you can only, I guess, due to as much as the offset dilution and after the general..., you could be more aggressive. Is that fair?
Speaker Change: At the moment in the 'twenty three so we've got a healthy ramp up that continues we will be spending a bit of money to diebold nixdorf some of our operations two.
Speaker Change: To produce more aerospace products, so that's going to help us as well and then finally as you know we've experienced operating challenges in muscle Shoals, and unless you. We made quite a few improvements. We believe we still got some improvements we can make and that will.
Speaker Change: More than that.
John Mark Germain: Generally fair, yes. And then maybe looking to 25, you reaffirmed the over 800 million about Target. Can you talk a bit about what will bridge you between 24 and 25?
Speaker Change: Exceed the full 50 million that we need to deliver a boat to breach from 'twenty to 'twenty five.
Speaker Change: Yeah.
Speaker Change: Thank you all and as you can see in.
Speaker Change: All of these we have good visibility of burden and they're all fully within our control.
John Mark Germain: So, number one, and so if you take the midpoint of our guidance and you go to 2025 in excess of 800, there's a $50 million increase. Bye, but also, to ramp up quite rapidly, and that is going to create a lot of EBITDA going into 2025. The second aspect is that we have good visibility on our aerospace demand in 24 hours. The challenge for us is to be able to produce everything that is asked of us. And in 2025, there will be more.
Speaker Change: So we're not betting on any one.
Speaker Change: Wonderful days.
Speaker Change: And a rosy future or in the global economy in 2025.
Deutsche Bank: We now turn to <unk> <unk> with Deutsche Bank. Your line is open. Please go ahead.
Deutsche Bank: Hey, good morning, Josh.
Deutsche Bank: Isolation.
Christian: Hey, Christian.
Speaker Change: Could you maybe talk about.
Speaker Change: Developments will be that pull out your thinking on <unk>.
Christian: Thinking about the industry on extrusion business, maybe only come back are we talking maybe 25.
John Mark Germain: We know that you will also have noted that we are still something like, you know, 15, 20 percent below pre-COVID levels at the moment in 23. So we've got a healthy ramp up that continues. We will be spending a bit of money to de-ball next some of our operations to produce more aerospace products, so that's going to help us as well. And then finally, as you know, we've experienced operating challenges in Muscle Shoals over the last year.
Christian: Trying to see like when that potentially could be added to the number of them.
Christian: Okay. So you broke up at the beginning of your question, but I think you were asking about.
Christian: How much of a drag it down is the specialties in general in 2023, well actually and when we add the drive sorry.
Christian: It could.
Christian: Yes.
Christian: Well I think yes.
Speaker Change: Yes, yes, we can yes so.
Speaker Change: I think if you look at.
Speaker Change: These story call volumes that we're producing and Oh.
John Mark Germain: We made quite a few improvements. We believe we still have some improvements we can make and that will more than exceed the total 50 million that we need to deliver upon to bridge from 24 to 25. Thank you.
Speaker Change: The specialty segments.
Speaker Change: Tid or in.
Speaker Change: Or in extrusion.
Speaker Change: You go to.
Make an assumption as to what do you think is a good run rate kind of mid cycle and well below mid cycle at the moment.
Speaker Change: And if you multiply that by a margin that's less than the average margin in these segments because in booths.
John Mark Germain: And as you can see, I mean, all of these we've got visibility on, and they are fully within our control. So we're not betting on any wonderful days and a rosy future for the global economy in 2025. I turn to Corinne Blanchard with Deutsche Bank. Your line is open, please go ahead. Hey, good morning.
Speaker Change: Yes, and I N and M T.
Speaker Change: Respectively. The extrusion of a lower margin than the average of S and IV Tid is a lower margin than the average of N T.
Speaker Change: Times of volume that you think.
Speaker Change: Is the.
Speaker Change: The gap between where we are today and where our mid cycle is that gives you an idea of what is available to us knowing that because we have sold the German assets, we have less we got a we got some.
Corinne Blanchard: Thank you. Um, maybe, hey, could you maybe talk about Dormant E.V. Dapur you're sitting on?
Speaker Change: Volumes that we will not make any more in the future because of the sale of the German assets.
Corinne Blanchard: Thinking about the industrial extrusion business, maybe once it comes back, are we talking maybe 25, 26? So trying to see what the potential that could be added to the number. Okay, so you broke up at the beginning of your question, but I think you're asking about, you know, how much of a drag down the specialties in general will be in 2023? Well, actually, not the drag down, but how much it could unlock.
Speaker Change: So anyway, it's would be bottom line would be a nice contribution.
Speaker Change: It is not needed to get to our 2025 guidance really.
Speaker Change: Okay. Thank you and maybe for the cycle.
Speaker Change: Question for the <unk> business.
Speaker Change: Can you just talk about how we should think about the margin going forward because it has been actually quite strong in 2023, and I think above what people were thinking it would be so so we base 24, and 25 backup toilet suite or shall we say call to download.
John Mark Germain: Well, I think, Yeah, yes, we can. Yes. So I think if you look at the historical volumes that we are producing in the specialty segments, be it in a TID or in a... or in extrusions, you've got to make an assumption as to what you think is a good run rate, kind of mid-cycle and well below mid-cycle at the moment. And if you multiply that by a margin that's less than the average margin in this segment, because in both ASNI and ANT, respectively, the extrusions have a lower margin than the average of ASNI, and the TID has a lower margin than the average of ANT.
Calvin Darling: Calvin Darling.
Calvin Darling: Long term guidance that you provided the ankle.
Calvin Darling: Yeah that sounds in dollar or southern Europe, a ton is.
Calvin Darling: Is more a mid cycle, a number of Reits, which factors in aerospace not being as buoyant as it is today and tid being a little bit stronger, which has a lower margin than anti <unk>.
Calvin Darling: The moment in the current conditions, it's fair to say that you should expect us to be.
Calvin Darling: Closer to the 'twenty two 'twenty three actuals then you know at the midpoint yet as I commented we have good visibility on aerospace we believe the market is going to be very strong in 'twenty four very strong at 25 Berry barring any.
John Mark Germain: Times the volume that you think is the gap between where we are today and where mid-cycle is, that gives you an idea of what is available to us. Knowing that, because we have sold the German assets, we have less; we've got some volumes that we will not make anymore in the future because of the sale of the German assets. So anyway, it would be, bottom line, it would be a nice contribution; it is not needed to get to our 2025 guidance really. And maybe for the second question, about the ENT business... Can you just talk about how we should think about the margin going forward? Because it has actually been quite strong.
Calvin Darling: Yeah.
Calvin Darling: Exceptional crisis.
Calvin Darling: Always happen, but generally in the current visibility we have we believe we offer.
Calvin Darling: A good shot of being towards the higher end of that.
Speaker Change: But margin Jack you want to add anything I mean, the only thing I would add there corin is as the tid business.
Jack Well: We expect to recover a little bit the sheer that eating to the margin a little bit relative to the margin from loss share such as point of et cetera.
John Mark Germain: D'Artagnan, Professor, Yeah, the thousand dollars or thousand euros per ton is more a mid-cycle number, right, which factors in, you know, aerospace not being as buoyant as it is today, and TID being a little bit stronger, which has a lower margin, right, than ANT. At the moment, in the current conditions, it's fair to say that you should expect us to be closer to the 2023 actuals than, you know, at the midpoint yet. I mean, as I commented, we have good visibility on aerospace.
Speaker Change: Okay. Thank you.
Speaker Change: Our next question comes from Bill Peterson with Jpmorgan. Your line is open. Please go ahead.
Bill Peterson: Yes, hi, good morning, Thanks, Thanks for taking our questions.
I guess, if we think lending Bill Herman you mentioned some good morning, you mentioned some of the end markets remained soft but you also commented about the weather conditions for muscle Shoals, I guess for the for the latter can you quantify the impact in terms of maybe quarter on quarter year on year comparison, I guess give us down for a week that would kind of imply sort of a high single digit.
Bill Peterson: Of shipment loss, but I'm not sure if that's the right way to think about it and then just really trying to understand if the near term demand drivers impacting the first quarter.
John Mark Germain: We believe the market's going to be very strong in 2024, and very strong in 2025, barring any, you know, exceptional crisis that can always happen. But, you know, with the current visibility we have, we believe we have a good shot at being towards the higher end of that. The only thing I would add there, Corinne, is that the TID business expects to recover a little bit this year without eating into the margin, a little bit relative to the margin from last year. Okay, thank you. Our next question comes from Bill Peterson with J.P. Morgan. Your line is open, please go ahead. Hi, good morning.
Bill Peterson: Can kind of help us understand you know by end market, what youre, seeing and maybe even including commenting by by region.
Speaker Change: Yeah, So bill on the on the impacts I mean.
Speaker Change: I think it will all depend on of the muscle Shoals. The situation in Q1, it will all depend on how much grown we can make up and all that so in the quarter is not over but I think in terms of missed shipments and you're absolutely right juice.
Speaker Change: The plant is at a standstill for a week so.
Speaker Change: Supposed to be a weak oil you produce your easily in the 10-K T a range.
Speaker Change: Uh huh.
Speaker Change: So.
Speaker Change: The market conditions, we're seeing right now so we're seeing can strong in North America.
Speaker Change: A little bit weak steel in Europe, but better than it has been.
Speaker Change: We're seeing the.
Speaker Change: The aerospace market.
Bill Peterson: Thanks. Thanks for taking the time. I guess if we think about the near term, you mentioned some of the end markets remain soft, but you also commented on the weather conditions for Muscle Shoals. I guess for the latter, can you quantify the impact in terms of maybe quarter on quarter, year on year comparisons? I mean, I guess if it's down for a week, that would kind of imply sort of a high single-digit type of shipment loss, but I'm not sure if that's the right way to think about it. And then just really trying to understand just the near-term demand drivers impacting the first quarter, if you can kind of help us understand, you know, by end market, what you're seeing, and maybe even include commenting by, Yeah. So, Bill, on the impact, I mean...
Speaker Change: Pretty good.
Speaker Change: In Q1.
Speaker Change: And in terms of auto there was a divergence between North America and Europe Europe is through and North America is extremely strong to the point that we are a challenge to make everything we need to make in North America and finally on specialties, we don't see yet a rebound, but we are.
Speaker Change: Seeing a few green shoots here and there are some customers are being a little.
Speaker Change: A little bit more optimistic but it. So that's why we think the market may turn this year, but we are not seeing really.
Speaker Change: Tangible massive evidence of that just yet.
Speaker Change: Okay. Thanks for that answer your question.
Speaker Change: Yes, no. That's very helpful. Maybe in terms of capital allocation, it's great to see the net leverage where it is and of course, the announced buyback and realizing you have made.
Speaker Change: Meaning to define how that can look further but I guess.
John Mark Germain: I think it will all depend on the situation in Q1, it will all depend on how much ground we can make up and all that, so the quarter is not over. But I think, in terms of misshipment, you're absolutely right, the plant is at a standstill for a week, and it's supposed to be a week where you produce easily in the 10 KT range, the market conditions we're seeing right now. So we're seeing CAN strong in North America, a little bit weak still in Europe, but better than it has been. We're seeing the aerospace market pretty good in Q1. And in terms of cars, there's a divergence between North America and Europe. Europe is slow, and North America is extremely strong to the point that we are challenged to make everything we need to make in North America.
Speaker Change: I guess holistically or would you think of this would you want to put this in a way could be a sort of like a PE.
Speaker Change: Our payout ratio or a percentage of free cash flow or opportunistic if you were to.
Speaker Change: Think about this in the second half of the year and beyond.
Speaker Change: Yes, So bill I think the way we look at the capital allocation is fundamentally we want to balanced.
Speaker Change: Capital allocation.
Speaker Change: We are committed to this 300 million dollar a share repurchase program through the end of 2026.
Speaker Change: How exactly to unfolds will be you know.
Speaker Change: Still to be determined.
Speaker Change: But as I said, we will update you on a quarterly basis, we think it's a we look at it from the viewpoint of if we want to have good returns on every capital allocation, we make we wanted to be balanced so that.
John Mark Germain: And finally, on specialties, we don't yet see a rebound, but we're seeing a few green shoots here and there. Some customers are being a little bit more optimistic, but that's why we think the market may turn this year, but we are not seeing tangible, massive evidence of that just yet. Did I answer your question?
Speaker Change: There's a balance between.
Speaker Change: No.
Speaker Change: Returning money to shareholders continuing to invest in the business building the financial flexibility.
Speaker Change: And over time.
Bill Peterson: Yeah, no, that's very helpful. Maybe in terms of capital allocation, it's great to see the net leverage where it is. And of course, the announced buyback and realizing you have, you know, the May meeting to define how that can look further, but I guess, I guess holistically, would you want to put this in a way to be sort of like a payout ratio, a percentage of free cash flow, or opportunistic if you were to... think about this in the second half of the year. Yeah, so, Bill, I think the way we We are committed to this $300 million share repurchase program through the end of 2026.
Speaker Change: <unk>, which I'm sure you do you run the numbers you will see that the company, even though up to $300 million.
Speaker Change: Free cash flow.
Speaker Change: Share repurchase buyback the company continues to Delever and we certainly don't want to we want to stay within our one five to <unk> five range. So as we do that we're building flexibility and overtime.
Speaker Change: We did the shoulder a retail program will certainly continue.
Speaker Change: Jack anything you want to yes.
Speaker Change: Bill the only thing I would add is we.
Jack Well: We don't want to be too prescriptive, we Wanna.
Jack Well: In terms of like a ratio per se I think we want to maintain some flexibility. It's the first time, we are executing a share buyback program that will from an execution perspective will be quite hands off and leverage the <unk> five.
Bill Peterson: How exactly it unfolds will still be determined, but as I said, we will update you on a quarterly basis. We look at it from the viewpoint that we want to have good returns on every capital allocation we make. We want it to be balanced so that there is a balance between... You know, returning money to shareholders, continuing to invest in the business, building financial flexibility. And over time, if you, which I'm sure you do, run the numbers, you will see that the company, even though at this $300 million free cash flow, sorry, share repurchase buyback, the company continues to deliver. And we certainly don't want to; we want to stay within our 1.5 to 2.5 range.
Jack Well: Okay.
Jack Well: Okay.
Jack Well: I could sneak in one more so I guess, if you think about the broader scrap market in the U S and Europe I guess, we're wondering is there do you think there is sufficient supply to meet the growing demand needs, especially with two new rolling mills ramping in the U S.
Jack Well: Yes.
Jack Well: Currently.
Jack Well: So I think the the rolling Mills ramping up later in the decade as you as you know.
Jack Well: The market continues to grow there is more aluminum being used and therefore more ILUVIEN being recycled naturally and then with the focus on more of a circular economy. One should expect that also to recycle rates is going to improve so yes. We believe there is ample supply of scrap and by the way both Europe and north.
John Mark Germain: So as we do that, we're building flexibility, and over time, we, that shareholder return program will certainly continue. Jack, anything you want to add?
Jack Well: America today exporting significant amount of scraps to Asia.
Jack Well: Which is a bit of a waste and if we can find a more economical way to recycled scrap domestically then obviously, that's addressing a problem in finding a profitable solution for a problem that exists today, which is a leakage of scrap to faraway countries. So yes, I think we're in very good.
Jack Guo: Yeah, I mean, Bill, the only thing I would add is that we don't want to be too prescriptive. We want to, you know, in terms of like a ratio per se, I think we want to maintain some flexibility. It's the first time we are executing a shared buyback program. It will, from an execution perspective, be quite hands off and leverage, you know, the 10B5. If I could speak in for one more.
Jack Well: Shape for.
Jack Well: So at least a decade at least.
Speaker Change: Okay. Thanks for the insights and I'll pass on.
Speaker Change: That's an execution execution.
Speaker Change: Thank you.
Costs Woodworth: We now turn to costs Woodworth with UBS. Your line is open. Please go ahead.
Costs Woodworth: Yeah. Thank you good morning, gentlemen.
Costs Woodworth: Mark.
Bill Peterson: So I guess if we think about the broader scrap market in the US and Europe, we're wondering, do you think there's sufficient supply to meet the growing demand needs, especially with two new rolling mills rampant in the US? Yes, definitely, so I think the rolling mills are ramping up later in the decade, as you know. The market continues to grow, there is more aluminum being used, and therefore, more aluminum is being recycled naturally, and then with the focus on more of a circular economy, one should expect that the recycling rate is going to improve.
Costs Woodworth: Question on <unk>.
Woodworth: EBITDA per ton this quarter $3 45, that's the highest we've seen in many years despite.
Woodworth: Volumes being the.
Mark: The lowest that <unk> had all year. So can you comment on I guess margin expectation for that business going forward, how you see.
Mark: <unk> net price into 'twenty four.
Speaker Change: Yes, maybe I'll take this one so I think I mean first of all you know a tremendous achievement in the fourth quarter as you've noted.
John Mark Germain: So yes, we believe there is an ample supply of scrap, and by the way, both Europe and North America are today exporting a significant amount of scrap to Asia, which is a bit of a waste. And if we can find a more economical way to recycle the scrap domestically, then obviously that's addressing a problem and finding a profitable solution for a problem that exists today, which is this leakage of scrap to a faraway country. So, yes, I think we're in very good shape for this decade. Okay, thanks for the insights, and I'll pass. Thank you. I turn to Kurt Woodworth with UBS.
Speaker Change: And with a margin profile that's over 300 per ton I would say when we look at 2024. It will continue to be a year transition in terms of.
Speaker Change: Of course, yes inflation has moderated has east, but the absolute cost level remain up substantial in terms of labor energy.
Speaker Change: We do have a slower start in some of the end markets such as Mark talked about the weather event at muscle Shoals.
Kurt Woodworth: Your line is open; please go ahead. Good morning, John. I have a question on PARP, so if we look at EBITDA per ton this quarter at $3.45, that's the highest we've seen in many years despite ns being the lowest that you've had all year. So can you kind of comment on, I guess, margin expectation for that business going forward, and how you see uh, net price into 24. Yeah, Kurt, maybe I'll take this one.
Speaker Change: Impacting our first quarter results and the aluminum aluminum price remains low, which obviously impacts our scrap profit in a business unit. So I think 24 I expect it to be at year end transition probably some from modeling perspective, similar to 2023, but we'll look to.
Speaker Change: We're confident in getting that partial profile to over 300 per ton overtime.
Speaker Change: Okay, and then in terms of the aerospace can you talk a little bit about volume expectations for this year in terms of how your nominations come in and then you noted are where it continues to be strong. So should we expect that your mix profile will be similar.
Jack Guo: So I think, I mean, first of all, you know, tremendous achievement in the fourth quarter, as you've noted, and with a margin profile that's over $300 per ton. I would say, you know, when we look at 2024, it will continue to be a year transition in terms of, you know, costs. Yes, inflation has moderated, it has eased, but the absolute cost level remains substantial in terms of labor energy. You know, we do have a slower start in some of the end markets that John Mark talked about. They have the weather event at Muscle Shoals that's impacting their first quarter results.
Speaker Change: Butter and 24 relative to 'twenty three.
Speaker Change: Yes, it will continue to be favorable we had favorable micro mix within aerospace <unk> aerospace portfolio. So continue to expect that going forward into 2024.
Speaker Change: And then in terms of volume, we do expect volume to be hiring 24 versus <unk> right.
Speaker Change: But not yet at pre Covid levels.
Jack Guo: And, you know, the aluminum market price remains low, which obviously impacts our scrap profit in a business unit. So I think 2024 is expected to be a year in transition, probably from a modeling perspective, similar to 2023, but we're confident in, you know, getting that margin profile to over $300 per ton by 2023. Okay. And then, in terms of aerospace, can you talk a little bit about volume expectations for this year in terms of how your nominations have come in? And then you noted that airware continues to be strong. So should we expect that your mixed profile will be similar or better in 24 relative to 23?
Speaker Change: Okay, and then maybe just lastly in terms of the guidance what is the expectation.
Speaker Change: Asian for net price.
Speaker Change: Realization this year.
Speaker Change: Yeah.
Speaker Change: What do you mean by net net price realization.
Speaker Change: Do you expect do you expect net price to be favorable so your mix will offset.
Inflationary pressures in the business.
Speaker Change: And if so to what I see.
Speaker Change: Well.
Speaker Change: I don't think we want to go into that level of detailed Kurt.
Speaker Change: We are very comfortable with our guidance of soon 14th so uncertainty, there's many moving parts to it.
Speaker Change: So.
Jack Guo: Yes, it will continue to be favorable. You know, we had favorable results in micromix within aerospace, within ANTM, within the aerospace portfolio. So, you know, continue to expect that going forward into 2024. And then, in terms of volume, we do expect volume to be higher in 24 versus 23, but not yet at pre-COVID levels. Okay, and then maybe just lastly, in terms of the guidance, what is the expectation for the net price realization this year? What do you mean by net price realization, Kurt? Sorry.
Speaker Change: Clearly with less inflation.
Speaker Change: There will be less of a price mix benefit with less cost pressure.
Speaker Change: Exactly how it pans out is a bit too early to tell.
Speaker Change: Alright, thanks very much.
Speaker Change: Thank you. Thank you.
Speaker Change: Our next question comes from Josh Sullivan with the Benchmark Company. Your line is open. Please go ahead.
Hey, good morning.
Josh Sullivan: Morning, Joe.
Josh Sullivan: Within the Aerospace segment, you mentioned good visibility.
Josh Sullivan: But just given the potential moving production timelines from from one of the Euro Oems here.
Josh Sullivan: Are there any noticeable changes in either min maxes are contract prices and in different geographies at this point.
Kurt Woodworth: Do you expect the net price to be favorable, so your price index will also be favorable? Oh, I see. Well, I don't think we want to go into that level of detail, Kurt.
Joe: Not really Josh I mean, as you know we are.
Joe: More exposed to Airbus and we ought to Boeing that was the case before the 737 Max issues and all the tariff issues with Boeing.
Jack Guo: I think, you know, we are very comfortable with our guidance of 740 to 770. There are many moving parts to it. So, clearly, with less inflation, there will be less of a price mixed benefit with less cost pressure. Exactly how it pans out is a bit too early to tell.
Joe: To deal with so we are even less exposed to Boeing today than we were at the time.
Joe: It continues to be an important and a very important customer of ours, but in the Grand scheme of things because we are in so many platforms with so many Oems.
Josh Sullivan: Thank you. Our next question comes from Josh Sullivan with The Benchmark Company. Your line is open, please go ahead. Good morning. Good morning, Josh.
Joe: Oems if when aircraft doesn't send another one sales and we are also in that aircraft.
Joe: So all in all we are not seeing any impact for us.
John Mark Germain: Within the aerospace segment, you mentioned good visibility, but just given the potential changing production timelines from one of the OEMs here, are there any noticeable changes in either min-maxes or contract prices due to geography? Uh, not really, Josh.
Joe: The demand continues to be very strong all pricing is use essentially set.
Joe: Through our multiyear contracts so a good very good visibility.
Joe: Yeah.
Joe: And then maybe just on air where it's wide probably production increases where are you on capacity you're positioned within up to meet end of decade kind of <unk> hundred 50, <unk> to 'twenty production plans here.
John Mark Germain: I mean, as you know, we are more exposed to Airbus than we are to Boeing. That was the case before the 737 MAX issues and all the other types of issues that Boeing has had to deal with. So we are even less exposed to Boeing today than we were at the time.
Joe: So we are starting to be a.
Joe: Quite tight in capacity and we will be looking at ways to expand our capacity in that segment.
Joe: Okay.
Joe: And then just one more just given some delays in some of these proposed new packaging capacity projects throughout the industry have you seen any customer response for <unk> engagement I guess, just looking at your capacity is more stable.
John Mark Germain: It continues to be an important, very important customer of ours, but in the grand scheme of things, because we're on so many platforms with so many OEMs, you know, if one aircraft doesn't sell, another one sells, and we are also on that aircraft. So all in all, we are not seeing an impact for us, and the demand continues to be very strong. Our pricing is essentially set through our multi-year contracts, so we've got very good visibility. And then maybe just on airware, you know, as wide-body production increases, you know, where are you on airware capacity?
Speaker Change: Yeah, So Josh yes, there's a little bit of a shift to the right in terms of how the market is developing what it means for US is some of the investments we're planning to make we will push them out.
Speaker Change: Later in time, which means that you should expect our capex to be.
Speaker Change: In 'twenty.
Speaker Change: Five and onwards, but a little bit lower than what we communicated at the time of the Investor day, two years ago, and that's just reflecting the realities of the market and back to the capital allocation discussion, making sure that we put our dollars to the best return possible.
John Mark Germain: You know, are you positioned with enough capacity to meet the end of the decade kind of A350 and A220 production plans here? So, we are starting to be quite tight on capacity, and we will be looking at ways to expand our capacity in that segment. And then just one more, just given some delays in these proposed new packaging capacity projects throughout the industry, have you seen any customer response for? ing engagement, I guess, just looking at your capacity is more stable.
Speaker Change: Okay. Thank you for the time.
Speaker Change: Sure.
Speaker Change: Okay.
Speaker Change: As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad now.
Speaker Change: You know incentive Shawn <unk> with Deutsche Bank. Your line is open. Please go ahead.
Shawn: Hey, guys. Thanks for taking my questions today.
Shawn: The first one.
Shawn: Keeping here the UAW strike was that any impact in Q4, I don't think so but just wanted to check there.
Josh Sullivan: Yes, Josh, yes, there's a little bit of a shift to the right in terms of how the market is developing. What it means for us is that some of the investments we are planning to make, we will push them out to later in time, which means that you should expect our CapEx to be, in the twenty-five and onwards, a little bit lower than what we communicated at the time of Investor Day two years ago. And that's just reflecting, you know, the realities of the market. And back to the capital allocation discussion, making sure that we put our dollars toward the best return possible. Okay, thank you for your time.
Speaker Change: Yeah. So it did have a bit of an impact Sean but.
Speaker Change: In a few and a few million dollars of EBITDA in.
In Q4.
Speaker Change: Okay, Great and then what do you think.
Alright.
Speaker Change: And essentially in a scenario.
Gotcha Okay.
Speaker Change: Okay, and then I thought it was interesting your comment about them.
Speaker Change: On autos, you know youre seeing strength in the U S and and weakness in Europe. I was wondering if you could kind of peel away at that comment a little bit more for us.
Operator: Cool. As a reminder, if you'd like to ask a question, please press star 1 on your telephone keypad, and Sean Wondrack with Deutsche Bank. Hey guys, thanks for taking my call. I think it's the first one. Housekeeping here.
Speaker Change: Yeah, I think the in Europe, we see the European market being a little bit weaker and also the German Oems, having more difficulty selling their calls overseas.
Sean Wondrack: The UAW strike, was that any impact in Q4? I don't think so. Yeah, so it did have a bit of an impact, Sean, but just a few million dollars of EBITDA in Q4. Okay, great. And what do you think is really driving...
Speaker Change: So that's I think what he's driving the AR.
Speaker Change: The weakness in Europe at the moment.
Speaker Change: Gotcha.
Speaker Change: And obviously you've done a great job with the capital structure, it's nice to see you within a new leverage target range.
Jack Guo: Sorry, Sean, essentially in ASNI. Gotcha. Okay. And then I thought it was interesting your comment about how in autos, you know, you're seeing strength in the U.S. and in Europe. I was wondering if you could kind of peel away at that comment a little bit. Yeah, I think in Europe we see the European market being a little bit weaker and also German OEMs having more difficulties selling their cars overseas. So that's, I think, what he's driving here, the weakness in Europe at the moment.
Speaker Change: You were clear about share repurchases on the call. This is my question is you know in terms of M&A you had these three segments up and running really well now.
Could there be a consideration if you saw the rate the other maybe add another leg to the school here or to maybe tack on something to one of your existing segments.
Speaker Change: Just kind of curious how you're thinking about that at this point.
Speaker Change: Yes, it's a really good question, so I think and Thats, where it goes back to keeping a balanced capital allocation approach and going back to but the intention of returning a large portion of our free cash flow.
John Mark Germain: Okay, and obviously, you've done a great job on the capital structure. It's nice to see you within the new leverage target range. You know you were clear about cherry purchases on the call. If my question is, you know, in terms of ebony, you have these three segments. I've been running really well now. Could there be a consideration, if you saw the right deal, to maybe add another leg to the school here? tack on something to one of your existing segments. I'm kind of curious how you're thinking about that. Yeah, it's a really good question.
Speaker Change: Towards share repurchase, but while maintaining some flexibility and maintaining flexibility both.
Speaker Change: Financially and potentially strategically I think our approach when it comes to M&A. As you know is quite conservative to make sure. We do the right deals for our shareholders. So it would be highly selective but these so we would consider.
Speaker Change: King acquisition opportunities that create value.
Jack Guo: So I think, and that sort of goes back to keeping a balanced capital allocation approach and going back to the intention of returning a large portion of our free cash flow towards the share repurchase, but while maintaining some flexibility and maintaining flexibility, both financially and potentially strategically, I think our approach when it comes to M&A, as you know, is quite conservative. We want to make sure we do the right deals for our shareholders. So it'd be highly selective, but these are the types of opportunities we would consider, you know, tucking acquisition opportunities at Craig Valley. Right? No, that that makes a lot of sense. And then I guess just one last one. You know, are there further opportunities to marry?
Speaker Change: Right now that that makes a lot of cats, and then I guess just one last one.
Speaker Change: Are there further opportunities to marry.
Speaker Change: Additional recycling facilities with your manufacturing facilities.
Speaker Change: And just when you think about that how important is yet to be.
Speaker Change: Early to that game or for smoother.
Speaker Change: As we think about this in time.
Speaker Change: Yes, so Sean there is definitely an opportunity for us to increase our recycling content our recycling operations the mix of metal that comes in that is scrap as opposed to primary.
Speaker Change: And we will continue to make investments in that.
Speaker Change: Domain and these investments will be organic and could be also M&A.
Speaker Change: But it is clearly a priority of ours to continue to increase our recycling footprint.
Sean Wondrack: Additional Recycling Facilities with your Manufacturing Facilities. And just when you think about that, how important is it to be early in that game or the first move, as we think about, Yeah, so Sean, there is definitely an opportunity for us to increase our recycling content, our recycling operations, the mix of metal that comes in that is scrap, as opposed to primary. And we will continue to make investments in that domain. And these investments will be organic, and could also be M&A.
Speaker Change: And capacity.
Sean Mark: Got it. Thank you very much for taking my questions I appreciate it.
Speaker Change: Thank you Sean.
Speaker Change: Yeah.
Speaker Change: This concludes our Q&A.
Sean Mark: Back to Jean Marc Germain CEO could you tell him for final remarks.
Well. Thank you very much we're very proud with our progress as you can see these deep. This demonstrates our performance demonstrates that we are really focused on value in the context of few quite a few markets that are down or our profitability continues to improve and we are very confident in the future as evidenced by.
John Mark Germain: But it is clearly a priority of ours to continue to increase our recycling footprint and capacity at it. Thank you very much for taking my question. Thank you, this concludes our Q&A. I'll now hand back to Jean-Marc Chimayne, CEO of Constellium, for final remarks. Well, thank you very much. We are very proud of our progress. As you can see, this demonstrates that we are really focused on value in the context of quite a few markets that are down. Our profitability continues to improve, and we are very confident in the future, as evidenced by the announcement of our share repurchase program.
Sean Mark: The announcement of our share repurchase.
Sean Mark: Share repurchase program.
Sean Mark: I look forward to updating you on our progress in April. Thank you very much everybody have a good day.
Sean Mark: Okay.
Speaker Change: Ladies and gentlemen, today's call is now concluded wed like to thank you for your participation you may now disconnect your lines.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: [music].
Speaker Change: Yeah.
Jean-Marc Chimayne: I look forward to updating you on our progress in April. Thank you very much everybody. Have a good day. Ladies and gentlemen, today's call is now concluded. We'd like to thank you for your participation. You may now disconnect your line. And I'm going to be talking about the the the the the the the the the the the the the the [inaudible]
Speaker Change: Okay.