Q4 2024 Constellium SE Earnings Call
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Hello, and welcome to the <unk> study them fourth quarter and full year 2020 full results conference call. My name is Alex there'll be coordinating the call today.
Speaker Change: If you'd like to ask a question once the presentation has finished please press star one on your telephone keypad.
I'll now hand, the actual heist, Jason Hershiser, alright, so from Investor Relations. Please go ahead.
Speaker Change: Thank you Alex I'd like to welcome everyone to our fourth quarter and full year 2024 earnings call on the call today, we have our Chief Executive Officer, John Marc Germain and our Chief Financial Officer, Jack <unk>.
Speaker Change: After the presentation, we will have a Q&A session.
Speaker Change: As a reminder, and as we previously announced we are now reporting in U S dollars and under U S. GAAP, starting with our fourth quarter and full year 2024 results today.
Speaker Change: A copy of the slide presentation for today's call is available on our website at <unk> Dot Com 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 Securities Litigation Reform Act of 1090.
Speaker Change: Bye bye.
Speaker Change: These 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.
Speaker Change: 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, and future filings under Form 10-K.
Speaker Change: All information in this presentation as of the date of the presentation. 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. Please see the reconciliations of non-GAAP financial measures attached in today's slide presentation, which supplement our GAAP disclosures.
Speaker Change: Before turning the call over to John Mark I wanted to remind everyone that beginning early last year, we revised the definition of adjusted EBITDA at the consolidated level based on our prior discussions with the SEC the.
Speaker Change: The new definition will no longer exclude the noncash impact of metal price lag we.
Speaker Change: We will continue to provide investors and other stakeholders with a noncash metal price like impact it is necessary to get a true assessment of the economic performance of the business.
Speaker Change: Our segment adjusted EBITDA will continue to exclude this impact and any guidance we provide for adjusted EBITDA will also exclude the impact.
Speaker Change: And with that I would now like to hand, the call over to John Mark. Thanks.
John Mark: Thank you Jason Good morning, Good afternoon, everyone and thank you for your interest in <unk>.
Speaker Change: Let's begin on slide five I want to start with safety our number one priority.
Speaker Change: Recordable case rate for the year of two points or so million hours worked was slightly higher than the prior year, but I am pleased to report that we continue to deliver best in class safety performance.
Speaker Change: We are committed to achieving our safety targets to reduce our recordable case rate to one five.
Speaker Change: Now, let's turn to slide six and discuss the highlights from our fourth quarter performance shipments were 328000 tons down 2% compared to the fourth quarter of 2023, mainly due to lower shipments in A&P and Eni.
Speaker Change: Revenue of $1 7 billion decreased 1% compared to the first quarter of 2023, primarily due to lower shipments and unfavorable price and mix, partially offset by higher metal prices remember what our revenues are affected by changes in metal prices, we operate the best.
Speaker Change: <unk> business model, which minimizes our exposure to metal price risk.
Speaker Change: Net loss of $47 million in the quarter compares to net income of $5 million in the fourth quarter of 2023.
Speaker Change: Adjusted EBITDA was $125 million in the quarter.
Speaker Change: This includes a negative impact of $15 million as a result of this drug and this also includes a positive non cash impact from metal price lag of $27 million.
Speaker Change: If we exclude the impact of the flood and the impact of metal price lag as Jason mentioned earlier, the real economy performance. So the business reflects adjusted EBITDA of $113 million in the quarter compared to the $178 million, we achieved in the fourth quarter of 2023.
Speaker Change: Cash from operations was $61 million in the quarter and I am pleased to report that we continued our share buyback program.
Speaker Change: During the quarter, we returned $18 million to shareholders through the repurchase of one 6 million shares.
Speaker Change: Before turning to our full year performance I wanted to give you a quick update on the flooding situation in Nevada.
Speaker Change: As of today the business is on track to complete production ramp up by the end of the first quarter of this year, which was in line with our prior expectations.
Speaker Change: As we mentioned last quarter, we expect some cost impact in 2025 US production will continue to ramp up and we expect to receive the remaining portion of the insurance proceeds in 2020 sites as well.
Speaker Change: Was the impact of the Florida material impacts on our business I am pleased that the total damages from the events came in below our original insurance gross damage assessment, and we will be able to put these events in the rearview mirror very soon.
Speaker Change: Now, let's turn to slide seven for a full year highlights for the full year shipments were $1 4 million tons are down 4% compared to 2023.
Speaker Change: Revenue of $7 $3 billion decreased 6% compared to 2023, primarily due to lower shipments and unfavorable price and mix, partially offset by higher metal prices.
Speaker Change: Our net income of $60 million compares to net income of $157 million in 2023.
Speaker Change: Adjusted EBITDA was $623 million for the full year in 2024.
Speaker Change: This includes the negative impact that belly of $33 million as a result of the throat.
Speaker Change: Also includes a positive noncash impacts from metal price lag of $55 million.
Speaker Change: Again, if we exclude the effects of the flood and the impact of metal price lag the real economy performance of the business reflects adjusted EBITDA of $601 million for the year compared to the record $754 million, we achieved in 2023.
Speaker Change: Given the change in year over year performance. During 2020 full we accelerated our cost reduction efforts and took actions to reduce working capital to align to the current demand environment, which Jack and I will be discussing later on.
Speaker Change: Moving now to free cash flow.
Speaker Change: Free cash flow for the year was negative a $100 million in 2024.
Speaker Change: Through the impacts of the very flowed. It includes cash received for the collection of deferred purchase price receivables.
Speaker Change: Cash flow would have been positive $30 million in 2020, full which Jack will cover in more detail.
Speaker Change: Our leverage at the end of 'twenty to ensure was three one times if we exclude the very fluid in fact leverage was two nine times at the end of cycle.
Speaker Change: Clearly 2024 was a very challenging year for <unk> on many fronts. The year began with the extreme cold weather and snow in packaging operations at muscle Shoals in January and we experienced severe flooding at our facilities in a very rigid and Switzerland during the summer.
Speaker Change: Addiction, we faced market driven headwinds starting in the second quarter of last year, and we just became more pronounced in the second half, including demand weakness across most of our end markets and significant tightening of strep spreads in North America.
Speaker Change: I want to thank each of our 12000 employees for their commitment resilience and relentless focus on serving our customers during these difficult times.
Speaker Change: On a more positive note I am pleased that we started up our new recycling and testing center in <unk> in September slightly ahead of schedule and below budget, and we returned $79 million to shareholders through the repurchase of $4 6 million shares of company stock during the year.
Speaker Change: I'm also excited to begin reporting our results in U S dollars under U S. GAAP today and soon we will file our first annual report from Form 10-K.
Speaker Change: Now please turn to slide eight before turning the call over to Jack I wanted to give a quick update on the latest section 232 targets and how we see the potential impact to <unk>.
Speaker Change: Before going into details on this slide let me summarize a bit the tariff situation is fluid and multifaceted situation.
Speaker Change: See both some positive and negative impacts on our business and at this stage, we believe it presents us with various opportunities the.
Speaker Change: The guidance, we are giving today does not include any impacts from tariffs.
Speaker Change: Shifting to the details on the side now on the production side will mostly local for local in the regions, where we operate we have a joint venture in Canada, but provides extrusion to our automotive structures business in the U S and these extrusion will become more expensive until section two <unk> targets.
Speaker Change: In aerospace we ship small quantities from Europe to the U S to serve global Oems.
Speaker Change: This is a pass through today and it will not be packages.
Speaker Change: On the metal supply side, we brought some primary aluminum from Canada, given the lack of smelter capacity in the U S and some of these imports will become more expensive commercial.
Speaker Change: Negotiations will be necessary to mitigate tariffs and there may be a lag in passing additional costs through.
Speaker Change: In terms of scrap now aluminum scrap is excluded from the current scope of section 200, <unk>, we purchased most of our scrap needs from dealers in the U S. The impact in scrap from tariffs could be a net positive as it could increase the availability of scrap in the U S and scrap spreads could improve.
Speaker Change: With the rise in the U S regional premium for aluminum.
Speaker Change: Now in terms of commercial impacts these two could be a net positive for Costello.
Speaker Change: Today around 1 million tons of flat rolled aluminum imports are coming into the U S.
Speaker Change: Tariffs will make domestically produced products more competitive and we should benefit from this as an example earlier this week, we announced a price increase for all flat rolled products shipped in the U S.
Speaker Change: We have some business in the U S. It is priced quarterly and we should benefit.
Speaker Change: As soon as the second quarter of this year from the new market dynamics.
Speaker Change: The overall impact on our end markets is way too early to estimate and will depend on the overall health of the U S economy and it will also depend on the types of tariffs to be implemented to the future, including the originally announced and then falls blanket salaries from Canada and Mexico the.
The same logic would apply in terms of impact on aluminum.
Speaker Change: The overall impact of Destocking as a note.
Speaker Change: To close out on the tariffs as I said before the situation remains very fluid, we are continually monitoring and assessing the potential impact of current and future trade policies.
At this stage, we believe it presents us with some opportunities.
Jack: With that I will now hand, the call over to Jack for further details on our financial performance Jack.
Jack: Thank you Mark and thank you everyone for joining the call today. Please.
Jack: Please turn now to slide 10, and let's focus our A&P segment performance.
Jack: Adjusted EBITDA of $56 million decreased 33% compared to the fourth quarter last year.
Jack: Volume was a headwind of $3 million, mainly due to lower tid shipments as.
Jack: Short transportation and general industrial markets remained weak in the quarter.
Jack: Tid shipments were also impacted by about <unk> as a result of the flood.
Shipments in aerospace or stable versus the same quarter last year and demand in military aircraft remains healthy.
Jack: Price and mix was a headwind of $19 million due to a softer pricing environment with tid and weaker aerospace with exiting the quarter.
During the fourth quarter and had a negative impact of $5 million at that law as a result of the slide.
Jack: For the full year of 2024.
Jack: <unk> generated adjusted EBITDA of $285 million.
Jack: A decrease of 19% compared to a record 2023.
Jack: The drivers of our full year performance was similar to those in the fourth quarter.
Speaker Change: <unk> cost was a tailwind of $11 million for the full year and the valet impact was a headwind of $13 million.
Speaker Change: Now I'll turn to slide 11, let's focus on a PARP segment performance.
Speaker Change: Adjusted EBITDA of $56 million decreased 34% compared to the fourth quarter last year.
Speaker Change: Volume was a tailwind of $1 million as higher shipments in packaging was mostly offset by lower shipments in automotive.
Speaker Change: Packaging shipments increased 4% in the quarter versus last year as demand remains healthy in both North America and Europe.
Speaker Change: Automotive shipments decreased 10% in the quarter with weakness in both North America and Europe.
Speaker Change: Price and mix was a headwind of $5 million.
Speaker Change: Mainly as a result of weaker mixing a quarter.
Speaker Change: Costs were a headwind of $24 million as a result of unfavorable metal costs, given tighter scrap spreads in North America, partially offset by lower operating costs.
Speaker Change: As we said in the past the negative impact of tighter scrap spreads in North America is 15 million to $20 million per quarter, given the current market conditions.
Speaker Change: The fourth quarter of 2023 also benefited from energy related branch in Europe, which did not repeat to the same degree in 2024.
Speaker Change: For the full year 2024 park generated adjusted EBITDA of $242 million, a decrease of 21% compared to 2023.
Speaker Change: The drivers of the full year performance were similar to those in the fourth quarter.
Speaker Change: Now turn to slide 12, let's focus on the F&I segment.
Speaker Change: Adjusted EBITDA of $4 million decreased 83% compared to the fourth quarter of last year.
Speaker Change: Volume was a $7 million headwind as a result of lower shipments to the automotive and industry extruded products.
Speaker Change: Automotive shipments were down 12% in the quarter with weakness in both North America and Europe.
Speaker Change: Industry shipments were down 17% in the quarter versus last year as weakness persisted in Europe.
Speaker Change: Industry shipments were also impacted about Lei as a result of the flood.
Speaker Change: Price and mix was a $2 million tailwind in the quarter swap costs were a headwind of $2 million.
Speaker Change: FX and other was also a headwind of $2 million in the quarter.
Speaker Change: During the fourth quarter <unk> had a negative impact of $10 million at ballet as a result of the slide.
Speaker Change: For the full year of 2020 for F&I generated adjusted EBITDA of $74 million or.
A decrease of 43% compared to 2023.
Speaker Change: Volume FX and other were similar impact in the full year as the fourth quarter. So for the full year costs were a tailwind of $20 million price and mix was a headwind of $25 million and the valet impact was a headwind of $20 million.
Speaker Change: It is not on the slide here, but our holdings at corporate expense for the full year in 2024 was $33 million up $2 million from last year.
Speaker Change: We currently expect holdings and corporate expense to run at approximately $40 million in 2025.
Speaker Change: It is also not on the slide here, but I wanted to summarize the current cost environment cost environment, we're facing.
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: Other metal costs.
Speaker Change: We experienced a dramatic tightening of scrap spreads in North America in 2024.
Speaker Change: We expect this to continue throughout 2025 and will create headwinds on metal costs.
Speaker Change: Barely impacts our PARP segment as it uses a significant amount of used beverage cans at other types of scrap.
Speaker Change: For energy, our 2025 costs are moderately more favorable compared to 2024, although energy prices remain above historical averages.
Speaker Change: Other inflationary pressures have east to more normal levels.
Speaker Change: And as we said last quarter.
Speaker Change: Given the weakness we're seeing in several of our markets. We have accelerated our vision 25 cost improvement program with measures such as reducing head count and other labor costs, reducing non metal procurement spending.
Speaker Change: Optimizing maintenance costs by minimizing the use of outside contractors and cost reduction efforts across many other categories.
Speaker Change: We have demonstrated strong cost performance in the past and we're confident in our ability to rightsize our cost structure for the current demand environment.
Speaker Change: You saw some of the benefits in our 2024 results and the run rate benefit should be even more in 2025.
Speaker Change: Now, let's turn to slide 13, and discuss the free cash flow.
Speaker Change: Free cash flow was negative $100 million for the full year in 2024. Although this includes a negative $45 million impact of outlay as a result of the flood.
Speaker Change: Which is net of the $45 million of insurance proceeds we received in 2024.
Speaker Change: This also excludes $85 million of cash we received for the collection of deferred purchase price receivables, which is a result of our conversion from <unk> to U S. GAAP at the corresponding accounting treatment.
Speaker Change: The technical accounting treatment for the collection of deferred purchase price receivables does not change the economic reality or free cash flow generation historically for <unk>.
Speaker Change: The deferred purchase price receivables are related to some of our previous factoring arrangements in Europe.
Speaker Change: We have recently amended these arrangements and all cash received under the arrangement will be recorded in operating cash flows going forward.
Speaker Change: As Joe Mark mentioned free cash flow, excluding the impact of the valet flood and including cash received for collection of deferred purchase price receivables would have been positive $30 million in 2024.
Speaker Change: Looking at 2025, we expect to generate free cash flow in excess of $120 million for the full year.
Speaker Change: We expect capex to be approximately $330 million this year, which is around $70 million lower compared to 2024.
Speaker Change: We expect cash interest of approximately $120 million.
Speaker Change: Cash taxes of approximately $40 million.
Speaker Change: We expect working capital and other to be a modest source of cash for the full year.
Speaker Change: As John Mark mentioned previously we continued our share buyback activities in the quarter.
During the quarter, we repurchased one 6 million shares for $18 million, bringing our 2024 total to $4 6 million shares for $79 million.
Speaker Change: We have approximately $221 million remaining on our existing share repurchase program and we intend to use a large portion of the free cash flow generated this year for the program.
Speaker Change: Now, let's turn to slide 14, and discuss our balance sheet and liquidity position.
Speaker Change: At the end of the fourth quarter, our net debt of $1 8 billion was up $72 million compared to the end of 2023, partially as a result of the valet slides.
Speaker Change: Our leverage was three one times at the end of 2024 were up eight times versus the end of 2023, if you exclude the valet flooding impact leverage was two nine times at the end of the year.
Speaker Change: We're committed to maintaining our leverage in the target leverage range of one five to two five times over time.
Speaker Change: As you can see our debt summary, we have no bond maturities until 2028, and our liquidity remains strong at $727 million as at the end of 2024 with that I will now hand, the call back to John Mark.
Speaker Change: Jack Let's turn to slide 16, and discuss our current end market outlook.
Speaker Change: The majority of our portfolio today is serving end markets benefiting from durables sustainability, driven secular growth, which aluminum light and infinitely recyclable material plays a critical role. However in the short term many of these markets are facing headwinds.
Speaker Change: First to the aerospace market commercial aircraft backlogs are robust today and continues to grow major Aero Oems remained focused on increasing build rates for both narrow and wide body aircraft the supply chain challenges continue to slow deliveries.
Speaker Change: As a result aerospace supply chains need to adjust to lower than expected build rates, which is causing a shift in demand to the rights for some of our products.
Speaker Change: Despite the slowdown in the near term demand has stabilized for the most vaults and 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.
Speaker Change: Demand remains stable in the business and regional jet markets and healthy for military aircraft.
Speaker Change: Turning now to packaging.
Speaker Change: Demand remains healthy in both North America, and Europe. 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 from can make cruising booths regions and a greenfield investments ongoing here in North America.
Speaker Change: Longer term, we continue to expect packaging markets to grow low to mid single digits in both North America and Europe.
Speaker Change: Let's turn now to automotive.
Speaker Change: <unk> OEM production of light vehicles in Europe remains well below pre COVID-19 levels and is still below pre COVID-19 levels in North America as well.
Speaker Change: Demand in North America is soft in the near term and demand in Europe remains weak, particularly in the luxury and premium vehicle and electric vehicle segments, where we have greater exposure.
Speaker Change: In the long term, we believe electric and hybrid vehicles will continue to grow but at a lower rate than previously expected.
Speaker Change: Sustainability trends, such as light weighting and increased fuel efficiency will continue to drive demand for aluminum products. As a result, we remain positive on this market with longer term in both regions. Despite the weakness we are seeing today.
Speaker Change: As you can see on the page the three core end markets represent over 80% of our last 12 months' revenue.
Speaker Change: Turning lastly to other specialties in North America demand appears to have stabilized, albeit at low levels and demand remains weak in Europe.
Speaker Change: We experienced weakness across most specialties markets will move in two years now, but we are beginning to see some green shoots in certain tid markets in North America.
Speaker Change: As a reminder, these markets typically dependent upon the health of the industrial economies in each region, including drivers like the interest rates environment industrial production levels and consumer spending patterns.
Speaker Change: As Jack mentioned, we continue to work hard to adjust our cost structure to current demand environment, which would put the businesses in an even better position when the when the industrial economy to recover.
Speaker Change: To conclude on the end markets, we like the fundamentals in each of the markets. We serve and we strongly believe that the diversification of our end markets is an asset for the company in any environment and that the current conditions will pass.
Speaker Change: Turning now to slide 17 based on our current outlook, including the current end market conditions. I. Just described for 2025, we are targeting adjusted EBITDA, excluding the noncash metal price lag in the range of $600 million to $630 million and free cash flow in excess of $120 million.
Speaker Change: I'm also excited to establish today, new long term targets.
Speaker Change: For 2028, we expect to achieve adjusted EBITDA, excluding the noncash metal price lag of $900 million.
Speaker Change: And free cash flow of $300 million.
Speaker Change: On this slide here, we've provided a bridge to show the major drivers to achieving $900 million of.
Speaker Change: Adjusted EBITDA.
Speaker Change: Our 2020 targets incorporates a recovery in the valley following the fluid, which is well underway and an improvement of muscle Shoals operational performance, which we have demonstrated recently in the past several months.
Speaker Change: It also incorporates the benefits from our previously announced return seeking investments, which includes cost saving investments like the recycling and testing center enough pre sac and the cast house investments in muscle Shoals and in Ravenswood.
Speaker Change: As well as growth projects like the new <unk> and the battery fully investment with low to Zynga.
Speaker Change: All of these projects as well as some other smaller investments are included in our existing Capex umbrella.
Speaker Change: We have also assumed additional market growth for each of our end markets due to the growth rates, we assumed our rates, which are generally below current industry estimates.
Speaker Change: As we have demonstrated in the past we will continue to be disciplined on price also as we have demonstrated in the past we expect to maintain strict cost controls to mitigate future inflationary impacts through productivity gains and other cost reduction initiatives.
Speaker Change: Yeah.
Speaker Change: We have assumed the current type scrap markets in North America continues through 2028, which will lead to unfavorable metal costs primarily.
<unk> segment compared to 2024.
Speaker Change: We also assumed a contingency in our 2020 target that should help offset potential.
Speaker Change: Potential deviations from the assumptions I just described.
Speaker Change: <unk> on the bridge, we assumed no impact from tariffs and we assume also that the macroeconomic and geopolitical conditions remain.
Speaker Change: Generally stable.
Speaker Change: But we will use to changes.
Speaker Change: Turning lastly to slide 18 to conclude while we continue to face challenging conditions in most of our markets. Today. We believe that this will pass and I remain very excited about our future and the ability to seize the many opportunities in front of US we have demonstrated over and over again since we have the <unk>.
Speaker Change: Right strategy, the right teams and the right products in the right markets and as we know how to overcome prices.
Speaker Change: Our business model is flexible and resilient diversified portfolio allows us to always have options in <unk>.
Speaker Change: Three different market conditions, we have build the balance sheet, we need to boost whether prices and seize opportunities and our high value recyclable and sustainable products respond to the growing needs of our customers.
Speaker Change: We're extremely well positioned for long term success, and we will remain focused on executing our strategy and on shareholder value creation.
Speaker Change: With that operator, we will now open the Q&A session. Please.
Speaker Change: As a reminder, if you'd like to ask a question. Please press star followed by one on the telephone keypad.
Speaker Change: I'd like to make a question you May press star one.
Speaker Change: Hey.
Speaker Change: Our first question for today comes from occurring in the plant chart of Deutsche Bank.
Speaker Change: Line is now open. Please go ahead.
Thank you have in mind.
Speaker Change: I know that sounds question and the second one will be.
Speaker Change: Along the same line with the guidance that you guys gave.
Speaker Change: And you didn't go into online gaming I don't have data right now, but can you just give us maybe I'll just ask one more on the key points on the 25 EBITDA guidance and also for the free cash flow.
Speaker Change: The cabins going into <unk> and then my second question would be on the long term outlook.
Speaker Change: Can you walk us through the price from 25 to 28 and our confidence.
Speaker Change: Should the market that shouldnt be in that in that number by 20th Thank you.
Speaker Change: Yes, good morning, Gary and thank you and I'll start and Jack I'm sure will help me. So on your first question on the <unk> six and fruitful 25.
Speaker Change: So.
Speaker Change: You look at the current conditions I mean.
Speaker Change: As we said the conditions, we experienced in the second half of 2024 are continuing and we will we will feel the full impact in 2025. So.
Speaker Change: The scrap spreads for instance, a tightening of scrubs range well protected last year with some annual contracts, we'll get the full impact of them.
Speaker Change: This coming year, we believe that automotive is also going to be very weak.
Speaker Change: <unk> four especially in Europe.
Speaker Change: On the aerospace side.
Speaker Change: We see that Oems are <unk>.
Speaker Change: Struggling to meet their ramp up so that creates some elements of destocking in the supply chain. So we're quite prudent on our assumptions for our own shipments in the.
Speaker Change: In the aerospace with tips domain Oems, even though we couldnt make up some of that.
Speaker Change: Other programs like military aircraft until space as well.
Speaker Change: And then obviously the foreign exchange is not helping with the dollar strengthening of late.
Speaker Change: So that's that's another item into and then the valley as Jack mentioned I believe we still have some costs in Q1. So all of that adds up to a number which is a quite.
Speaker Change: Quite hefty going into 2025 now to offset that.
Speaker Change: You have talked about all the initiatives we have in place we have talked about the ramp up of the recycle center and <unk>, that's still very much underway and going well, we had talked about the operational improvements in muscle Shoals, which we were starting to see the beginning of that now we feel very confident that we are doing a good.
Speaker Change: <unk>, there and go back to on track.
We also have the repricing of our.
Speaker Change: Some of our contracts in aerospace, which is going to.
Speaker Change: But if it does.
Speaker Change: Nothing in Q2.
Speaker Change: So.
Speaker Change: And obviously the cost savings that we have accelerated that Jack and maybe you can comment a bit more thought.
Speaker Change: 2025 and like.
Speaker Change: In light of the changing market conditions, our ambitions for cost reductions have greatly increased compared to where we were back in 2004. So when all that is said and done you'll see a lot of adverse headwinds on.
Speaker Change: Market side, right generally a little bit of a weaker beginning of the year because of the valley and especially in the time it takes to perform.
Speaker Change: Some benefits of.
Speaker Change: Chris.
Speaker Change: Savings.
Speaker Change: Yes.
Speaker Change: And then you see all of that being offset by the.
Speaker Change: The actions, we had talked about so I think that dynamic.
Speaker Change: That's how I can answer your first question I don't know Jack if I Miss anything or no I think that's good I think obviously in a weaker environment as we've mentioned, we're accelerating our cost reduction efforts under vision 2005.
Speaker Change: A bucket of that is in labor at that bucket of that is outside of labor and previously.
Speaker Change: We've indicated.
Speaker Change: $50 million program over three years.
Speaker Change: And we're targeting $15 million to $20 million, if you will.
Speaker Change: For 2025 relative to 2024 in this environment, we're looking at.
Speaker Change: More savings or looking at $50 million plus of opportunities. We're executing on we're very proud of the efforts. We've made so far and we'll be very focused on cost.
Speaker Change: Yes.
Speaker Change: So that's that.
Speaker Change: Your first question.
Speaker Change: Do you want to move to the second one.
Speaker Change: 2000 <unk>.
Speaker Change: I guess, 25% to 28 right. So we have 28, yes, so starting in 'twenty five Ryan.
Speaker Change: I'll go back to page 17 right.
Speaker Change: Most of the investments we're talking about the second so sorry, let me back up.
Speaker Change: The configure them recovery still very much in play.
Speaker Change: And most of that will.
Speaker Change: Obviously, the very fluid recoveries normal band because it happened in 'twenty four right. So if you're starting to 25 that's already done.
Speaker Change: The investments are going to play out.
Speaker Change: Mostly towards the end of the period, we do recycling center enough for executives right now, but the other investments are going to contribute towards the later part of the periods.
Speaker Change: We believe that <unk>.
Speaker Change: Overall, the past from now to then to 28 is pretty linear.
Speaker Change: With.
Speaker Change: Some uncertainty you see about how the markets recover and one can make a case for.
Speaker Change: Markets recovering a bit faster.
Speaker Change: Our own assumptions internally, we believe a more prudent than what is out there.
Speaker Change: So we think.
Speaker Change: Some could say well it should improve faster, but we've been burned.
Speaker Change: Recently, so we thought we tend to be prudent.
Speaker Change: You could also say that in that study and our guidance targets in the U S are going to be favorable to domestic suppliers. So that could accelerate some of that process, but anyway, we think we're going to be.
Speaker Change: Great.
Speaker Change: We would like to be quite prudent and then on the.
Speaker Change: I think the big.
Speaker Change: Bread box you see on the scrubber spreads we believe that once we've taken the brunt.
Speaker Change: The scrap spread tightening impact this year this should be kind of stable in the future. So we're not banking really on the improvement of the scrap spreads. The reason, we'll not thinking that they can go worse because at some point it just becomes indifferent, whether you recycle aluminum or you.
Speaker Change: Or you buy sheeting got from primary aluminum.
Speaker Change: And that.
Speaker Change: I think if you look at the scrap market.
Speaker Change: Worldwide market at some point.
Stripes spreads become too tied to the U S. It will create impulse subscribed into the U S. Like that has happened in the past. So we are at a historically tight scrap levels here in the U S. I don't think.
Speaker Change: We've got much of a risk of that getting worse.
Speaker Change: So that's so.
Speaker Change: I can think about the <unk>.
Speaker Change: 25% to 28, three read a regular cadence.
Speaker Change: And obviously, we know that the market can.
Speaker Change: Throw us some golf balls from time to time.
Speaker Change: But we're trying to stay ahead of it.
Speaker Change: Thank you maybe you can just can come back very quickly on the <unk> guide.
Speaker Change: I think it comes from that.
Speaker Change: Just wondering how should we think about the guidance as it had been gave on yellow so what would the GAAP impact, but we're trying to see that Qantas factoring in <unk> impact and trying to see that what could have been the number also.
Speaker Change: I don't think thats going to helpful.
Yes, Corey maybe we can take this offline I mean, we're a U S. Dollar company now and were thinking U S dollar terms.
Speaker Change: We can help you with a bridge.
Speaker Change: Afterwards.
Speaker Change: That's fair Okay. Thank you.
Speaker Change: Thanks Keith.
Speaker Change: Next question comes from Mike <unk>.
Speaker Change: <unk> <unk> from BMO capital markets. Your line is now open. Please go ahead.
Speaker Change: Hi, Thank you for taking my questions, maybe going back to the 25% guide is it fair to assume given that near term market is pretty challenging that.
Speaker Change: Weighting is going to be more second half.
Speaker Change: Relative to first half.
I mean, that's generally.
Speaker Change: It's a fair well I would say the way I would kind of look at as I look at first quarter and then beyond first quarter.
Speaker Change: Quarter, John Mark already alluded to.
Speaker Change: We have it.
Speaker Change: First of all seasonally.
Speaker Change: Due to the seasonality it is weaker comparatively and will have some impact from remaining impact from the flood.
Speaker Change: <unk> and <unk>.
As we progress into the year, we'll see some of the benefits to kick in more like the cost initiatives like the muscle shows improvement. So it will be stronger in the middle of the year.
Speaker Change: It's more like first quarter relative to the rest of the year right correct.
Speaker Change: And then capture even though it's not in our guide and just.
Speaker Change: Just on that on the.
Speaker Change: Sorry.
Speaker Change: I just wanted to add even though it's not in our guidance we have to look at what the tariffs may mean for us.
Speaker Change: And as I said with tariffs.
Speaker Change: Knowledge, we believe the way they are structured today should create opportunities for us. So that's more in the second half of the euros.
Speaker Change: And is.
Speaker Change: Is that similar for the REIT.
Speaker Change: Free cash flow generation.
Speaker Change: So.
Speaker Change: It's a good question.
Speaker Change: So typically in the first quarter is when we're building up working capital for the busier seasons.
Speaker Change: Typically free cash flow is negative in the first quarter due to that reason.
Speaker Change: But remember we.
Speaker Change: <unk> started a number of cash initiatives last year to release cash from.
Speaker Change: From working capital due to the weakness weaknesses.
Speaker Change: <unk> and there was a there's typically a lag in terms of in terms of when we see the benefits from those actions. We saw some benefits in the fourth quarter last year, but we'll see the remaining benefits in the first quarter of this year to help offset the buildup of working capital. If you will if that makes sense.
Speaker Change: Yes.
Speaker Change: Jack you mentioned a lot of the <unk>.
Speaker Change: Gaslog will be used for share buybacks.
Speaker Change: But given the the.
Speaker Change: The timing is this again more maybe initially <unk>, we don't really see an acceleration and then we see an acceleration later in the year.
Speaker Change: So I think we're comfortable with our leverage.
Speaker Change: And we're very confident in our <unk>.
Speaker Change: Liquidity position.
Speaker Change: And we're confident in our free cash flow generation. So when you put it all together, we will continue to be quite hands off.
And just let it let the program Brian.
Speaker Change: Okay I'll hop back into the queue. Thank you.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Our next question for today comes from Bill Peterson of Jpmorgan. Your line is now open. Please go ahead.
Speaker Change: Yes.
Bill Peterson: Yes, hi.
Speaker Change: Good morning, or good afternoon, John Mark and Jack have a few questions I'd like to kind of come back to on.
Speaker Change: Demand environment, and I guess, how that impacts the outlook for the year $600 million to $630 million.
Speaker Change: I guess speaking about the market aspects themselves, hoping you can go through the key assumptions for market growth and also your I guess your own shipment growth and mix across the bigger markets like aerospace packaging auto and other for.
Speaker Change: For example, there were kind of aware of the Destocking, but are you seeing in shipments will remain kind of weak for the year and mix will be unfavorable.
Speaker Change: In the case of auto you talked about weakening U S. Does that mean, we should think of that going down. This year and then maybe in Europe remaining stable at a low level.
Speaker Change: Kind of similar for industrials or are you just assuming flat given it is targeted at Hardie has been weak in Europe I'm, just trying to get a better understanding of how these end markets should could impact. This overall guide and I guess, how that could then translate into your reporting segments EBITDA.
Speaker Change: <unk> top down and so forth.
Bill Peterson: So it's a really good question Bill I don't think we want to be too prescriptive on this one but generally speaking if you look at aerospace we.
Bill Peterson: Expect stable type of environment, although mix could be weaker as we've setting at a weaker aerospace environment caused us to push out some of the more profitable volume.
Bill Peterson: Two later right so.
Bill Peterson: Expect to see unfavorable mix by staple from a volume perspective for aerospace.
Bill Peterson: Do believe automotive will continue to be.
Bill Peterson: This year, if you were to look at.
Bill Peterson: The latest industry build rates for the year in both North America and Europe, they are expected to be.
Bill Peterson: Down versus 2024, and that will impact our automotive business.
Bill Peterson: If you look at Tid.
Speaker Change: There there is some opportunities in tid, especially in North America in light of the tariff situation.
Bill Peterson: So we do expect that to improve.
Bill Peterson: And packaging, we do expect continued improvement in.
Bill Peterson: In the packaging market.
Bill Peterson: Forget any other market and I think also in Tid in Europe, just affect as we all know flooded anymore. We've resumed production that's going to help us as well.
Rail facility.
Bill Peterson: So.
Bill Peterson: Good point.
Bill Peterson: Okay, great. Thanks for that additional context for the full year guide I wanted to come back to scrap.
Bill Peterson: Both kind of from a near term perspective for 2025 as well as the bridge for 2028. So first on the near term I guess is this sort of $15 million to $20 million per quarter discussed in the <unk> bridge the right way to think about the headwind for 2025, and then over the midterm and I guess on your bridge slide can you breakdown I guess the impacts of scrap versus foreign.
Bill Peterson: Exchange and I guess, how should we think about scrap spreads in other regions you operate in particularly in Europe acknowledging.
Bill Peterson: Maybe butter fundamental recycling rates and overall, Barbara maybe potentially offset by weaker industrial activity.
Bill Peterson: Yes.
Bill Peterson: Scott Bill and Jack will help me as well.
Bill Peterson: No.
Speaker Change: We think that the impact of scrap spreads is really a 2005 event and then we do not assume improvement going forward.
Bill Peterson: We believe it is mostly a north American problem.
Speaker Change: And when I look at.
Speaker Change: Whats crest, we were buying in Europe today, yes, it's a little bit tighter, but nothing really to write home about.
Speaker Change: Long term as you pointed out there is more and more recycling happening in Europe, right more and more collection.
Speaker Change: Scrap both industrial and consumers.
Speaker Change: Consumers post consumer scrap so I think thats good for the.
Speaker Change: The balance in Europe.
Speaker Change: And.
Speaker Change: We feel that we are well covered both neutral to them and do it in the long term in Europe, North America as I mentioned.
Speaker Change: It is a painful situation scrap spreads are very tight would be theyre going to stay very tight but from a variant standpoint. Once we're past the 25, we think it's not.
Speaker Change: Not going to have much of an impact in terms of foreign exchange.
Speaker Change: Jeff.
Jeff: Me I'm sure but.
Dollar is stronger now than it was on average last year and the year before actually so thats.
Jeff: That's reflected in our guidance, we don't make an assumption that the dollar is going to change much from where it's at.
Jeff: Going forward 105, right. So we don't see assuming is going to be different in 2000.
Jeff: 526, 27, 28 months pretty flat.
Jeff: Does that answer your question Bill.
Jeff: Thanks for that and I guess, maybe that last point.
Yes, largely doesn't I guess from the last point, if euro was to become stronger over the coming years that actually flips to a tailwind I guess is the point that is correct yes.
Jeff: It creates.
Jeff: Great. Thanks.
Jeff: Cash flow standpoint, not much due to translation effects.
Jeff: Yeah.
Jeff: Yes.
Jeff: Yeah.
Jeff: Thank you.
Speaker Change: If you'd like to ask a question Thats star one unintended franke pad.
Jeff: Our next question comes from a team that tenants of Wolfe research.
Jeff: One is now open. Please go ahead.
Jeff: Right.
Jeff: Hey, good morning, I wanted to ask a few higher level questions. If we could take a step back I know, we just talked about that.
Jeff: Scrap dynamic in the U S, but with regard to that being sustained with new capacity starting up this year, putting more pressure or sustained pressure on scrap.
Jeff: Can you do to prepared longer term any pass through the Midwest premium, which is obviously exploded is there just no way to pass through scrap in the short term and in the longer term can you switch up your input and then same question short term long term responses that Keystone Lam can contemplate in terms of EU auto ex U.
Jeff: How is it sustainably lower for longer can you switch some of that capacity.
Jeff: Longer term and then the third short term long term question is really on that.
Jeff: Potential for switching away from aluminum given these higher prices with Coca Cola talking about that topic.
Jeff: Those are three questions I'm, sorry, I can repeat them, if you want but I'd love to get your thoughts.
Tim: Good. Thank you Tim good morning, so.
Tim: Under scrub dynamics right.
Tim: So there is a specific pressure on used beverage cans, but thats.
Tim: It's very ultra portion of what we buy.
Tim: Yes.
Tim: I don't want to give you an exact number but around 50% of what do we buy right. So there's other types of scrap and theres plenty of all the strengths that we can use.
Tim: The other factor is as.
Tim: The Midwest premium increases.
Tim: The U S economy becomes stronger related to for the rest of the world, which is happening right now.
Tim: We ended up in a place where imports of scrap as I mentioned earlier have become more attractive.
Tim: So that also will.
Tim: Have a dampening effect on the bill.
Tim: So those scrub tightening.
Speaker Change: Then as you mentioned at some point if it is so expensive and people will look at okay. Well there is a better option, which is buying sheeting goods from primary smelters.
Tim: And that will put also the Denver on hope.
Tim: Hi.
Tim: Prices can go.
So all of that we believe we factored that all in.
Tim: At pretty high levels, but we believe that the projections. We have that are in both of our 600 to 900 targets.
Tim: Scrap market conditions that are quite unusual and we do not believe.
Tim: Sustainable.
Tim: And we.
Tim: We will see so maybe maybe it doesn't upside there.
Tim: And I think youre required personnel so.
Tim: So I think I.
Tim: There was a question on scrap right. The question on the EU auto yes. So.
Tim: The first thing to do is for US is we're not going to invest gross gasoline automotive, okay, and we have not recently and we are not going to do that anytime soon given where.
Tim: The markets are and the uncertainty so now it's a matter of how do we best use the capacity we have as you know.
Tim: 80% of the assets if not more that make auto are used also for other products like our can sheet too.
Speaker Change: You mentioned and we believe that we.
Tim: We have this opportunity to make more can sheet.
Tim: We.
Tim: Both in North America, and Europe, So that's very much in play for us.
Tim: And we are fully ready to do that if anything last year, we passed on some.
Tim: Volume opportunities quite significantly again, because we couldn't produce plenty of reasons, starting with the snow events in their muscle Shoals.
Tim: Operational issues, we had that we don't have any vault. So we believe we were able to refocus you.
Tim: Capacity quite efficiently and then obviously there is no or limited business for automotive we will have to be.
Tim: Very tricky, though Matt.
Tim: To manage our costs on the auto finishing lines, which are I think Bolton.
Tim: The huge volatile.
Tim: Our business.
Tim: And then finally you mentioned.
Tim: Aluminum is going to be so expensive that maybe people will switch away from from Illumina. So.
Tim: While steel is getting expensive too by the way.
Tim: Historically, it's quite interesting to note that.
Tim: If people look at the.
Tim: Aluminum is being volatile because it's quoted daily and plastics and steel are less transparent actually when you look at the volatility of input materials.
Tim: Sticks and more volatile than aluminum number one so so as a user and I am going to make a choice of what I'm going to use it.
Tim: Get more stability and I can hedge it by the way the volatility which is much more difficult for the other ones.
Tim: So.
Tim: I go to material.
Tim: Vento know how it's going.
It came across the.
Tim: The second point to remember is that aluminum even today.
Tim: If you were to put the Midwest price.
Tim: The premium sorry.
Tim: <unk> thousand dollars a ton.
Tim: Is still less expensive than it was in 2007.
Tim: And there was no change in the packaging mix happening in two <unk> from 2005 to 2008 or 2006 2007 because of changes in the price of material.
Tim: And finally our.
Tim: Submit that it is a very very small part of the package.
Tim: The finished products right.
Speaker Change: And there's many more choices and just how much the price of that.
Speaker Change: Beverage can is going to be next quarter that goes into the choice of packaging.
Speaker Change: <unk> got the whole infrastructure of the filling lines that youre going to endo and they require capsule you've got the distribution channels. The consumer preferences as we go through a shelf space all of these questions are in.
Speaker Change: And then more right to all these questions that need to be addressed so I don't want to be casual and say that.
Speaker Change: When James Quincey says well you can also use other materials, which doesn't mean it but I think it takes a very substantial shift in related competitiveness of materials for such changes to happen and then they happen at a slow pace.
Speaker Change: Did I answer your questions.
Mark: Thats helpful. Mark Thanks for that.
Speaker Change: Thank you. Thank you Youre welcome.
Speaker Change: Thank you at this time, we currently have no further questions. So I'll hand back to John Mark for any further remarks.
Speaker Change: Well. Thank you everybody again for your interest in <unk> as you can tell the 'twenty 'twenty four was notified year for us he was disappointing in terms of outcome, but I think.
Speaker Change: We can say and I hope we have.
Speaker Change: Convince some of you that were on a strong footing to resume our growth and we've got a clear path ahead of us and the best ahead of US relies on things that are really a lot of the a lot of them are under our control. So we're excited about the yields coming ahead of us and we look forward to updating you on our process.
Speaker Change: In the next.
Walter: Walter Thank you so much everybody.
Speaker Change: Bye bye.
Speaker Change: Thank you all for joining today's call you may now disconnect your lines.
Speaker Change: [music].