Albany International Corporation

Ladies and gentlemen, thank you for standing by. Welcome to the fourth quarter earnings call of Albany International. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. Instructions will be given at that time. At the request of Albany International, this conference call on Tuesday, February 12, 2019, will be webcast and recorded. I would now like to turn the conference call over to Chief Financial Officer and Treasurer John Cozzolino for introductory comments. Please go ahead.

John Cozzolino Thank you, Operator, and good morning, everyone. As a reminder for those listening on the call, please refer to our detailed press release issued last night regarding our quarterly financial results with particular reference to the Safe Harbor Notice contained in the text of the release about our forward-looking statements and the use of certain non-GAAP financial measures and associated reconciliation of GAAP. And for purposes of this conference call, those same statements also apply to our verbal remarks this morning. And for a full discussion, please refer to that earnings release as well as our SEC filings, including our 10-K. Now I will turn the call over to Olivier Giraud, our Chief Executive Officer, who will provide some opening remarks.

Olivier? Olivier Giraud Thank you, John. Good morning. Welcome, everyone, and thank you for joining our fourth quarter earnings call. We'll follow today's similar format of past calls. I will begin with an overview of the quarter. Then John will take you through our financial results in more detail, after which I will provide an update to our outlook, and we will then take your questions. Q4 2018 was once again a very good quarter for Albany International as strong performance continued across both businesses. Total company net sales increased 11% or 15% excluding the impact of ASC 606 and currency translation effects. Compared to Q4 2017, Net income and adjusted EBITDA both increased sharply. Net income increased to $17 million, while adjusted EBITDA grew to $58 million due to higher sales and productivity improvements in both MC and AEC. MC sales in the fourth quarter, excluding the impact of ASC 606 and currency translation effects, increased 4% compared to Q4 2017. Globally, MC sales grew in both the packaging and publication grades, with a particular strength in North America. MC gross margin in Q4 increased to 48.6% compared to 45% in Q4 2017, primarily due to higher sales and improved plant utilization. Operating income and adjusted EBITDA both increased significantly compared to Q4 2017, with adjusted EBITDA improving to $51 million in the quarter. For the full year, MC net sales, excluding the impact of ASC 606 and currency translation effects, increased 3% compared to 2017, with increases in all major paper grades. The increase in net sales reflects our continued leadership in product innovation, our superior customer service levels, and our commitment to outstanding application engineering. Operating income and adjusted EBITDA both increased sharply compared to 2017, with adjusted EBITDA growing to $212 million, reflecting strong process productivity improvements and the impact of our continuous focus on cost reduction initiatives. Q4 was another quarter of strong, improving performance for AEC with significant growth in net sales, operating income, and adjusted EBITDA compared to Q4 2017. Net sales, excluding the impact of AEC 606 and currency translation effects, increased 34%. while profitability continued to improve compared to Q4 2017. The increase in sales in Q4 was substantially driven by the LEAP program. Sales of fan cases, fan blades, and spacers for LEAP engines, which represented about 44% of AEC Q4 2018 sales, grew 31% compared to Q4 2017, reflecting AEC's continued execution related to the unprecedented steep ramp-up of this jet engine program. Higher sales of Boeing 787 fuselage frames, as well as F-35 and CH-53K components also contributed to the growth in sales. Combined sales for these three programs grew 43% compared to Q4 2017. AEC operating income continued to improve as it grew to $6.7 million in Q4 compared to $0.6 million in Q4 2017. Adjusted EBITDA also continued to improve in the quarter as it increased to $18.1 million or 17.9% of net sales compared to $10.8 million or 14.1% of net sales in Q4 2017. The increase in both operating income and adjusted EBITDA reflects not only higher sales volume, but also productivity improvements resulting from the deployment of a disciplined, standardized operational system across our AEC plants, as well as the favorable impact of our continuous improvement program. the AEC team is improving quality and on-time delivery to our customers despite increasing demand and record shipment levels. For the full year 2018, AEC net sales, excluding the impact of AEC 606 and currency translation effects, increased 36% compared to 2017, exceeding the upper end of the 20% to 30% range we discussed in past quarters. Cells related to the LEAP program were the largest driver of this increase, along with growth in cells of Boeing 787 fuselage frames and F-35 and CH-53K components. AEC's profitability also showed strong improvement in 2018 with sharp increases in operating income and adjusted EBITDA. Adjusted EBITDA in 2018 grew to $63 million, or 17.1% of net sales. In R&D, our new product development activities which focus on existing, derivative, and new technologies. And our process improvement projects, which aim to optimize our operational performance across AEC, continued in Q4 to build upon the progress of prior quarter. Our continued execution on our major existing contracts, as well as on anticipated new contract wins, provides the potential for AEC to reach annual sales of $500 million to $550 million in 2020. As I have stated in previous quarters, the potential for AEC beyond 2020 will be based not only on executing on the continued ramp-up of existing programs on which we are already well-established, but also on increasing share or acquiring first-time content on ramping programs, while at the same time winning new contracts on future commercial and defense airframe and engine platforms. Now, let's go back to John for more details on the quarter. John?

Thank you, Olivier. I'd like to refer you to our Q4 financial performance slides. Starting with slide three, net sales by segment, total company net sales in Q4 increased 11% compared to Q4 2017, and 14.5% excluding both currency and ASC 606 effects. In Q4, excluding currency and ASC 606, MC net sales were up 4.5%, and ADC net sales increased 34.3%, compared to Q4 last year. For the full year 2018, excluding currency and ASC 606 effects, total company net sales increased 13.6% compared to 2017, with MC sales up 3.3% and AEC sales up 35.9%. As discussed in the press release, in Q4, the company discovered implementation issues related to the adoption of ASC 606. The issues were related to the MC segment only and caused an immaterial overstatement in revenue and income previously reported in the first nine months of 2018. The issues have been corrected and previously reported amounts for 2018 will be revised in our 2019 quarterly filings. We have also incorporated the revised amounts into each of these slides. In addition, slide nine provides the revised numbers for Q1 through Q3 2018 for certain financial statement line items and adjusted EBITDA. Turning to slide four, total company gross profit margin was 34.9% in Q4 compared to 34.2% in Q4 2017. AEC gross profit margin in Q4 was 14.5% compared to 13.1% in Q4 last year. MC gross profit margin in Q4 stayed strong at 48.6 percent compared to 45 percent in Q4 last year. For the full year, MC gross profit margin improved to 48.6 percent in 2018 compared to 47.5 percent in 2017, and AEC improved to 14.2 percent. Slides five and six show net income and adjusted EBITDA by segment for the quarter and the full year. Adjusted EBITDA for the total company in Q4 2018 was $57.7 million compared to $43.4 million in Q4 2017. For the full year 2018, adjusted EBITDA for the total company increased to $228.9 million compared to $169.4 million last year. MC finished the year strong with adjusted EBITDA of $51.2 million, bringing the full year total to $212.1 million. Both results were significant improvements over last year. ADC adjusted EBITDA in Q4 was $18.1 million and $63.3 million for the year. ADC adjusted EBITDA as a percentage of net sales in 2018 improved to 17.1 percent. Moving on to slide seven, earnings per share, net income attributable to the company in Q4 was $0.55 per share compared to $0.18 per share in Q4 of last year. Excluding adjustments for restructuring, tax items, currency revaluation, and net impact of a pension settlement charge and a curtailment gain, net income attributable to the company was $0.74 per share in Q4 compared to $0.44 per share last year. On a full-year basis, net income attributable to the company, excluding adjustments, was $2.82 per share in 2018 compared to $1.67 per share last year. Slide 8 shows our total debt and net debt. Cash flow was very good in Q4, which included the impact of improved working capital during the quarter. As a result, total debt decreased just over $5 million to a balance of $525 million at the end of the year, while cash balance has increased about $37 million to a total of $198 million. The combined effect of the decrease in total debt along with the increase in cash resulted in a decrease to net debt of $42.5 million in Q4 to a balance of $327.2 million. The improvement in net debt in Q4 was more than enough to offset the year-to-date Q3 increase, as net debt for the year dropped $5.3 million. Payments for all capital expenditures in Q4 2018 were about $22 million, We expect capital expenditures to continue to be in the range of $20 million to $25 million per quarter throughout 2019 as the company continues to invest in equipment to support multiple ramp-ups in AEC. Now I'd like to turn it back over to Olivier for some additional comments before we go to Q&A.

Thanks, John. Now let's turn to our outlook. Looking at 2019, the MC business is well positioned to maintain relatively stable sales with adjusted EBITDA once again higher than the historical range of $180 million to $195 million. Assuming no significant changes in global economic conditions or currency rates, we expect 2019 adjusted EBITDA to be between $195 million and $205 million. In 2019, we expect AEC to continue to substantially grow sales with further incremental improvement in profitability compared to 2018. Full-year 2019 net sales are expected to grow in the range of 20% to 25%, driven by higher sales of fan blades, fan cases, and spacers for the LEAP program and components for the CH53K, F35, and Boeing 787 programs, as well as by our advanced technology development work in support of next-gen engine programs. Adjusted EBITDA as a percentage of net sales should show some incremental improvement compared to 2018, keeping AEC on track toward our goal of 18% to 20% adjusted EBITDA as a percentage of net sales in 2020. Overall, Q4 was another very good quarter for the company, completing a year of outstanding financial performance in both businesses, MC net sales, operating income, and adjusted EBITDA all increased in Q4 and for the full year compared to 2017, with adjusted EBITDA well ahead of the upper end of the historical range of $180 million to $195 million. MC is well positioned for relatively stable sales in 2019 and with the potential for adjusted EBITDA in 2019 between $195 million and $205 million. AEC had another strong quarter with growth in net sales, operating income, and adjusted EBITDA, completing a very successful year. AEC is expected to continue to grow substantially in 2019 with additional incremental improvement in profitability compared to 2018. With that, let's go to the line for any questions. Operator?

Thank you. The phone lines are now open for questions. If you would like to ask a question, press star, then 1 on your touchtone phone. You'll hear a tone indicating you've been placed in queue, and you may remove yourself from queue by pressing the pound key. If you're using a speakerphone, please pick up your handset before pressing any buttons. Our first question will come from the line of John Franzred with Sidonia and Company. Go ahead, please.

Good morning, Olivier and John. Good morning, John. I'd like to start with your guidance on AEC by 2020. The 500 to 550, I guess compared to the fall, you've taken up the bottom end of your range by about $25 million. Could you talk about why you did that? Is some programs moving forward faster than maybe originally expected six months ago?

Yeah, sure. You know, our growth in 2020 is... primarily driven, of course, to our ability to execute, right, on the ramp-up programs on which we're very well positioned, right? The LEAP, of course, the CH-83K, the Boeing 787 Prams, as well as the F-35 components. So what we did is a very disciplined, went through a very disciplined process, really understanding, reassessing in as accurately as we can the exact content that we have by platform, looking at the bureau rate expansion, you know, in 19, 20, 21. And we, you know, came back to those numbers primarily, right, increasing about $25 million based on those major platforms. We also took into account some very specific advanced technology development work in support of some very specific next-gen jet engine program that we're working on. I can't give that much detail on it, but a lot of activity going on on the R&D side of our business. And all that made us, you know, feel pretty positive about, you know, a minimum of $500 million. We're increasing about 25% versus our last target. So $500 to $550. The $550, the upper side of the range, would depend on how many new wins we could increase the share against. We could negotiate between, I mean, throughout 2019. on either existing programs or other existing platforms ramping up. So we feel pretty comfortable, if you will, with that new range.

Okay. And talking about new wins, Olivier, would you expect something to be announced sometime in calendar 2019 in regard to new wins?

We're working on a lot of different things. you know, potential wins, not only, I would say, on the engine side, but also on the airframe side, both commercial and defense applications. We have recently, actually, we have recently brought at AEC a new vice president of global sales, and who is in the process of implementing our strategy worldwide. We don't want to stay only focused on the U.S. market, but we want to expand our activities globally in Europe as well, not only within the engine, commercial and military, but also airframe, but also equipment market. And we will be, you know, announcing any potential wins, right, throughout 2019 as soon as it happens, yes. Okay.

Switching over to machine clothing, you had a great quarter of EBITDA, and last year you were still projecting very strong EBITDA in this year, but it is slightly down. Is that a function of your expectations that revenues might be off, or is it... increased commodity costs that may have to flow through the P&L? You know, just why you would think it would be down in any sense year over year?

Yeah, that's a good question. I mean, you know, our 2018 was, as you said, a record, right, a record earnings, right, year for us. And we are – We think that the business, I mean, MC business is very well positioned in 19 to again, right, to again perform and give a very good financial performance, right? But I think to answer your question, it's good to maybe, you know, look at, you know, what really happened in 18 and how we see the market going, you know, I mean, early 19, right? So, you know, we have... in 18, we have had, as you noted, strong sales. I talked about improved plant utilization. We had, as you know, a pretty favorable set of, how could I say, favorable currencies, environment, especially the Mexican pesos and the Brazilian money. And we had a fairly stable and favorable microeconomic condition. We saw We saw, if you look back at what we talked about on FQ3, and again in this quarter, we saw some increases in our publication rates, PMC sales, especially in the second half of 2018 across North America, Europe, Asia Pacific, driven by some specific orders, especially in North America. We don't know if those orders will repeat or not, right, in 2019. In addition, we saw in 2018, which I noted right at the end of the third quarter, we saw an increase in our tissue-grade PMC cells, especially in North America, but also in Europe and Asia-Pacific, related to several specific new machine start-ups. Once again, are we going to see them, you know, at the same level in 19? We still don't know yet, right? So, you know, as we enter in 19, if I look at the overall macroeconomic data, right, we know that world growth ended around 3.7% in 18, estimated to continue in 19, but definitely, I think, at a slower pace than 18. However, there are significant, how could I say, uncertainties. There is no secret that the Chinese economy is slowing down in 2019. It did slow down in 2018 already. We have the ongoing trade negotiations between China and the US. We have the undefined nature of Brexit. We have all those political uncertainties in several countries in Europe, such as France with the Gilets Jaunes, Germany with the Chancellor and so on. Only South America is actually improving so those issues may have an impact on the global economic growth and our mc markets during 19. however it's very important for me to note that we continue however to believe that during the next five years the paper and paper board production will continue to increase as recently published by Recy at about 1% to 1.5% per year, right? About 1.4% if I quote Recy. So now if I look strictly at the PMC market, if you will, going into 2019, let me share with you my view, right, on our view on the PMC market globally. So the U.S. PMC market, which is our largest market, seems to be more or less stable. due to packaging and tissue grade consumption increases, offsetting more or less declines in publication grade consumption, especially in New Spring. To switch to Canada, the Canadian PMC market will continue to shrink. We think that mainly due to continued publication grade consumption declines, especially once again in New Spring. To switch to Brazil, The PMC market will be essentially flat, we believe, due to favorable economic conditions, but with a slowdown of export of pub graze to China. You look at Europe, the European PMC market will continue to drop as a result of growth in the packaging graze consumption. with machines conversions from printing and writing to packaging machines that, however, as I already mentioned in the past quarter, consume less PMC than publication machines. And then if you switch to Asia Pacific, the Southeast Asia PMC market will be more or less stable. With the China PMC market, we know that it will keep on shrinking. as a result of lower Chinese production of packaging grass due to environmental issues and what we're hearing about ongoing restrictions on imported recycled fiber. So when you look at all that, you put all that into consideration, we think that the EMT business is well positioned to relatively keep the same level of sales. and deliver good financial performance ahead of the range of 180 to 195, at 195 to 105, as a result, I would say, of the combined effects of volume, maybe a little bit of labor inflation, raw material inflation, and as I just noted, some product mix, right? So we will, one thing for sure, that we'll deliver a good performance We will continue, and very important point, you know, for us from a strategist standpoint, we will continue our technical and service level focus on packaging and tissue grades, as we're clearly in a leadership position, while, of course, continuing to manage a decrease in publication grades. Our product innovation and technology leadership And our focus on providing superior value to our customers, I'm talking about cost-effective solutions, I'm talking about top-level, top-service levels in terms of on-time delivery, in terms of lead time, I'm talking about our quality levels, will be the best, you know, to resist against market pressure and will enable us to maintain our global leader position in the market, right? That's our view for 2019.

All right, perfect. Thank you, sir. I'll get back into Q. Thank you.

Our next question will come from the line of Christian Hermosa with Noble Capital Markets. Your line is open.

Hi, thanks for taking my call, and congrats on a great quarter.

Good morning, Christian. Nice to have you on the call.

Thank you. So it looks like in Q4, the AEC segment was already close to achieving the low end of your 2020 target. adjusted EBITDA margin target range of 18% to 20%. So, my question is, do you think that the AEC segment has the potential to improve beyond that range?

Well, listen, you know, we have to look at the performance of this year versus performance of last year. Last year, I believe we did in 17, once you exclude, right, a couple of Unfavorability of a couple of contracts, right? We did roughly on an adjusted basis about $30 million of EBITDA, right? Or 11%. We had a good, I would say, a good operational, you know, improvement, as you noted, the full year 18, $63 million roughly of EBITDA, 17.1% of EBITDA margin. that puts us, I would say, that positions the business properly, I believe, to now go from $63 million to roughly, say, $100 million of EBITDA in 2020. I think it's a very healthy goal. It's really the 18% to 20% rate of the 5% to 550% range in volume. So I stick on that goal. Once again, $30 million last year, $60 million, $63 million this year. Let's keep on continuing to ramp up, to execute on these multiple ramp-ups, to keep on deploying across all our AEC plants a disciplined operational management system. And you have seen that it's starting already to pay off. We have brought in, actually, in the past five or six months, a very experienced new aerospace leadership team, especially on the ESC side, right, to manage that unprecedented steep ramp-up of the leap. You know, brand-new leader on the ESC. on the operational side, a brand-new finance leader, a brand-new quality leader, a brand-new lead manufacturing. So we're really bringing a lot of aerospace, if you will, aerospace, global aerospace experience at AEC. And I feel comfortable about that $100 million EBITDA target. It's a very healthy goal for 2020.

Okay, great. Thanks for the call there. And then... So I'm interested in hearing a little bit more about the new product development activities in R&D for the AEC segment. Are there any particularly attractive opportunities that you're able to tell us about?

Well, there are a lot of work, as I was mentioning, and I cannot really publicly talk about it, give you more detail. There's a lot of work, if you will, a lot of advanced work technology development work that is going on in support of some very, how could I say, some combination, right, of next generation jet engine platforms that we've been very much involved with and that will be more and more involved with. That does include, if you will, tweaking, you know, improving our existing technologies, which I call derivative technologies, especially on the 3D woven RTM, resin-forced molding technologies. We're looking at other also, other very, very interesting, you know, potential applications, both on the commercial and the military side, on the airframe side. So it's all very exciting, but I cannot give that many details yet until we, you know, we... come out with contracts and so on. A lot of very exciting work that really will fuel our growth into organic growth in 20 and past 20.

Okay, great. Thanks. I'll stay tuned then. The last one for me is on the LEAP engine program, it contributed about 44% to AEC sales in Q4. Yes. So do you expect the lead program's percentage of revenue to expand from there in 2019?

Well, you know, the leap, if you look at the leap, announced publicly by CFM, we're going in 2019 with 1,800-plus engines. versus 1,118 engines delivered by CFM in 2018. That's to be composed with 459, right, in 2017. Then we'll go, CFM is talking about above 2,000, right? We don't know yet the number, right, for 2020. You'll keep on saying, right, that increase, right, in lip component cells in 19 and 20, and the percentage, right, should stay around, you know, around that range, you know, in the 40 to 45 percent range. I mean, that should be the same. Know that we have had very interesting, right, growth. on the CF-83K also, and on the combined fuselage frame, 53K and F-35, grew about 40%. And you're going to start seeing continued wrap-up also on those three platforms as the Boeing 787 reaches 14 aircraft a month in June of 2019, and as the F-35 and the CF-83K keep on expanding.

Okay, great. Thank you. That's all for me. Thanks for your time.

Thank you. And our next question will come from the line of Pete Skibitsky with Alembic Global. Go ahead.

Hey, good morning, guys. Maybe a couple of financial questions to start. On the full year free cash flow results, I think in terms of conversion is about 0.6 times free cash in that income. And I'm wondering if you guys have a target for free cash flow conversion, and, you know, should we think that working capital will be a use of funds each year just because of kind of where you're at in the supply chain and kind of the nature of your receivables and contract assets performance? Can you give us some color on that?

Yeah, so, hey, Pete, this is John. I'll start with that. So, you know, right now when you look at the free cash, you know, we are still in a mode of, fairly high capex. You know, we talked about, you know, that's probably one of the bigger factors in the cash flow at 20 to 25 million a quarter, you know, with a good chunk of that going towards AEC. You know, the real key here will be when that starts to drop off, you know, hopefully after 2019 as we have those programs ramped up. At that point, the, you know, the free cash flow generation, you know, will grow significantly. Now, the other part of that is the working capital. We do also continue to invest in working capital to support those ramps. A lot has been done to really improve the efficiency of that, and we'll continue to keep looking at that. But once we reach the full ramp on these programs, working capital should level off, and that should also help the free cash flow. So that's really where we are right now going forward.

Yeah, no, you're absolutely right. You know, I think that, you know, what we have been doing, what you're starting to see in Q4, right? I mean, we had a very nice cash flow, right, of $42 million, right, in Q4. We dropped down our total net debt to $247 million. It's a very nice improvement for the full year, right? We had $5 million in cash, right, in cash flow. And we are, as John was saying, we are putting a lot of focus in the past now, two quarters on the AEC side, to really manage much more efficiently, I would say, our working capital. A lot of focus on inventory. I would say a lot of daily focus from my side directly in receivables. on the aerospace side, on inventory, and more and more focused throughout 2019, since we really want to ensure that the AEC business, you know, focuses not only on EBITDA growth, on ramping up, right, on ramping up the volume, as I just talked about, and delivering a step improvement in EBITDA margin towards the armament of EBITDA, but also to start focusing on generating some free cash flow, right? That's what really my goal is, right? And so we have done, I think, very nice improvement in Q3, Q4, and I think that will definitely keep on happening in 19 and 20, right?

Okay. I appreciate the color. Just to follow up on the CapEx side, do you think that in maybe the midterm or the long term, as a percentage of revenue, maybe CapEx could come down to kind of the mid-single digit? kind of when this ramp is over? And also, how would the potential launch of, you know, the 797 or NMA, how would that impact the outlook for CapEx?

I think, you know, to answer your question, I think that, you know, I view with you the once we have brought in the equipment to support the growth of this F-33K, the F-35. We have to keep on bringing equipment this year for the G-9X. Don't forget that we are producing the fan cases of the G-9X, which we put in service for aircraft in 2019. We keep on receiving equipment. We're going to have to think Also, as you just mentioned about the potential, right, UHBR, the NMA, which could play both on the engine and also on the airframe side, you know, I think about in the range of $60 million a year, right? I think it's a fair number to keep in mind, right? I mean, the 60, right? For the total company, right? For the total company, total company, right? Okay. Yeah.

That's very helpful. Last one for me, and I appreciate all the color. This Airbus Emirates news about, you know, they're talking about the A380. How are you guys thinking about that? Is it too early for you to comment on it or just wondering what the potential financial impact could be to you if, you know, the rate on the A380 ends up coming down, you know?

Well, I mean, I'm not worried at all about the A380. You know, it's not. I mean, for some of us who know pretty well the aerospace industry, that's not a very big news, right? We knew it would come one day or another, right? So we have a very marginal, right, you know, content on the A380, so very, very marginal from our Salt Lake City business. So, I mean, for us it has absolutely no impact. Actually, I look forward to an increase, I would say, at Airbus, an increase in rate of the A350. because we have some potential, maybe some potential business to play there, right? I mean, from our Salt Lake City business, right? So an increase in A350 or an increase in BRES of the A330 NEO would be actually quite good news for us, right? So I'm rather pleased with the news, right?

Got it. Got it. Very helpful. Thank you, guys. Okay.

You're very welcome. Nice to talk to you.

And as a reminder, ladies and gentlemen, if you do have questions, please press star then one on your touchstone phone at this time. We'll go next to the line of Mitchell Brevik with Thai Capital. Go ahead.

Good morning. Good morning. Nice to have you.

Thank you. So you talked about, you know, a lot of analysts have called and talked about the possibility of new winds in the future. Just based on the pipeline, can you give us a range of what that those new wins could equate to as far as, you know, dollar size?

Well, first of all, you have to think about which horizon, right, where you're talking about, right? I mean, actually, I think if you – I guess your question is more related to 2020, right? And beyond, yeah. Yeah, 2020, I would say that, you know – Depending on the timing, right, of those anticipated new share gains or new first-time content acquisition on existing platforms that are ramping up today, I think if everything was to materialize on time, the probability rate that we took in our calculation that would give us roughly That would bring us to the upper side of my range, right, of 550. It's about $25 million, right, you know, of upside, right, toward the 550, right? That's what I view as of today, right? Okay. All right. Thank you. You're welcome.

We do have a follow-up question from the line of John Fransred with Sedodian Company. Go ahead, please.

Maybe to ask a previous question a different way. The target margin for AEC has been that range for a while. Olivier, when you were at Alcoa, you were known for improving productivity at existing operations. You've been there a year now. My question is, do you think that the AEC business is operating at optimal productivity or is there a margin improvement opportunity based on your view on how the business is performing right now versus maybe a couple years from now?

Listen, I mean, there are always, right, productivity improvements to be achieved, right? And I think, listen, how could I summarize it? I feel much more comfortable today. About $100 million, they beat that target in 2020. than I was a year ago when I saw the business operating at $30 million EBITDA, right, an 11% EBITDA margin, right? So I think you agree with me that all the systems that we have deployed, all the metrics and all our operating systems that we have put in place, draw, write, double, right, of course there's some volume as well, but executing on the ramp-up plus putting the productivity programs in place, helped us going to $63 million. That's about 17.1%. If I look at my past experience of EBITDA margin improvement across aerospace businesses, I think that targeting one point to one point and a half you know, of EBITDA improvement is a good range, right? That's what I've been doing the past 10, 15 years across casting businesses, forging businesses, fasteners, and so on. So, you know, we're at 17, you know, at a point and a half, you know, to three points, about three points max, right, after two years. So that's why I'm pretty comfortable about the, you know, delivering, right, in the 18 to 20% range, right? And then from there, we'll continue growing, right, in the out years, right? Okay?

Okay, fair enough. I'll give it a shot. Thank you, sir. Thank you.

We have no further questions in queue at this time. You may proceed.

Well, again, thank you all for joining the call. We appreciate your time today and your continued interest in Albany International. I would like also to congratulate my Albany team on a strong finish to 2018. Thank you.

And ladies and gentlemen, a replay of this conference call will be available at the Albany International website beginning at approximately noon Eastern time today. That does conclude your conference call for today. Thank you for your participation and for using AT&T Executive Teleconference Service. You may now disconnect.