Constellium SE

Ladies and gentlemen, thank you for standing by, and welcome to the Constellium First Quarter 2021 Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. To ask a question during the session, you'll need to press star 1 on your telephone. Please be advised that today's conference may be recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Brian Wendling, Head of Investor Relations. Please go ahead.

Thank you, Operator. I would like to welcome everyone to our first quarter 2021 earnings call. On the call today are our Chief Executive Officer, Jean-Marc Germain, and our Chief Financial Officer, Peter Matt. After the presentation, we will have a Q&A session. 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 filings. 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, and may involve known and unknown risks and uncertainties. For a summary of specific risk factors that could cause results to differ materially from those expressed in the forward-looking statements, please refer to the factors presented under the heading Risk Factors in our annual report on Form 20-F. All information in this presentation is as of the date of the presentation. We undertake no obligation to update or revise any forward-looking statement. As a result of new information, future events are otherwise accepted as required by law. In addition, today's presentation includes information regarding certain non-GAAP financial measures, Please see the reconciliations of non-GAAP financial measures attached in today's slide presentation, which supplement our IFRS disclosures. I would now like to hand the call over to Jean-Marc.

Jean- Thank you, Ryan, and good morning, good afternoon, everyone. Thank you for your interest in Concelium. I'd like to turn to slide five and discuss the highlights from our first quarter results. Shipments were 385,000 tons. That's down 2 percent compared to the first quarter of 2020. This decline was primarily as a result of lower aerospace shipments and lower packaging shipments from the strike and adverse weather in mussel shoals. I want to highlight that our automotive shipments increased 10% year over year, and both rolled and extruded automotive shipments reached record levels, despite the automotive shutdowns in the quarter resulting from the shortage of semiconductors. Revenue decreased 7% to 1.3 billion euros. This decline was primarily due to weaker price and mix and lower shipments in aerospace, partially offset by higher metal prices. Remember, while our revenues are affected by changes in metal prices, we operate a pass-through business model, which minimizes our exposure to metal risk. Our net income of 48 million euros compares to a net loss of 31 million euros in the first quarter of 2020. As you can see in the bridge on the top right, adjusted EBITDA was 121 million euros, a decline of 26 million euros, driven by lower results at ANT from weak aerospace demand, partially offset by stronger performance at ASNI and PARC. These results include more than 10 million euros of negative impact from a combination of the strike at Muscle Shoals, adverse weather in the U.S. Southeast, and the effect of the semiconductor shortage on automotive production. Free cash flow was strong at 46 million euros in the quarter. As you can see in the chart at the bottom right, we have delivered significant and consistent free cash flow over the past two years. We look forward to extending our track record in the coming quarters and years. Now, let's turn to slide six, and let's look at our sustainability performance in 2020. At Constellium, the health and safety of our employees is our top priority. Our safety results are among the best in the industry, and we remain committed to continuous improvement. Constellium achieved a record low recordable case rate of 1.82 incidents per million hours worked in 2020. While this is something to be proud of, we will continue to push for further improvement. I also want to highlight our 33% reduction in waste sent to landfills compared to 2015, and specifically call out our team at Muscle Shoals for an excellent job. Despite showing improvement in energy efficiency, our result was significantly negatively impacted by lower levels of production due to the COVID pandemic. We look forward to getting back on track toward our target of a 10% reduction from 2015 levels. Coastalium continues to receive external recognition of our sustainability efforts. We received AS&I certifications at our plants in Zingen, Neuf-Prisac, D'Alenfeld, and Gottmaningen. Further, we achieved the Ecovallis Platinum rating, a AA rating from MSCI, and Prime from ISS. Next, I would like to provide our 2020 results for the two sustainability performance targets, or SPTs, contained within our landmark sustainability-linked bond. For greenhouse gas emissions intensity, we reached 0.732 tons of CO2 equivalent per ton of sales. This improvement was despite lower operating levels at our plants that negatively impacted our results. For recycled input, our use of recycled aluminum declined roughly 6% from 2019 to 586,000 tons. This was due to lower activity and shipment levels in 2020 from the COVID-19 pandemic. As we announced in February, we expect to achieve our target of 685,000 tons of recycled input primarily through an investment in recycling capacity in Europe. We remain on target to hit each of these SPTs at the relevant measurement dates. Over the course of 2021, we will develop our 2030 sustainability strategy, which will establish a new set of sustainability targets and the steps to achieve them. With that, I will now hand the call over to Peter for further details on our financial performance.

Thank you, Jean-Marc, and thank you, everyone, for joining the call today. As Jean-Marc noted, group adjusted EBITDA for the first quarter of 2021 was 121 million euros. Turning now to slide eight, let's break down these results, starting with the PARP segment. Adjusted EBITDA of 68 million euros increased 3 percent compared to the first quarter of 2020. Volume was a 3 million euro headwind as shipments decreased 1% year over year. Packaging rolled product shipments declined 5% due to the one-time events at Muscle Shoals that John Mark mentioned. Automotive rolled product shipments increased 11% to a record 63,000 tons. Costs were a tailwind of 8 million euros primarily due to favorable metal costs, improved recovery, and reduced labor costs. FX Translation, which is non-cash, was a headwind of 3 million euros in the quarter due to the weaker U.S. dollar. Now, turn to slide nine, and let's focus on the A&T segment. Adjusted EBITDA of 19 million euros decreased 62 percent compared to the first quarter of 2020. Volume was a headwind of 32 million euros on 57 percent lower aerospace shipments year over year. In contrast, TID shipments increased 23 percent on strong demand in both U.S. and Europe. Price and mix was a headwind of 28 million euros due to a lower share of aerospace shipments relative to TID. Costs were a tailwind of 28 million euros primarily related to lower maintenance and labor costs and favorable metal costs. FX translation was a 1 million euro headwind in the quarter. Now turn to slide 10, and let's focus on the AS&I segment. Adjusted EBITDA of 38 million euros increased 10 percent compared to the first quarter of 2020. Volume was a 6 million euro tailwind on strong demand. Automotive extruded shipments increased 9 percent to a record 34,000 tons, while industry-extruded shipments increased 6%. Price and mix was a €5 million headwind, primarily from the industry business. Costs were a €3 million tailwind on strong cost control, notably lower labor costs. I want to highlight our €540 per ton of adjusted EBITDA, which is back to our historical levels of profitability. Now turn to slide 11, where I want to highlight our continued strong performance on cost across each of our businesses and at corporate. PARP delivered strong cost performance despite several extraordinary events. A&T continues to manage costs very well despite lower levels of aerospace shipments. And AS&I also performed well despite higher levels of activity. In the first quarter of 2021, we flexed our costs by 73%. Cost flex, you will recall, represents the change of costs over the change of revenues. Excluding metal and depreciation, we reduced costs by approximately 55 million euros compared to the first quarter of 2020, notably on lower labor costs, maintenance costs, and professional fees. We continue to work on reducing costs of our capital structure. Our February refinancing reduced our run rate cash interest by approximately 20 million euros. We will continue to evaluate opportunities to further optimize our capital structure costs. And I want to commend the entire Constellium team for its continued discipline around costs. Now, I'd like to provide an update on Horizon 22. Horizon 22 is actually a number of strategic business optimization initiatives. On our structural cost savings initiative, we now expect to deliver our 75 million euro target by the end of 2021, a full year earlier than targeted. With COVID-19 hopefully moving into the background, we have reinvigorated our efforts around a number of initiatives, including metal savings, operational excellence, and procurement savings. We strongly believe that each of these initiatives provide years of cost improvement opportunities. We look forward to continuing to update you on our progress, and I remain excited about the significant opportunities that are in front of us. Now, let's turn to slide 12 and discuss our balance sheet and liquidity position. At the end of the first quarter, our net debt was 2 billion euros. This was flat compared to the end of 2020, as unfavorable non-cash FX translation offset 46 million euros of free cash flow generation in the quarter. We remain committed to deleveraging. At the end of the first quarter, our leverage was 4.6 times compared to 4.3 times at the end of 2020. This increase in leverage is primarily due to a lower adjusted EBITDA contribution from aerospace and unfavorable FX translation due to the weaker US dollar in the first quarter of 2021 compared to the first quarter of the prior year. We expect to resume our deleveraging in Q2 2021 as we replace a heavily COVID impacted second quarter of 2020 with a stronger result in the second quarter of this year. We expect leverage to be well below four times by the end of 2021. And finally, we do remain committed to our long-term leverage target of 2.5 times. As you can see in our debt summary on the bottom left-hand side of the page, we have no bond maturities until 2024. I would also like to highlight that we recently completed the extension of the maturity of our pan-US ABL to 2026. Our liquidity was very strong, at 982 million euros as of the end of the first quarter, despite deploying approximately 150 million euros toward gross debt reduction during the February refinancing. As the threat of COVID subsides, we expect to gradually reduce our liquidity balance to more normal levels over the course of 2021 and 2022. We remain firmly committed to free cash flow generation and gross debt reduction.

And I'll now hand the call back to Jean-Marc. Thank you, Peter. Let's turn to slide 14, please. I want to highlight our diverse and balanced portfolio of end market exposures. Approximately 80% of our LTM revenue targeted markets with secular growth characteristics. This secular growth is largely driven by sustainability megatrends, including light weighting in transportation, the electrification of the automotive fleet, and the development of a circular economy. We continue to believe that this aspect of our investment story is underappreciated by investors. So turn now to packaging. Packaging is a core market for Constellium and represented 41% of our LTM revenue. Demand from our can customers remains strong in both North America and Europe. Cans are convenient, marketable, and sustainable. and consumers increasingly prefer cans. In order to meet this demand, our customers have announced new lines in both the U.S. and Europe. These new lines are expected to drive demand growth for can sheet for years to come. Now, let's move to automotive. Automotive represented 28% of our LTM revenues. Constellium is well positioned in both sheet and extrusions, to realize the benefits of the secular shift to aluminum in automotive and the electrification of the automotive fleet. We expect continued efforts to lightweight will drive demand for our automotive products, including auto body sheets, crash management systems, and battery enclosures. In the near term, demand from our automotive customers remains strong. and we have thus far seen only a limited impact from the shortage of semiconductors. Where possible, OEMs are prioritizing the production of light trucks, SUVs, and luxury cars, where end consumer demand remains strongest and where costellium is most present. Based on our current visibility of the semiconductor shortage, we expect to have an impact in the second quarter similar to what we experienced in the first quarter. we will closely monitor automotive market trends. Let's turn now to aerospace. Aerospace represented 9% of our LTM revenues. We remain confident that long-term fundamentals driving aerospace demand growth remain intact, including growing passenger traffic and greater demand for new, more fuel-efficient aircraft. Aerospace OEMs have maintained reduced build rates. Our aerospace shipments continue to be at levels below build rates, which suggests the supply chain continues to be stocking. While we are seeing encouraging signs, including increased passenger traffic in the U.S., this has not yet translated into more orders in our order book, but this can change quickly, and we are prepared to meet higher demands. In other specialties, we continue to execute on our strategy of expanding in niche products in a diversified range of markets. In general, these markets are dependent upon the health of the industrial economy in Europe and North America and are benefiting from a strong post-COVID economic rebound and recent trade actions. In TID, markets are strong in both North America and Europe. In European exclusions, Demand is very strong across most end markets. Turning now to slide 15, we detail our key messages and financial guidance. Constellium delivered solid performance in the first quarter of 2021. We exceeded the adjusted EBITDA guidance range that we provided in February. We continued to deliver strong cost performance across each of our businesses. We also extended our track record of consistent and significant free cash flow generation. As I mentioned earlier, I believe there are many opportunities for Constellium to benefit from very real sustainability-driven megatrends. These trends can provide demand growth in our end markets for years to come. I remain optimistic about our prospects for 2021. We are now providing full-year guidance for both adjusted EBITDA and free cash flow. For the full year of 2021, we expect just to be dealt between 510 and 530 million euros and free cash flow in excess of 100 million euros. As a result, we expect to make substantial progress in our deleveraging objective in 2021. As always, we remain committed to the safety of our people, operational execution, free cash flow generation, discipline capital deployment, and shareholder value creation. With that, operator, we will now open the Q&A session.

Thank you. As a reminder, to ask a question, you'll need to press star 1 on your telephone. To withdraw your question, press the pound key. Please stand by. We'll compile the Q&A roster. Our first question comes from Kurt Woodward with Credit Suisse. You may proceed with your question.

Thanks. Good morning, John, Mark, and Peter.

Good morning, Kurt.

I was wondering if you could quantify some of the headwinds you experienced in the first quarter between the strike and some of the impacts on auto and the chip shortage. And it seems like, you know, with respect to the guidance, you're assuming, at least at this point, not much change in order entry in aerospace, and I assume some continued, you know, maybe challenges on auto with respect to semiconductors. So I was wondering if you could also just provide a little bit more granular detail, if you could, on the guidance on those guys.

Yeah, so, Kurt, I can start, and then maybe Jean-Marc can jump in. So, in the first quarter... Sorry, can you hear me? Okay.

Yes.

In the first quarter, the headwind that we've talked about is about, you know, kind of 10 million plus. It's somewhere in that range as a result of the challenges at Muscle Shoals, the bad weather at Muscle Shoals, and then also the chip issue, which affects, obviously... kind of our auto businesses in PARP and in AS&I. The other thing, too, to highlight in terms of headwinds, if you think about this on a year-over-year basis, is A&T, right? Because, you know, when you look at the delta year-over-year, obviously the aerospace business was way down relative to last year. And I think that, you know, kind of articulates really the biggest delta in the year-over-year business. change that we have.

Yeah.

And I think, Kurt, when you look forward, the two issues in my socials, the weather and the strike, are behind us, obviously. And we said, you know, 10 million plus, so we didn't break down the three elements. But, you know, the third, the third, the third is the best way to not be wrong. So on a go-forward basis, we think in Q2 we should be exposed still to the semiconductor outage, so maybe, you know, a third of 10 would be the best way to kind of put a number around it. So it's not really material. I mean, we're explaining it because there's a lot of talk, obviously, in the press. We see production lines going down. The impact that we see for Q2 for us is that amount, and I think over time the situation will improve. So not a material amount, but it is baked in our guidance.

And can you talk a little bit about your expectations for aerospace in the back half of the year? I mean, I think it's a little surprising that order entry hasn't picked up, given that we've had some pretty significant destocking, and then Airbus has been pretty clear about trying to take the build rate up in the back half of this year. So just curious what you're... Yeah.

No, I mean, it's absolutely true that the sentiment is improving. I mean, we see it in passenger traffic. We see it with our customers. trying to ramp up or planning to ramp up production we don't see it yet in the order book now all the book depending on you know the specs and all that is three to six months so it's very difficult to call an inflection right I would say you know it's difficult to see it in the next three to six months for us but it doesn't take us until the end of the year so it could happen at any time and I'll stop short of calling the inflection point we'll We're ready when it comes, and it's going to be very good for us. But we certainly do not see a further deterioration in our aerospace segment. Okay.

And then with respect to packaging, can you comment on, you know, progress you're making with respect to some of the contract renegotiation, I believe?

Yep.

Yep.

So we're –

Yes, so we're in very good shape. I've commented over the past few quarters that I was becoming more and more optimistic about pricing, and I continue to be. And now we're looking at, you know, what happens in 2023, 2024. That's really what we're focused on at the moment. And I see a continued trend towards, you know, better sharing of the value creation in the can sheet, the can making and, you know, supply chain. So that's good for us on a go-forward basis.

And do you see scope to increase your blinding capability there? I know that some of the deep bottlenecking at Muscle Shoals would get affected, but have you evaluated any longer-term potential upgrades to the mill to sort of increase output?

Yes, so we see continued opportunity for de-bottlenecking and increased shipments. Now, substantial de-bottlenecking, which would require substantial investment, will be conditional upon the execution of fully satisfactory contracts for that increased capacity with customers. So we're working on it. But even absent substantial step-up, we see a very nice gradual increase trend of improved pricing and improved volumes over the next three four years okay um and then just final one for me any updates on some of your ev initiatives with respect to you know either battery box development partnerships or just in general your penetration rate in that market thank you yeah so as you know we're very pleased with the uh progress we are seeing now, you know, firmly in the numbers in our AS&I segment. And Peter was highlighting that we are back to the historical levels of profitability. And that has come on the back of, you know, quite a bit of tightening of our operations and a focus on what projects we select and go after. So we have been very selective. As I mentioned in the past, battery technology, you know, not only the batteries themselves, right, but the casings of the boxes, right, how to assemble them, how to make them, is still nascent or emerging. So we have a couple of projects going on, but they are not yet a substantial part of either our – certainly not our results year-to-date and not even of our outlook. But we are planting the seeds, and we'll see how it grows. Great.

Thank you very much.

Thank you. Thank you. Our next question comes from Christian Georges with Society of Generali. You may proceed with your question.

Thank you very much. Good morning. Can I just keep going on what you were saying about the packaging, the bottlenecking, because the outlook seems to be improving steadily with regards to demand in Europe and the U.S. with some of the new-age drinks and indeed the new lines which are being installed. At what point does the market need to find some more supply, additional capacity to satisfy the demand?

Yes, it already does need more supply. And as you saw, Arconic is going back into a canned sheep from their mill in Tennessee. So it's a substantial increase in capacity in the North American market. And you've got overseas competitors emerging from different places in the world. So the market is not in a place where demand cannot be met, but all of us have a role to play at different times in the cycle, and depending on how the investments ramp up to continue to meet that demand, which you look at on a global basis, you could have a 50% growth in can sheets in the next five, seven years. all of us will be, you know, at different stages at the right time for each of us, will contribute to this expansion in Kenshin.

And, Christian, again, you know, as we've said in the past, the returns have got to be there for us to do it, right? So we're definitely not going to build and they will come. We're going to build in connection with kind of solid contracts and good visibility on the returns we can generate.

Great. And if we play some questions to your automotive grades, because obviously at the moment there's been a bit of a slowdown with the chips availability, but let's say we go back to normal underlying rates, which seem to be quite impressive now with evidence of the German car makers coming about on electric cars and so on. Here again, at what point, we saw that Adiris, sorry, Novalis, was going to be 60% of the U.S. market with Louisport. Are we looking here again at some needs in the medium term, short term, for more capacity for automotive role products?

Yeah, Christian, that's a good question. I mean, the same answer applies that Peter gave for Kenshi. We will expand our capacities when we are sure we get the right returns and they are underwritten by very strong customer contracts. We're not there yet. If you look at our current shipments, 63,000 tons in the first quarter of automotive sheets, we've got 300,000 tons of capacity globally, right? So we're not fully saturated, and for us, profitability returns come before revenue. So we want to make sure we maximize that. And then, as you know, there is a trade-off between how much can sheet, how much auto sheet we want to make, again, to optimize the overall return on capital for the company. And then after that, once all that is optimized, then we can ask ourselves, okay, are we ready to go for a significant expansion? We are not there yet, and we're really focused now on getting the returns from the investments we've made and maximizing the free cash flow generation and the returns to shareholders.

Okay, great. And then my last question is, I saw there were some more tariffs which were implemented, I think, in March in the U.S. for aluminum imports of a variety of kinds, in particular in Germany, I think. I mean, is there any impact on you for this? Is there any impact on your shipments going left or right, or is that neutral?

Yeah, no, so there is an impact. I mean, we're shipping from Germany to the U.S., so we're subject to tariffs. even though we were not dumping, but that's the law. But those volumes and this capacity was very much needed in Europe. So we were able to redeploy the capacity in Europe. And conversely, those anti-dumping duties were really targeted against some actors that were dumping. And this has created a more level playing field. So our operations in the US, especially out of Ravens, would have benefited from it because We are now competing against people that play by the same rules, and you see some of that in our TID performance with higher pricing and higher volumes. So overall, anti-dumping duties are a good thing for Constellium because they level the playing field, they are selected, targeted, and they tend to, you know, benefit those that play by the rules in the continent where they operate, and that's us.

So the positive, because those talks came about, I think, in March, so the positive impact would be more present in your U.S. operation in Q3, Q3, Q4?

Yeah, there is a process for these anti-dumping duties before they are levied that is quite public. So the beginning of, you know, the possibility of anti-dumping duties surfaced mid-last year. So, you know, at this point in time when, you know, an investigation is launched and then there's a first determination, you know, the supply chains adjust, right? And the customers look at it and say, oh, if I continue to buy there, I'm at risk. The suppliers also start reallocating their productions to other geographies. So it's a continual process. By the time they are actually levied, the market has already adapted.

Okay, thank you. Thank you very much.

You're welcome.

Thank you. Our next question goes from David Gagliano with PMO Capital Markets. You may proceed with your question.

Hi. Thanks for taking my questions. I just wanted to ask a bit of a longer-term question in terms of the pre-COVID target, 700 million euros, which was, I think, a target for 2022. Now that we're where we are in this process. And, you know, obviously packaging seems to be doing better and auto semiconductor issues aside, it sounds like it's probably back to where it was historically. So, you know, really the question is, what do you think it'll take to get back to that 700 million euro target, say, for example, by 2023? Yeah.

So, David, that's a good question. Good morning. So, as we mentioned, and I'll reiterate and I'll confirm what we mentioned in the prior calls, We, vis-à-vis our 700 million target, we are ahead in about every category except for aerospace. And as we discussed earlier, knowing when the infection happens and when aerospace goes back to a more normal level is, we feel, impossible to tell or certainly not ours to tell right now. So is it possible in 2023? We're all in, John, when aerospace starts to pick up. But as we said, we don't need aerospace to fully return to pre-COVID levels like we had in 2019, where our profitability in the segment was north of 200 million euros. Because, again, of the progress we've made, our cost progress is very spectacular. Peter was saying we're ahead of our target a full year. By a full year, at the end of 21, we'll have 75 million euros of fixed cost reduction locked in. We're ahead on can sheets, and more of the $700 million in can sheets didn't include some pricing benefits, which we will have going into 2022. Automotive, as you said, we've got to be a bit careful with the chip shortage and all that, but we're pretty much on track to better. And TID is also better now than we were expecting it to be. So all in all, I'm very confident about $700 Most of the ingredients to the 700, I just don't know when we get enough of aerospace to push us over the 700 million miles. But it will be there.

Okay, that's helpful. Not to, you know, press you on it too much, but I'm going to do it a little bit anyway. Just, I mean, given, you know, a lot of this is pointing in the right direction except aero, you know, the hesitancy to go back to that 700 million euro target, you know, by 2023, for example, is there anything else, you know, that's there that we should be thinking about? Or is it just a matter of, you know, when you start to see it forming in the order of books and arrow, then, well, then we'll, we'll get a reinstatement of that target.

I think it's clear to all of our investors that we tend to be cautious on guidance and we take it very seriously. So the fog has dissipated. Okay, the COVID fog has dissipated. That's why we started giving, you know, quarter, next quarter guidance. Now we feel more comfortable giving full year guidance. We don't feel comfortable yet giving, you know, the two, three year guidance we are used to giving. But we very much want to go back to that situation. And I just cannot tell you when that's going to be the case. I hope, you know, the visibility continues to improve. It certainly seems to be, but I can't make a promise in terms of when we'll be able to reinstate long-term guidance, David.

Yeah, perfectly understandable. Just really wanted to gauge your conviction, and that's really all I needed to hear. Thanks. I appreciate it.

Thank you. Thanks, David. Thank you. Our next question comes from Corinne Planchard with Deutsche Bank. You may proceed with your question.

Hey, good morning, guys. Thanks for taking my question. I just wanted to come back quickly on the guidance and just trying to clarify. You mentioned like about 10 million headwinds for 1Q and expected in 2Q. Does your full year guidance include that headwind only for 2Q or do you have anything embedded into the guidance for 3Q and 4Q?

Yeah, so good morning, Corinne. So the 10 million of headwind in Q1 is actually less of that in Q2 because we don't have the strike anymore. We don't have the bad weather anymore. So it's just a fraction of that, right? I think I mentioned earlier, 3 million maybe in Q2. And I think that's why we have a range of 510 to 530, right? So there may be a little bit of that still in the second half of the year, but not much.

Okay. I mean, so you don't, I mean, you know, if you look into the industry, I think there is a lot of data obviously coming out in the past weeks or so. And, you know, with all the OEM closing some of the facility for May. And I think that the overall, the view is the impact could be lagging into 3Q, 4Q and potentially 2022. Would you mind just like maybe giving your view on this or is it too early for you to comment on this?

Yeah, so I think the closures that we know about, that we've seen in the press, all that is accounted for in our guidance. Now, if a specific line ends up being shut down for nine months, obviously that's not included in our guidance, but we don't think it's highly probable. So that's where I would... I would leave it. I mean, the kind of disruptions we're seeing now, if they were to continue and, you know, so lines stretch, you know, a couple of weeks every quarter, I think that's embedded within the range we've given. Definitely.

Okay. Okay. I just have one more question, and then that's more on the cost. Just trying to, I know you mentioned the $75 million, and that would be by this, realized by this year. one year in advance from what you had initially thought. But just how much of those cost improvements are permanent? Is that something that we can just take into account going forward? And is there anything that you can add in 2022 or 2023, which, you know, coming back to the previous question, would maybe bring you closer to the target of $700 million?

Yeah, so the $75 million that we talk about, these are structural cost reductions. So they're either fixed cost reductions or they're variable cost reductions where we're kind of structurally changing something. So it's a sustainable cost reduction. Hopefully, one thing that you've gathered from what we've said so far is that this is a target that we've achieved. But we'll be kind of putting together additional targets, and we do think we've got a long runway of other kind of cost-saving initiatives to layer in over time that are going to, as I said in my prepared comments, are going to help us for years to come here. So, yeah, you should assume they're permanent. And, I mean, there are some inflationary pressures in the business in different places, but they're really, you know, fairly limited at this point. So we feel pretty good about the ability to sustain them.

Okay. Thank you. I mean, if I may, just one last, and it's not on the free cash flow question, I know you guys guided $100 million or above, but any clarification on the timing throughout the year? I mean, if you look in one queue, you already achieved about half of this with $46 million. Do you expect 2Q and 3Q to maybe be like minimal free cash flow, or would you expect to be well above the $100 million target?

Well, I think, again, our guidance is 100, right, or more than 100. So, you know, I think you should assume that it's spread more or less evenly over the time for the time being. As we kind of work hard over the course of the next several quarters, we're going to try to beat that number, obviously. But today, we wouldn't commit to more than, you know, kind of greater than 100 million.

And Corinne, you may have noted our capital expenditures in the first quarter are pretty low compared to our full year guidance. And that's usual, right? You tend to have more shutdowns, outages, maintenance, big projects being done in the summer months and the holidays break, right? So we benefited from that on the free cash flow in the first quarter. We won't have that benefit in because we'll be catching up on CapEx in the second part of the year.

Okay, that makes sense. Thank you, Gary. Nice to meet you.

Of course. Thank you. Thank you. Our next question comes from Josh Sullivan with the Benchmark. You may proceed with your question. Hey, good morning. Hey, Josh.

Can you just update us on the investments with the UVC recycling you previously outlined? And just how does that expansion into recycling play into overall capacity? You know, does it help with some of the bottlenecks in expanding can sheet at all?

Yes, Josh. So it's not only a UBC recycling. It's also an automotive recycling project. We are in the final stages of the detailed engineering. So we should be able to announce, you know, location and all that soon. you know, well before the end of the year, no doubt about it. It will not help the can sheet volumes, but it will lower the cost base for can sheet as a recycled metal is less expensive than primary metal. It will also help us on the automotive side secure more business, make the business more sticky with customers because More and more customers in automotive are looking for closed-loop recycling where they can send back their process scrap to the original mill. You think of it, you know, we send them coils or blanks, and they stamp a door out of a blank. Obviously, you've got process scrap here. You come back, you create a circular closed-loop recycling. It's good for everybody. So we expect that to help us be... lower cost, lower carbon footprint, obviously, because we're displacing primary metal, and closer connectivity relationship with our customers. All that helps with the revenues, but it does help mostly with the cost side.

Go ahead. Can you just talk a little bit about the recovery in AS&I? Was that mostly driven by the industrial recovery, Europe, overhead absorption costs, new auto programs? Just some more color there just on the recovery was a little better than we had expected.

Yes, all of the above, Josh. I mean, we were, you know, I was very happy a year ago, March of, just before the 7th of March, I guess. With the progress made at ASNI, and quite frankly, if it hadn't been for COVID, those numbers we're seeing now, we would have seen much sooner, right? Six, nine months sooner. So, yeah, it's, you know, good execution on the programs, on the new projects, good executions on the existing business, reduction in waste, improvement in speed and efficiency, better mix of projects as well. But that plays only to... To a small extent, as you know, most of these projects are five, seven years in duration. So in any given year, you only renew 15% or 20% of the business. So the team is covering now all the bases. They're delivering strong performance. And I believe that margin can continue to expand in the future.

Got it. And then just one last one on it. On A&T, you note some strength in European defense, and I guess defense in general. Can you just highlight some of the programs there that are showing some strength?

It's really across the board. I mean, defense is strong, and we've commented on it being strong, you know, through the crisis, from before the crisis. But we're seeing a lot of activity also in – In the industrial space, in the mold space, in the engineered plates for very advanced machinery like semiconductor manufacturing and all that. We provide plates of which the machinery that makes the semiconductors are made. We see a strength in recreational manufacturing. segments in the U.S., like pleasure boats. We see strengths in transportation around the tractor trailers. So it's really across the board. It's a very wide and broad recovery we're seeing on both sides of the Atlantic.

And, Josh, just to remind you, the defense tons, they're small tons, but they're highly remunerative, right? So it's...

Got it. Thank you. Thank you for your time.

Thank you. Thank you. Our next question comes from Sean Wondrak with Deutsche Bank. You may proceed with your question.

Hey, guys. Nice quarter, and congrats on moving up your horizon goal a year early. That's great. A couple questions from you. We've been hearing many companies have been having a difficult time rehiring or hiring laborers. Are you seeing that anywhere in the U.S. or elsewhere in your markets?

Yes, we have. It's put a little bit of a constraint on some of our operations. We have lost some sales, but on a very sporadic basis because we couldn't rehire quickly enough or train people quickly enough. It's not a massive headwind. It's really more of the anecdotal at this stage, but we are watching it very carefully, and we are being a little bit more prudent, and we're trying to hire, even if we don't need it right now, so that we have the resources secure, because we're quite optimistic about what's coming at us for the rest of the year.

Right, that makes sense. Are you only seeing that in the U.S., or are you also seeing that in other markets?

It's more pronounced in the U.S., definitely, but there is some evidence also in Europe, and there's also an element which is with all the welfare benefits and all that that we see on both sides of the Atlantic, for some people it's better to stay unemployed than to go back to work, quite frankly. So that's also a bit of a challenge that happens on both sides of the ocean.

Well, it's good to hear you're aware of it and keeping an eye on it, so it's good. And then just one more, if I could, on the recycling. Are there opportunities for you guys to expand recycling through tuck-in acquisitions in conjunction with your organic growth, which would, I guess, increase your internal consumption as you grow, or are you focused solely on greenfields at this point?

Yeah, so it's brownfields, really, for us.

Brownfields, excuse me.

We want to have it next to a plant where we've got the casting and the molten metal consequences, but... Yes, acquisitions can be looked at. It's all a matter of, you know, what makes the most sense from a capital deployment standpoint. And obviously, you know, when you buy something that's already working, you accelerate the ramp up. But at the same time, it's got to be a, you know, a facility that allows you to or allows us to make the products we need to make, which are more sophisticated than what you see in a lot of recycle-only shops, right, where you've got... The specs are not as tight as what we are looking for. But we're keeping our ears to the ground, and should an opportunity arise, we'll look at it and benchmark it against what we need to do internally, how much is it costing.

Right. It's great to hear a lot of your markets are recovering. Thanks very much for answering my question.

Thank you, Sean. Thank you. Our next question comes from Carl Blunden with Goldman Sachs. You may proceed with your question.

Good morning and thanks for the time. Good morning, Colin. You've spoken a lot about aerospace and we're seeing some travel return, but the order rate is still relatively low. I guess the question is, have you changed your long-term assumptions about that end market or have you changed the amount of capital that you'd like to commit to that end market relative to the strong opportunities you're seeing in canned sheep and autos?

Yeah. So, Carl, we were not putting a tremendous amount of capital in aerospace. We have a very good industrial setup. We have, you know, very established positions with the OEMs. We've got a stronger IP portfolio. So, we were well-tooled for aerospace. and we certainly want to continue to take care of our assets and assets and maintain them but we are not in need to put a lot of capsule in the ground for expansion or new products in aerospace we've got everything we need so regarding the first part of your question which is does it lead us to re-evaluate our long-term outlook on aerospace Not yet, I mean, we are in the process of working on a strategic plan now, and we'll have discussions with our board by the end of the year. But we, at this stage, we continue to see aerospace as a secular growth market for us. And it's easy to say that even where we're starting from, right, which is 50% down compared to where we were. But I do think aluminum has a lot of potential in the future. as a material of choice, and I do think that we'll see our travel resume growth. There is a lot of debate about whether business travel will come back to the same levels as in the past, and maybe it's going to be a longer recovery, but there is more and more economic activity. There is still the need for people to meet. There are more and more business people in the world, and maybe each of us will travel a little bit less, but there will be many more of us. And when you take the 10-year view, I think we still have a very favorable market for aerospace and for aluminum in aerospace. But again, that's our thinking at this stage. And quite frankly, it doesn't have dramatic implications for us because, as I mentioned, we have what we need to be able to seize the opportunities when they come back.

So to revisit, you mentioned Arconic with the non-compete rolling off can now compete for some contracts in CanSheet. It sounds like it's not impacting the pricing or margin opportunities in the space at this point in time. Is that something that you'd expect to continue just given the well-balanced supply and demand or these tight conditions? Or are there any risks to that outlook we should be aware of?

I mean, things are never linear, right? So there's always bumps in the road. But I think Arconic is a very disciplined organization. They are very focused on the capital allocation and shoulder value creation, I'm sure, as well. So there's a price at which it makes sense to make end sheets, and there's a price at which it doesn't make sense. And we all operate in basically the same roles.

Finally, maybe this one's more for... for Peter. On the balance sheet, I think you've done well with some liability management transactions, accessing different parts of the debt market. But as you look at it today, there's quite a bit of callable debt. Where does that fit in in terms of priorities? Do you want to put a couple of stronger quarters behind you first, or do you find capital market conditions to be attractive as they are today?

Yeah, thanks. So you're right, we do have quite a bit of callable debt outstanding. The way we look at it is we've got a lot of tools to potentially use, and we're going to be opportunistic. And I think one of the nice things that we've done as a company is we've kind of put ourselves in a position to be opportunistic. The nearest maturity we have is in 2024. So, you know, as we expect to be free cash flow positive, We're going to use some portion of that to repay debt. We will, from time to time, look at liability management transactions where we can create significant savings. And one of the things we're really focused on is bringing our cash interest down to a number that's less than 100. And so that's something we'll continue to chip away at through some of these opportunities and some of the debt repayments. We don't have any definitive plans right now to access the markets.

That's a helpful framework. Thanks, Peter.

Yep. Thank you. Our next question comes from Kurt Woodward with Credit Suisse. You may proceed with your question. If your line is on mute, please unmute.

Yeah.

Hey, Kurt?

Yeah, can you hear me?

Yes, we can now.

Okay, sorry. Just a question on metal pass-through. When you look at LME, premiums are obviously up pretty significantly, but on top of that, you know, shape premiums, billet premiums up as well. Is there any timing issue with respect to potential margin squeeze on that, or do you have full pass-through as you look forward?

Yeah. So generally speaking, remember, as Jean-Marc said in his prepared remarks, we pass through the cost of metal. So higher metal prices typically mean for us, assuming stable scrap spreads, that they mean slightly kind of better profitability falls to EBITDA. So we have a benefit there. We do have some instances where in the kind of short term because they tend to be shorter contracts where we don't have the ability to pass through premiums. But these tend to be, you know, kind of six to 12-month contracts. And when we go back to renegotiate the contracts, we tend to get all or some of that back. So, again, from a base kind of metal standpoint, we feel we're in pretty good shape from that vantage point and should be able to avoid margin squeeze. With respect to billet premium, you are right, billet premiums are higher. In most of our businesses, we can pass through the billet premium. So we do have some instances where we cannot, and that's a negotiation that we have with our customers. But generally speaking, we can pass that through. Thank you.

Thank you. And I'm not showing any further questions at this time. I would now like to turn the call back over to Jean-Marc Germain, CEO of Constellium, for any closing remarks.

Well, thank you, everybody, for attending the call. And, again, we look forward to updating you on our progress towards our newly issued guidance in July. Thank you so much. Have a good day.

Thank you, ladies and gentlemen. This concludes today's conference call. Thank you for participating. You may now disconnect.