Constellium SE

Hello and welcome to the Constellium fourth quarter and full year 2024 results conference call. My name is Alex and I'll be coordinating the call today. If you'd like to ask a question once the presentation has finished, please press star followed by one on your telephone keypad. I'll now hand it over to your host, Jason Hershiser, Director of Investor Relations. Please go ahead.

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 Mark Germain, and our Chief Financial Officer, Jack Guo. After the presentation, we will have a Q&A session. 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. 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 20F AND IN FUTURE FILINGS UNDER FORM 10K. ALL INFORMATION IN THIS PRESENTATION IS AS OF THE DATE OF THE PRESENTATION. WE UNDERTAKE NO OBLIGATION TO UPDATE OR REVISE ANY FORWARD-LOOKING STATEMENT AS A RESULT OF NEW INFORMATION, FUTURE EVENTS, OR OTHERWISE, EXCEPT AS REQUIRED BY LAW. In addition, today's presentation includes information regarding certain non-GAAP financial measures. Please see the reconciliations of non-GAAP financial measures attached in today's slide presentation, which supplement our GAAP disclosures. 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 new definition will no longer exclude the non-cash impact of metal price lag. We will continue to provide investors and other stakeholders with a non-cash metal price lag impact that is necessary to get a true assessment of the economic performance of the business. Our segment adjusted EBITDA will continue to exclude this impact and any guidance we provide for adjusted EBITDA will also exclude the impact. And with that, I would now like to hand the call over to John Mark.

Thank you, Jason. Good morning. Good afternoon, everyone. And thank you for your interest in Constellium. Let's begin on slide five. I want to start with safety, our number one priority. Our recordable case rate for the year of 2.0 per 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. We are committed to achieving our safety target to reduce our recordable case rate to 1.5. Now let's turn to slide six and discuss the highlights from our fourth quarter performance. Shipments were 328,000 tons, down 2% compared to the fourth quarter of 2023, mainly due to lower shipments in ANT and ASNI. Revenue of $1.7 billion decreased 1% compared to the fourth quarter of 2023. primarily due to lower shipments and unfavorable price and mix, 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 price risk. Our net loss of $47 million in a quarter compares to net income of $5 million in the fourth quarter of 2023. Adjusted EBITDA was $125 million in the quarter, though this includes a negative impact at valet of $15 million as a result of the flood. This also includes a positive non-cash impact from metal price lag of $27 million. If we exclude the impact of the flood and the impact of metal price lag, as Jason mentioned earlier, the real economic performance of the business reflects adjusted EBITDA of $113 million in the quarter compared to the $178 million we achieved in the fourth quarter of 2023. Cash from operations was $61 million in the quarter, and I am pleased to report that we continued our share buyback program. During the quarter, we returned $18 million to shareholders through the repurchase of 1.6 million shares. Before turning to our full year performance, I wanted to give you a quick update on the flooding situation in the Valley. As of today, the business is on track to complete production ramp up by the end of the first quarter this year, which is in line with our prior expectations. As we mentioned last quarter, we expect some cost impact in 2025 as production will continue to ramp up and we expect to receive the remaining portion of the insurance proceeds in 2025 as well. While the impact of the flood had a material impact on our business, I am pleased that the total damages from the event came in below our original insurance gross damage assessment and we will be able to put the event in the rearview mirror very soon. Now turn to slide 7 for our full year highlights. For the full year, shipments were 1.4 million tons or down 4% compared to 2023. 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. Our net income of $60 million compares to net income of $157 million in 2023. Adjusted EBITDA was $623 million for the full year in 2024, though this includes a negative impact at valet of $33 million as a result of the flood. This also includes a positive non-cash impact for metal price lag of $55 million. Again, if we exclude the impact of the flood and the impact of metal price lag, the real economic performance of the business reflects adjusted EBITDA of $601 million for the year, compared to the record $754 million we achieved in 2023. Given a change in year-over-year performance during 2024, 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. Moving now to free cash flow. Our free cash flow for the year was negative $100 million in 2024. If you exclude the impact of the Valley Flood and include cash received for the collection of deferred purchase price receivables, Free cash flow would have been positive $30 million in 2024, which Jack will cover in more detail. Our leverage at the end of 2024 was 3.1 times. If we exclude the valley flood impact, leverage was 2.9 times at the end of 2024. Clearly, 2024 was a very challenging year for Constellium on many fronts. The year began with the extreme cold weather and snow impacting operations at Mussel Shoals in January. and we experienced severe flooding at our facilities in the valley region in Switzerland during the summer. In addition, we faced market-driven headwinds starting in the second quarter last year, and which became more pronounced in the second half, including demand weakness across most of our end markets and significant tightening of scrub spreads in North America. I want to thank each of our 12,000 employees for their commitment, resilience, and relentless focus on serving our customers during these difficult times. On a more positive note, I am pleased that we started up our new recycling and casting center in Neuf-Brisac 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. 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 on 410 . 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 tariffs and how we see the potential impact to Costellium. Before going into details on the slide, let me summarize a bit. The tariff situation is a fluid and multifaceted situation. We see both some positive and negative impacts on our business. And at this stage, we believe it presents us with various opportunities. The guidance we are giving today does not include any impacts from tariffs. Shifting to the details on the slide now, on the production side, we are mostly local for local in the regions where we operate. We have a joint venture in Canada that provides extrusions to our automotive structures business in the U.S., and these extrusions will become more expensive under Section 232 tariffs. In aerospace, we ship small quantities from Europe to the U.S. to serve global OEMs, though this has a pass-through today and it will not be impacted. On the metal supply side, we import some primary aluminum from Canada, given the lack of smelter capacity in the US, and some of these imports will become more expensive. Commercial negotiations will be necessary to mitigate tariffs, and there may be a lag in passing additional costs through. In terms of scrap now, aluminum scrap is excluded from the current scope of Section 232 tariffs. We purchase most of our scrap needs from dealers in the US. The impact on scrap from tariffs could be a net positive as it could increase the availability of scrap in the US and scrap spreads could improve with a rise in the US regional premium for aluminum. Now, in terms of commercial impacts, these two could be a net positive for Constellium. Today, around 1 million tons of flat rolled aluminum imports are coming into the US. 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 US. We have some business in the U.S. that is priced quarterly, and we should benefit as soon as the second quarter of this year from the new market dynamics. 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 in the future, including the originally announced and then paused blanket tariffs on Canada and Mexico. The same logic should apply in terms of impact on aluminum, though the overall impact at this time is unknown. To close out on 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, though at this stage, we believe it presents us with some opportunities. With that, I will now hand the call over to Jack for further details on our financial performance.

Jack? Thank you, Jean-Marc, and thank you everyone for joining the call today. Please turn now to slide 10 and let's focus our A&T segment performance. Adjusted EBITDA of $56 million decreased 33% compared to the fourth quarter last year. Volume was a headwind of $3 million, mainly due to lower TID shipments, as commercial, transportation, and general industrial markets remained weak in the quarter. TID shipments were also impacted at Valet as a result of the flood. Shipments in aerospace were stable versus the same quarter last year, and demand in military aircraft remained healthy. Price and mix was a headwind of $19 million due to a softer pricing environment in TID and weaker aerospace mix in the quarter. During the fourth quarter, ANT had a negative impact of $5 million at valet as a result of the flood. For the full year of 2024, A&T generated adjusted EBITDA of $285 million, a decrease of 19% compared to a record 2023. The drivers of the full year performance were similar to those in the fourth quarter, except cost was a tailwind of $11 million for the full year, and the valet impact was a headwind of $13 million. Now turn to slide 11. Let's focus on our PARP segment performance. Adjusted EBITDA of $56 million decreased 34% compared to the fourth quarter last year. Volume was a tailwind of $1 million as higher shipments in packaging were mostly offset by lower shipments in automotive. Packaging shipments increased 4% in the quarter versus last year as demand remained healthy in both North America and Europe. Automotive shipments decreased 10% in the quarter with weakness in both North America and Europe. Price and mix was a headwind of $5 million, mainly as a result of weaker mix in the quarter. 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. 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. The fourth quarter of 2023 also benefited from energy-related grants in Europe, which did not repeat to the same degree in 2024. For the full year 2024, PARC generated a just EBITDA of $242 million, a decrease of 21% compared to 2023. The drivers of the full year performance were similar to those in the fourth quarter. Now, turn to slide 12, and let's focus on the AS&I segment. Adjusted EBITDA of $4 million decreased 83% compared to the fourth quarter of last year. Volume was a $7 million headwind as a result of lower shipments in automotive and industry extruded products. Automotive shipments were down 12% in the quarter, with weakness in both North America and Europe. Industry shipments were down 17% in the quarter versus last year as weakness persisted in Europe. Industry shipments were also impacted at ballet as a result of the flood. Price and mix was a $2 million tailwind in the quarter, while costs were a headwind of $2 million. FX and other was also a headwind of $2 million in the quarter. During the fourth quarter, AS&I had a negative impact of $10 million at Ballet as a result of the flood. For the full year 2024, AS&I generated a just EBITDA of $74 million, a decrease of 43% compared to 2023. Volume, FX, and other were similar impacts in the full year as the fourth quarter, though 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. It is not on the slide here, but our holdings and corporate expense for the full year in 2024 was $33 million, up $2 million from last year. We currently expect holdings and corporate expense to run at approximately $40 million in 2025. It is also not on the slide here, but I wanted to summarize the current cost environment we're facing. 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. Other metal costs, we experienced a dramatic tightening of scrap spreads in North America in 2024. We expect this to continue throughout 2025 and will create headwinds on metal costs, primarily impacting our park segment as it uses a significant amount of used beverage cans and other types of scrap. For energy, our 2025 costs are moderately more favorable compared to 2024, although energy prices remain above historical averages. other inflationary pressures have eased to more normal levels. And as we said last quarter, 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 headcounts and other labor costs, reducing non-metal procurement spending, optimizing maintenance costs by minimizing the use of outside contractors and cost reduction efforts across many other categories. We have demonstrated strong cost performance in the past, and we're confident in our ability to resize our cost structure for the current demand environment. You saw some of the benefits in our 2024 results, and the run rate benefit should be even more in 2025. Now let's turn to slide 13 and discuss the free cash flow. Free cash flow was negative $100 million for the full year in 2024, although this includes a negative $45 million impact of LA as a result of the flood, which is net of the $45 million of insurance proceeds we received in 2024. 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 IFRS to US GAAP at the corresponding accounting treatment. 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 Constellium. The deferred purchase price receivables are related to some of our previous factoring arrangements in Europe. We have recently amended these arrangements and all cash received under the arrangements will be recorded in operating cash flows going forward. As Jean-Marc mentioned, free cash flow excluding the impact of the valet flood and including cash receipt for collection of deferred purchase price receivables would have been positive $30 million in 2024. Looking at 2025, We expect to generate free cash flow in excess of $120 million for the full year. We expect CapEx to be approximately $330 million this year, which is around $70 million lower compared to 2024. We expect cash interest of approximately $120 million and cash taxes of approximately $40 million. And we expect working capital and other to be a modest source of cash for the full year. As Jean-Marc mentioned previously, we continued our share buyback activities in the quarter. During the quarter, we repurchased 1.6 million shares for $18 million, bringing our 2024 total to 4.6 million shares for $79 million. We have approximately $221 million remaining our existing share repurchase program, and we intend to use a large portion of the free cash flow generated this year for the program. Now let's turn to slide 14 and discuss our balance sheet and liquidity position. 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 Valley flood. Our leverage was 3.1 times at the end of 2024 were up 0.8 times versus the end of 2023. If you exclude the valet flooding pact, leverage was 2.9 times at the end of the year. We're committed to maintaining our leverage in the target leverage range of 1.5 to 2.5 times over time. As you can see in our debt summary, we have no bond maturities until 2028 and our liquidity remains strong at $727 million as of the end of 2024. With that, I would now hand the call back to Jean-Marc.

Thank you, Jack. Let's turn to slide 16 and discuss our current end market outlook. The majority of our portfolio today is serving end markets benefiting from durable, sustainability-driven secular growth, in which aluminum, a light and infinitely recyclable material, plays a critical role. However, in the short term, many of these markets are facing headwinds. Turning first to the aerospace market, Commercial aircraft backlogs are robust today and continue to grow. Major aero OEMs remain focused on increasing build rates for both narrow and wide-body aircraft, though supply chain challenges continue to slow deliveries. As a result, aerospace supply chains need to adjust to lower than expected build rates, which is causing a shift in demand to the right for some of our products. Despite the slowdown in the near term, demand has stabilized for the most part, 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. Demand remains stable in the business and regional jet markets and healthy for military aircraft. Turning now to packaging. 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 makers in both regions, and the greenfield investments ongoing here in North America. Longer term, we continue to expect packaging markets to grow low to mid-single digits in both North America and Europe. Let's turn now to automotive. Automotive OEM production of flight vehicles in Europe remains well below pre-COVID levels and is still below pre-COVID levels in North America as well. Demand in North America has softened 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. In the long term, we believe electric and hybrid vehicles will continue to grow but at a lower rate than previously expected. Sustainability trends such as lightweighting and increased fuel efficiency will continue to drive the demand for aluminum products. As a result, we remain positive on this market over the longer term in both regions, despite the weakness we are seeing today. As you can see on the page, these three core end markets represent over 80% of our last 12 months revenue. Turning lastly to other specialties, in North America, demand appears to have stabilized, albeit at low levels, and demand remains weak in Europe. We have experienced weakness across most specialties markets for more than two years now, though we are beginning to see some green shoots in certain TID markets in North America. As a reminder, these markets are typically dependent upon the health of the industrial economies in each region, including drivers like the interest rate environment, industrial production levels, and consumer spending patterns. As Jack mentioned, we continue to work hard to adjust our cost structure to current demand environment, which will put the businesses in an even better position when the industrial economies do recover. 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. 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 non-cash metal price lag in the range of $600 to $630 million and free cash flow in excess of $120 million. I'm also excited to establish today new long-term targets. For 2028, we expect to achieve adjusted EBITDA excluding the non-cash metal price lag of $900 million and free cash flow of $300 million. On the slide here, we provided a bridge to show the major drivers to achieving $900 million of adjusted EBITDA. Our 2028 target incorporates a recovery in the valley following the flood, which is well underway, and an improvement of Muscle Shoals operational performance, which we have demonstrated recently in the past several months. It also incorporates the benefits from our previously announced return-seeking investments, which include cost-saving investments like the recycling and casting center in Neuve-Boisac and the cast house investments in Muscle Shoals and in Ravenswood, as well as growth projects like the new airwear cast house in Issoir and the battery foil investment with Lotte in Zingen. All of these projects, as well as some other smaller investments, are included in our existing CAPEX umbrella. We have also assumed additional market growth for each of our end markets, though the growth rate we assumed are rates which are generally below current industry estimates. 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 control to mitigate future inflationary impacts through productivity gains and other cost reduction initiatives. We have assumed the current tight scrap market in North America continues through 2028, which will lead to unfavorable metal costs, primarily in our PARP segment compared to 2024. We also assume the contingency in our 2028 target that should help offset potential deviations from the assumptions I just described. Lastly, on the bridge, we assume no impact from tariffs, and we assume also that the macroeconomic and geopolitical conditions remain generally stable, but we are used to changes. 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 that we have the right strategy, the right teams and the right products in the right markets, and that we know how to overcome crisis. Our business model is flexible and resilient. Our diversified portfolio allows us to always have options in very different market conditions. We have built the balance sheet we need to both weather crisis and seize opportunities and our high value recyclable and sustainable products respond to the growing needs of our customers. We're extremely well positioned for long term success and we remain focused on executing our strategy and on shareholder value creation. With that operator, we will now open the Q&A session, please.

Thank you. As a reminder, if you'd like to ask a question, please press star followed by one on your telephone keypad. If you'd like to remove your question, you may press star followed by two. Our first question for today comes from Corinne Blanchard of Deutsche Bank. The line is now open. Please go ahead.

Thank you. Good morning. Maybe the first question and the second will be probably around the same line, but the guidance that you guys gave. And you did a good job of giving a lot of detail right now, but can you just give us maybe a little bit more like on the key text and food for the 25 EBITDA guidance and also for the free cash flow, like maybe the cadence going into 2Q and 3Q. And then my second question would be on the long term outlook. Can you walk us through the bridge from 25 to 28 and how confident should the market or should investor be in that number by 28? Thank you.

Yes. Good morning, Corrine. Thank you. And I'll start and Jack, I'm sure, will help me. So your first question on the key takes and puts for 25. So you look at the current conditions, I mean, As we said, the conditions we experienced in the second half of 2024 are continuing and will will feel their full impact in 2025. So the the scrap spreads for instance the tightening of scrap threads were protected last year with some annual contracts we'll get the full impact of them this coming year we believe that automotive is also going to be very weak in 2024 especially in europe on the aerospace side we see that oems are struggling to meet their ramp up so that creates some elements of destocking in the supply chain so we're quite prudent on our assumption for our own shipments in uh in uh in aerospace and with domain oems even though we can make up some of that with other programs like military aircraft or space as well then obviously the foreign exchange is not helping with the dollar strengthening of late uh so that's that's another element and then the valley as jack mentioned i believe you will still have some costs uh in q1 so all that adds up to a number uh which is uh quite uh quite hefty uh going into uh 2025 now To offset that, we have talked about, you know, all the initiatives we have in place. We have talked about the ramp up of the recycle center in Neuve-Brisac, and that's still very much underway and going well. We have talked about operational improvements in Muscle Shoals, which we were starting to see the beginning of, but now we feel very confident that we are doing a good job there and we're back on track. We also have the repricing of our some of our contracts in aerospace, which is going to benefit us starting in Q2. So and obviously the cost savings that we have accelerated that Jack maybe can comment a bit more upon in 2025 in light of the challenging market conditions, our ambitions for cost reductions have greatly increased compared to where we were back in 24. So when all that is said and done, you see a lot of adverse headwinds on the market side, right, generally. a little bit of a weaker beginning of the year because of the valley and uh especially in the time it takes to uh have the full benefit of you know cost uh uh savings uh and then you see uh all that being offset by uh the uh the the actions we had uh talked about so i think that then that's how i can answer your your first question i don't know jack if i missed

Anything or no, I think that's good. I think obviously in a weaker environment, as we mentioned, we're accelerating our cost reduction efforts under vision. Twenty five, you know, a bucket of that is using labor. That bucket of that is is outside of labor. And, you know, previously we've indicated, you know, 50 million program over three years. And we're targeting, you know, 15 to 20 million dollars, if you will. for 2025 relative to 2024 in this environment. We're looking at more savings. We're looking at, you know, 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.

Yeah, so that's your first question, Corinne. You want to move to the second one? I guess 25 to 28, right? Yeah, so starting in 25, right? And I'll go back to page 17, right? Most of the investments we're talking about, the second, so sorry, let me back up. The Constellium recovery still very much in play. And most of that will, you know, is obviously the valley floor recovery is no more there because it happened in 24, right? So if you start in 25, that's already done. The investments are going to play out mostly towards the end of the period in the recycling center in Naples, exactly as right now, but the other investments are going to contribute towards the later part of the period. We believe that overall the path from now to there to 28 is pretty linear uh with um some uncertainty obviously about how the markets recover and you know one can make a case for markets recovering a bit faster. Our own assumptions internally, we believe are more prudent than what is out there. So we think, you know, some could say, well, it should improve faster, but We've been burned recently, so we tend to be prudent. You could also say that, and that's not in our guidance, that tariffs in the US 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 quite, we like to be quite prudent. and then on the i think the bigger red box you see on the scrap spreads we believe that once we've taken the brunt of the scrap spread tightening impact this year this should be kind of stable in the future so we're not banking really on an improvement of the scrap spreads the reason we're not thinking that they can go worse is because at some point it just becomes indifferent whether you recycle aluminum or you uh or you buy sheeting from a primary aluminum. And that, I think, if you look at the scrap market, it's a worldwide market at some point. If scrap spreads become too tight in the US, it will create imports of scrap into the US, like that has happened in the past. So we're at a historically tight scrap levels here in the US. I don't think we've got much of a risk of that getting worse. So that's how I can think about the kind of 25 to 28, pretty regular cadence. And obviously, we know that the market can throw us some curveballs from time to time, but we're trying to stay ahead of it.

Thank you. Maybe if I just can come back very quickly on the 25 guide. I think something that's in there been asking since this morning is like how should we think about the guidance if it had been given in euro so what did the the gap impact like we're trying to to see like what the factoring in these impact and trying to see like you know what could have been the number also you know if you i don't make the switch or so yeah corey maybe we can take this offline i mean we're a us dollar company now and we're thinking in us dollar terms but we can help you with the bridge potentially afterwards That's fair. Okay. Thank you.

Thank you. Our next question comes from Yanchik from BMO Capital Markets. Your lines are open. Please go ahead.

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 the waiting is gonna be more second half relative to first half?

I mean, that's generally if, Fair. Well, I would say the way I would kind of look at it is I would look at first quarter and then beyond first quarter. You know, first quarter, John Mark already alluded to, you know, we have it's first of all, seasonably due to seasonality, it is weaker comparatively and will have some impact from remaining impact from the flood season. at ballet and you know as we progress through into the year we'll see you know some of the benefits to kicking more like the cost initiative like the muscle shows improvement so it will be stronger in the middle of the year it's more like first quarter relative to the rest of the year right correct and then catch even though it's not you know guys and then just on the on the

sorry, Katia, 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. And as I said, you know, tariffs, by and large, we believe the way they are structured today should create opportunities for us. So that's more in the second half of the year, obviously.

And is this similar for the free cash flow generation?

So it's a good question. So typically in the first quarter is when we're building up working capital for the busier seasons. And typically, you know, free cash flow is negative in the first quarter due to that reason. And but you remember, we started a number of cash initiatives last year to release cash from working capital due to the weaknesses we've experienced. And there's typically a lag 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.

Yeah. And Jack, you mentioned, you know, a lot of the free cash flow will be used for share buybacks, but, but given the, you know, the, the timing is this again, more maybe initially first queue, we don't really see an acceleration and then we see an acceleration rate later in the year.

So I think we're comfortable with our leverage, and we're very confident in our liquidity position, and we're confident in our free cash flow generation. So when you put it all together, we'll continue to be quite hands-off and just let the program run.

Okay. I'll hop back into the queue. Thank you.

Thank you. Thank you. Our next question for today comes from Bill Peterson of JP Morgan. Your line is now open. Please go ahead.

Yeah. Hi. Good morning or good afternoon, John, Mark, and Jack. I have a few questions that I'd like to kind of come back to on the demand environment and I guess how that impacts the outlook for the year 600 to 630 million. So I guess speaking about the market aspects themselves, Robert Marlayson, Open, you can go through the key assumptions for market growth and also your guess your own shipment growth and mix across the bigger markets like aerospace packaging auto and other. Robert Marlayson, You know, for example arrow we're kind of aware of the de stocking, but are you assuming shipments remain kind of week for the year and mix will be unfavorable. Robert Marlayson, In the case of auto you talk about weakening us does that mean we should get that going down this year and then maybe in Europe just remain stable at a low level. kind of similar for industrials or are you just assuming flat given it's just already, it already has been weak in Europe? Just trying to get a better understanding of how these end markets should impact this overall guide and I guess how that could then translate into your reporting segments, EBITDA, you know, flat, up, down, so forth.

Okay. 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 expect stable type of environment, although a mix could be weaker. As we've set in a weaker aerospace environment, it caused us to push out some of the more profitable volume. to later, right? So you expect to see unfavorable mix, but stable from a volume perspective for aerospace. We do believe automotive will continue to be weak this year. If you were to look at the latest industry build rates for the year in both North America and Europe, they're expected to be down versus 2024, and that will impact our automotive business. If you look at TID, I think there's some opportunities in TID, especially in North America in light of the tariff situation. So we do expect that to improve. And packaging, we do expect the continued improvement.

uh in the packaging market um and did i forget any other markets no and i think also in tid in europe just the fact that we are not flooded anymore and we've resumed production that's going to help us as well out of our cell facility yeah so good point great thanks for that additional context for the full year guide um wanted to come back to scrap

TAB, Mark McIntyre, Both kind of from a near term perspective sort of 2025 as well as you know the bridge for 2028 so first in the near term. TAB, Mark McIntyre, I guess, is this sort of 15 to 20 million per quarter discussed in the four Q bridge, the right way to think about the headwind for 2025. TAB, Mark McIntyre, And then over the midterm and I guess on your bridge slide can you break down, I guess, the impacts of scrap versus foreign exchange. TAB, Mark McIntyre, And I guess, how should we think about scrap spreads and other regions you operate and particularly in Europe, acknowledging.

know maybe better fundamental recycling rates and overall environment may be potentially offset by weaker industrial activity yeah i'll start bill and jack will help me as well so um we think that the impact of scrap spreads is really a 25 event and then we do not assume really an improvement going forward We believe it is mostly a North American problem. And when I look at what scraps we're buying in Europe today, yes, it's a little bit tighter, but nothing really to write home about. And long term, as you pointed out, there is more and more recycling happening in Europe, right? More and more collection of scrap, both industrial and consumer, post-consumer scrap. So I think that's good for the balance in Europe. And we feel that we are well covered both in the short term and the long term in Europe. North America, as I mentioned, it is a painful situation. The scrap spreads are very tight. We believe they're going to stay very tight. But, you know, from a variance standpoint, once we're past 25, we think it's not going to have much of an impact. And in terms of foreign exchange, Jack will help me, I'm sure. But the dollar is stronger now than it was on average last year and the year before, actually. So that's... that's you know reflected in our guidance we don't make an assumption that the dollar is going to change much from where it's at 104 105 right so we don't assume it's going to be different in 25 26 27 28 right it's pretty flat does that answer your question bill okay thanks for that and i guess maybe that last point is if yeah no it largely doesn't i guess in 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 it creates a yeah it creates a tail thanks our cash flow standpoint is not much different right the translation effect is a tailwind yes thank you as a reminder if you'd like to ask a question that's star one on your telephone keypad

Our next question comes from Team Natanas of Wolf Research. Your line's now open. Please go ahead.

Hey, good morning. I wanted to ask a few higher-level questions if we could take a step back. So I know we just talked about the 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 scraps, Like what can you do to prepare longer term? You know you pass through the Midwest premium, which is obviously exploded. Is there just no way to pass through scrap in this short term and in the longer term? Can you switch up your inputs? And then same question, short term, long term, you know, responses that Constellium can contemplate in terms of EU auto. If you auto is just sustainably lower for the longer, can you switch some of that capacity more longer term and and then the third? you know short-term long-term question is really on the um potential for switching away from aluminum given these higher prices with coca-cola talking about that topic so just those are three questions i'm sorry i can repeat them if you want but i'd love to get your thoughts yeah that's fine good uh thank you tim good morning so um on the scrap dynamics right um so there is a specific pressure on used beverage cans but that's

It's a very large portion of what we buy, but I don't want to give an exact number, but around 50% of what we buy. So there's other types of scrap, and there's plenty of other scraps that we can use. And the other factor is as the Midwest premium increases and as the US economy becomes stronger relative to the rest of the world, which is happening right now, we end up in a place where imports of scrap, as I mentioned earlier, become more attractive. So that also will put a dampening effect on further scrap tightening. then as you mentioned you know at some point if it is so expensive then people will look at okay well there's a better option which is buying cheating guts from primary smelters and that will put also a damper on how high crap prices can go So all that we believe, we factored that all in at a pretty high level. So we believe that the projections we have, you know, that are in both our 600 and 900 targets, reflect scrap market conditions that are quite unusual and we do not believe are sustainable. And we will see. So maybe there's an upside there. And I think you had a question also on, so I think that was the question on scrap, right? The question on EU auto. Yes, so the first thing to do is, for us, is we're not going to invest growth capital in automotive, okay? And we have not recently, and we are not going to do that anytime soon, given where 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 you know 80 of the assets if not more that make auto are used also for other products like uh can sheet to uh to mention and we believe that you know we have this opportunity to make more can sheet uh we uh and we have it both in north america and europe so that's very much uh in play for us uh and we are fully ready to to do that if anything last year we passed on some uh volume opportunities quite significantly in cash because we couldn't produce for plenty of reasons starting with the snow event in the muscle shows and then some operational issues we had that we don't have anymore so we believe we are we're able to repurpose capacity quite efficiently and then obviously if there's no or limited business for automotive well we'll have to be a very tricky now we uh manage our costs on the auto finishing lines which are you know an important but not a huge part of our of our business uh and then finally you mentioned you know well aluminum is going to be so expensive that maybe people will switch away from uh from aluminum so uh well steel is getting expensive too by the way Historically, it's quite interesting to note that people look at aluminum as being volatile because it's coated daily and plastics and steel are less transparent. Actually, when you look at the volatility of input materials, plastics and steel are more volatile than aluminum number one so so as a user of and i i've got to make a choice of what i'm going to use i get more stability and i can hedge it by the way the volatility which i much more difficult for the other ones uh so i i got a material that i better know how it's gonna what it's gonna cost The second point to remember is that aluminum, even today, even if you were to put the Midwest price at Midwest premium, sorry, at $1,000 plus a ton, it is still less expensive than it was in 2007. And there was no change in the packaging mix happening from 2005 to 2008 or 2006 to 2007 because of changes in the price of material. And finally, I'll submit that it is a very, very small part of the package of the finished product, right? And there's many more choices than just how much the price of that product you know, beverage can is going to be next quarter that goes into the choice of packaging. I mean, you've got the whole infrastructure, the filling lines that you've got to handle and they require capital. You've got the distribution channels, you've got consumer preferences, you've got a shelf space, uh, all these questions are, and then, um, and then more, right. All these questions that need to be addressed. So I don't want to be casual and say that, uh, When James Quincy says, well, we can also use other materials, this doesn't mean it. But I think it takes a very substantial shift in relative competitiveness of materials for such changes to happen. And then they happen at a slow pace if they do. Did I answer your questions, Dimna?

No, that's helpful, Jean-Marc. Thanks for the additional context.

Thank you. Thank you.

You're welcome. Thank you. At this time, we currently have no further questions, so I'll hand back to John Mark for any further remarks.

Well, thank you everybody again for your interest in Cotillion. As you can tell, the 2024 was not a fun year for us. It was disappointing in terms of outcome, but I think we can say, and I hope we've convince some of you that we're on a strong footing to resume our growth and we've got a clear path ahead of us and the path ahead of us relies on things that are really a lot of them a lot of them are under our control so we're excited about the years coming ahead of us and we look forward to updating you on our process in the next quarter thank you so much everybody bye