Albany International Corp. (AIN) Q1 2018 Earnings Report, Transcript and Summary

Ladies and gentlemen thank you for standing by. Welcome to the First Quarter Earnings Call of Albany International. [Operator Instructions]. At the request of Albany International this conference call on Tuesday May 8 2018 will be webcast and recorded. I would now like to turn the conference over to Chief Financial Officer and Treasurer John Cozzolino for introductory comments. Please go ahead.

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

Thank you, John. Well good morning and welcome everyone, and thank you for joining the first quarter earnings call also my first earnings call with Albany International. We will follow this morning a similar format of past calls. I will begin with an overview of the quarter, then John will take you through our financial results in more detail, after which, I will provide an update to our 2018 outlook. We will then take your questions. But before I get started, I would like to take a few minutes to share with you my initial observations, my initial impressions of the business. As you all know, I joined the company on March 2, and I have since spent my time learning about our two businesses; Machine Clothing - MC; and Albany Engineered Composites - AEC, meeting some of our key customers, meeting our employees while visiting several manufacturing sites in the US and in Europe. As I continue to dive deeper, I could not be more impressed and excited about what I have learned so far, and more specifically, what I have learned about our people, about our markets, and about our technologies. First, our people; I am so impressed with the amount of talent, of dedication that I have discovered in Albany team members through my site visits. I had only met energized, engaged employees proud of their company with deep knowledge of their respective industries, and all of them focused on growth, focused on innovation, and focused on financial performance. And by the way these common characteristics apply for the two groups MC and AEC and among all disciplines. So again our markets; I am excited about the strength of the markets we serve, and our leading positions within both the paper machine clothing markets and the specialty composites jet engine and airframe components market. Within the global paper and paperboard industry excited about the growth of the tissues and towel paper grade and the growth of the board and packaging grade, especially in Asia, where we have a strong presence not just in the market, but also with a significant production capacity in China and Korea, but also a booming global aerospace market with Boeing and Airbus large commercial aircraft order books remaining at record level, nine years of production at 2017 delivery rates at the end of March. With both single aisle platforms and associated next-generation jet engine programs production at historic unprecedented ramps, and also as you know, a strong defense aerospace market with a recent increase in the US defense budget. And as you know we are on all the most attractive highest growth airframe and jet engine platforms. Just to name a few we’re on the LEAP (inaudible) the GE 9X, we’re on the Boeing 787, we’re on the F-35 among many, many others. Finally on the technology front; I am really impressed with the strength of our current technology portfolio across Machine Clothing and Engineered Composites, really impressed with our leadership in new product introduction and our leadership in manufacturing process improvement. Therefore I am very excited about the exceptional growth potential that our innovation leadership will drive in the coming months, in the coming years, and I’m also convinced that our people, our position in our markets, and our technology leadership are the real foundation of our future and definitely a studied platform for (inaudible) profitable goal. Now let’s take a look at the first quarter results; Q1, 2018 was another strong quarter for Albany International, both businesses performed well, resulting in growth in total company net sales of 15.4% or 6.6% excluding the impact of ASC-606 and currency translation effects. Although restructuring charges related to the company’s plan to close its MC plant in Selestat, France contributed to a slight decline in net income, compared to the first quarter of 2017, adjusted EBITDA grew sharply to $51 million with a continued stable performance in MC and strong profitability improvement in AEC. MC sales in the first quarter, excluding the impact of ASC-606 and currency translation effects, declined 4% compared to last year, mainly due to continuing declines in publication right sales and lower sales in tissue and packaging, primarily in North America as Q1 ‘17 sales were particularly strong in those grades. Overall the paper and paperboard market trend that we saw last year, growth in the packaging and tissue grades especially in Asia, with continued declines across all regions in the publication grades continued in the first quarter. Despite continuing inflationary pressure on our operational costs, MC gross margin was strong during the quarter at 47.4%, as expected gross margin bounced back from the fourth quarter gross margin of 45%, primarily due to improved capacity utilization. Operating income was down compared to last year due to the French restructuring charges, however adjusted EBITDA was strong and stable compared to Q1 ‘2017. AEC had a strong quarter with growth in net sales, growth in operating income, and growth in adjusted EBITDA compared to Q1, 2017. AEC had strong year-over-year revenue growth with net sales excluding the impact of ASC-606 and currency position effects increasing 33% consistent with our outlook communicated in the last earnings release. The increase in sales was primarily driven by several high growth aerospace platforms, such as the LEAP program, as well as key next-generation commercial and defense airframe programs. Our sales of fan cases, fan blades, and spacers for the LEAP engines, which represented about 49% of AEC Q1 2018 sales grew 60% compared to Q1 ‘17, reflecting the steep, unprecedented ramp up of this jet engine program. Higher sales of Boeing 787 fuselage frames as well as F-35 components also fueled year-over-year revenue growth. AEC operating income improved to 2.3 million, while adjusted EBITDA more than doubled year-over-year. Adjusted EBITDA as a percentage of net sales improved to 16.5% in the first quarter, as a result of both volume increases and productivity improvement, compared to 14.1% in Q4 ‘17 and 9.2% in Q1 ‘17. While AEC’s profitability could fluctuate from quarter-to-quarter this year, we continue to expect full year adjusted EBITDA as a percentage of sales to show incremental improvement compared to 2017. New business opportunities include, further share gains on existing platforms leveraging existing and derivative technologies, in addition to contest on potential (inaudible) commercial and defense programs through the use of new technologies. Our R&D new product development activities during the quarter (inaudible) in each of these areas, while R&D process improvement projects also supported existing growth programs. Based on this progress, we continue to project that the combination of execution on our existing contracts, along with anticipated new contract wins, provides the potential for AEC to rich annual sales of $475 million to $550 million in 2020. Overall it was a good quarter for the company, with continued strong and stable performance in MC and robust sales growth with increasing profitability in AEC. Now let’s go back to John for more details on the quarter. John?

Thank you, Olivier. I’d like to refer you to our Q1 financial performance slides. Effective January 1, 2018 the company adopted ASC-606 revenue from contracts with customers, using the modified retrospective or cumulative effect method for transition. Slide 3 displays the first quarter impact on sales and income of adopting this new standard. As you can see on the slide, ASC-606 caused an increase in net sales and income for both businesses, with total company net sales increased by 8.4 million and net income attributable to the company increased by 1.2 million or $0.04 a share. Looking at Slide 4, net sales by segment, as already noted total company net sales increased 15.4% compared to Q1, 2017 and 10.9% excluding the currency effects, and also excluding the impact of ASC-606 net sales increased 6.6%. MC net sales in Q1, excluding currency effects, were down 1% compared to last year and down 4% when also excluding the impact of ASC-606. AEC net sales excluding currency grew about 41% compared to Q1, 2017 and a (inaudible) over 33% when also excluding the impact of the new revenue standard. Turning to Slide 5; total company gross profit as a percentage of net sales was 35.5% in Q1, compared to 38.1% in Q1, 2017. Gross margin in the current quarter reflects the change in the business mix due to higher AEC sales. MC gross profit margin in Q1 was 47.4% of net sales, a decrease compared to Q1, 2017, but essentially flat compared to the full year margin in 2017. AEC gross profit margin increased to 14.1% in Q1, compared to 12.1% in Q1, 2017. Slide 6 provides net income and adjusted EBITDA by segment for the quarter. Adjusted EBITDA for the total company in Q1, 2018 was 50.9 million compared to 43.5 million in Q1 last year. MC adjusted EBITDA was 49 million in the quarter, compared to $48.3 million in Q1 last year. AEC adjusted EBITDA improved to 13.5 million in the quarter, compared to 5.2 million in Q1 last year. Moving to Slide 7 earnings per share; we reported net income attributable to the company in Q1 of $0.32 per share, compared to $0.34 per share in Q1 of last year. Q1, 2018 earnings per share included charge of $0.18 per share for restructuring expenses, principally due to the company’s estimate for severance and outpatient benefits, related to the previously disclosed proposal to close the company’s MC production facility in Selestat, France. That proposal was approved by the French Labor Ministry in Q1. Adjustments for restructuring expenses in Q1, 2017, as well as foreign currency revaluation losses and tax adjustments in both periods are noted on the slide. Excluding the adjustments, net income attributable to the company was $0.54 per share in Q1, 2018 and $0.46 per share in Q1, 2017. Lastly Slide 8 shows our total debt and net debt. Total debt increased about $5 million to a balance of 521 million at the end of Q1. That increase combined with the [client] cash balances of approximately 32 million resulted in an increase in net debt of 37 million during the quarter. Net debt typically increases in Q1 due to incentive compensation payments and high first quarter income tax payments. In addition to those typical cash flow effects in Q1, cash utilized for other working capital increased especially accounts receivable for AEC. Payments for all capital expenditures in Q1 were about $16 million, which was lower than expected due to the timing of required cash payments. We currently expect capital expenditures to range from 20 million to 25 million per quarter through the rest of the year. At that level of spending, we do expect additional quarterly increases in net debt for the remainder of the year, but at significantly lower levels than during the first quarter. Now I’d like to turn it back to Olivier for some additional comments before we go to Q&A.

Thanks, John. Turning now to our 2018 outlook; the MC outlook for the rest of 2018 looks promising. The business appears to be stable going into the second quarter, and we currently anticipate relatively consistent gross margins throughout the rest of the year. (inaudible) no significant changes in the global economic conditions, we are on track to full year adjusted EBITDA in the other half of our expected (inaudible) of $180 million to $195 million. AEC’s outlook for the full year 2018 is unchanged from the expectations we stated in the last earnings release. Net sales year-over-year should increase 20% to 30%, while adjusted EBITDA as a percentage of net sales should show incremental improvements in 2018, and beyond 2018, we remain on track toward our goal of 18% to 20% adjusted EBITDA as a percentage of sales in 2020. So in summary, our outlook for both businesses in 2018 is unchanged as we continue to expect strong performance by both businesses throughout the balance of the year. With that let’s go to the line for any questions. Operator?

[Operator Instructions] We will go to the line of John Franzreb with Sidoti & Company.

I guess I’d like to start with the Machine Clothing business, last quarter you kind of inferred that we should expect a (inaudible) impact as far as volume is concerned, given the mix as it is these days, but it was still down 4% when you kind of X everything out. Were you surprised by that or should we reassess how we think that the change in publication is going to still drag maybe what’s going on in packaging and tissue?

Well, you know John I would like to actually first start with going back to the fundamentals, I would say, of the paper and paperboard market right. After two months being in the business, it took some time really to understand better the dynamics of the market and the impact on the paper machine clothing market itself. So yes it’s clear as my predecessor and John have been sharing with you in the past, it’s clear that the global paper and paper industry will continue to suffer from the well-documented declines in consumption of publication grade, and certainly with estimated steeper decline rates in the (inaudible) decade due to of course digitalization. However, the global industry is still expected, as you know, to grow slightly at an annual rate of approximately 1% to 1.4% per year between ‘17 and ‘22, with definitely driven if you will by increases in consumption of tissues and towel paper grade, I think we’re forecasting about or (inaudible) forecasting about 2.8% per year of increase in consumption between ‘17 and ‘22. And for board and packaging grades, I think the industry is forecasting about 2.6% increase per year between ‘17 and ‘22 in consumption right. So that’s the fact that will happen. Now in terms of our PMC sale, it’s clear as my predecessor has exchanged and shared with you many times in the past that we will continue to see our publication grades PMC sales likely to erode at a range of 5% to 10% on an annual rate right every year in dollar value, so that’s going to continue to happen, and actually in Q1 ‘18 versus Q1 ‘17 our publication grades PMC sales as we had expected did decline actually on the lower side of that range. Now as I mentioned we had more particularly in Q1 ‘17 we had some further declines of the packaging grades net sales, driven partially it’s only one-time effect, it’s only in Q1 driven partially by the US due to one key packaging customer with which we had unusually strong sales in Q1 ‘17, a customer which had production issues in Q1 ‘17. And we did experience considerable damage to our clothing, which led to a much higher sales. We also saw in Asia, with some factors in Asia, where our Q1 ‘17 sales included a very large new machine startup order. And on that issue same thing, we had some exceptional new machine startup last year in Q1 ‘17. So all that explains why in Q1 you saw once you exclude 606, once you exclude the FOREX effect, you saw a drop of 5 million-5.5 million or 4% in sales. Now, what we expect, we expect to see our Q2, our Q3, our Q4 revenues to be at least flat versus last year. Okay?

Then the gross margin PMC, as you showed in Slide 5, first three quarters of last year was 48% and changed. Is there any reason that you can’t get back to that level, be it FX, be it mix? Can you just talk to that?

Well, as you saw, I think last year it was about 47.6% for the full year of gross margins, right? You saw a very nice bounce back, it was bouncing back in Q1 ‘18 versus Q4 as expected, as we were improving our capacity utilization and working very hardly on productivity efficiency and utilization. Yes, we will continue to do in the outgoing in the further quarter Q2, Q3, Q4, therefore we estimate at least that our gross margin should stay at least at the same level as last year, and of course we’ll do everything we can to improve. That’s basically what we do on a monthly, on a weekly, monthly and quarterly level. Yes.

Okay, and then just switching over to EC, could you talk a little bit about how the production ramp is going in the LEAP program, has there been any kind of problems, could you just talk about how smooth it’s been within any (inaudible) of parameters you want to put on it?

Listen as I indicated I mean our revenue rate in LEAP fan blades, fan cases and spacers increased 60% year-over-year. Listen, you know very well the shape and the state of the aerospace industry, it’s a booming industry, right? I was mentioning to you I mean the 13 000 order backlog at Boeing and Airbus in large commercial aircraft. We know that’s about nine years of production. We know that that backlog which is very good thing for us, is mainly driven by single-aisle aircraft, and as you know we have the chance to be on the major engine program powering the (inaudible). You know that the Airbus order backlog, 85% of it is made of A320 (inaudible). If you look at Boeing it has same trend, I believe that 80% of the order book of Boeing is 737 or MAX? So you have heard also and read from the latest Boeing and Airbus earnings release that and once again good for us extremely good for Albany. You have heard that Boeing plans to increase the (inaudible) rate of the 737 from 52 per month in ‘18 to about 60 to 63 (inaudible) into next year, and Boeing thinking very strongly about going to 70, 70-plus right, and Boeing shooting at 57 next year. So all that creates of course demand for engines, and I think that the firm order backlog of single-aisle next-gen jet engine is slightly over 23,000 engines? And guess what it’s 10 years of production for the engine at 2017 delivery rate. So once again extremely good for us, and in addition to that you know the problem that Airbus is having with the GTF on the (inaudible) with some issues. So therefore the current A320neo engine order book is really closer to 59% for LEAP, 41% GTF right? Once again very good for us, increase in demand for us versus plan in LEAP engine for the A320neo. So really unprecedented, you know that wherever your (inaudible), we’ll be knowing pretty well the aerospace industry having worked in it globally for the past 20 years. So it’s an unprecedented ramp up. So now that being said, it’s extremely good for us. We are ramping up. The ramp up I can only control with I can control here which is our own production. We are developing, we’re staying focused. It’s all about disciplined execution in our floor across all our factories. It’s all about monitoring labor utilization, monitoring productivity, monitoring the right utilization of our key assets. It’s all about hiring and training people, new employees. It’s all about making the right investments in the right department in the right product lines, it’s basically doing everything we need to do, it’s executing not only by the way on the LEAP program, but it’s also executing on the ramp up of platforms form our Salt Lake City business, for example, on the ramp-up of the Boeing 787, once again excellent news for us. You know that the 787 will be ramping up from 12 per month to about 14 by the end of the decade. So once again it’s another focus that we have in our Salt Lake City operations. We also have to keep focus on ramping up and hiring people and training and getting better at manufacturing for the production of F-35 components which will be also ramping up. So all that is extremely good news for us, its tough but we’re doing it, and we’ll keep on doing it and ramping up quarter-after-quarter. And I was always reflecting on it. The aerospace industry today needs strong suppliers who can deliver in shorter lead times, high-quality products, on time for their customer it could be airframe OEMs or engine OEMs. And if and Albany will, but if Albany clearly demonstrates its capability in ‘18, ‘19 and ‘20 to meet our customers’ demand we need us to ramp up for them to ramp up as well. Believe me having been in that industry for 20 years, customers will remember us, and it will open the door in the outdoors in ‘20 and past ‘20 to a large set of opportunities of further share gains on new platforms. So to summarize, yes it’s tough, but we’re doing it. We know how to do it and you will only see progress quarter-after-quarter as the year goes and next year and the (inaudible) as well. Okay?

Yes, I just wanted to go back, you said the word tough twice. I just want to make sure that the yields are within the tolerances you expected or has it been a little bit tougher maybe than your original production schedules were?

You know manufacturing is manufacturing, right? It’s all about disciplined execution, it’s all about ensuring that you control your productivity, your yields, your quality, your scrap levels will go down day-after-day and that is continuous improvement. We are driving, we have launched in the past few weeks we have launched, if you will, key productivity projects, first one being based on, if you will, manufacturing, what I call manufacturing productivity, based on LEAN manufacturing initiatives. So you will hear me throughout the quarter and the years talking a lot about LEAN manufacturing and deployment, lots of [casual] events to reduce our lead times to [25] user flow and to rearrange our flow line. So that’s one key element of our manufacturing strategy, which already a couple of [casual] events when it took place across all plants in the past few weeks and that’s really helping. Secondly we have another lever, which we are starting to deploy as well across all our plants in US and in France, which is, what I call process productivity through advanced technology initiatives. Once again we are 1% responsible for that across all the plants, and we’re going to see more and more capacity release, if you will, increase through those productivity levers. So the key - of the many ramp ups in my career in aerospace, the key is to stay on top and to measure our production not on a monthly basis, but to measure it on a shift basis on a daily basis, and to make sure that day after day, week after and months after months the production does increase and the productivity increase as well. So now I’m deploying with my team, we are deploying consistent productivity metrics which we’ll review every day actually from the same room from where I’m talking to you from here today every day at 2 o’clock. I have a narrow call with all my plant managers across the world, and we review systematically with discipline all those indicators and take the proper corrective actions, and that’s all manufacturing. So we know how to do that. Okay?

And next we’ll go to the line of Ben Klieve with NOBLE Capital.

So, first I’ll second John’s comment and just say welcome to the company Olivier, its a really exciting time here, and we’re all very much looking forward to see where you’re going to take the company here going forward. So welcome.

Yes thank you very much, and thank you for being with us and taking the call. Thank you.

And kind of related to you coming on board here, I’m curious what you see as your kind of expected period of on-boarding, should we expect an update to the strategy in coming quarters, or do you think you’ve been through the on-boarding process enough that you don’t believe we’ll see any shift barring any changes in the market or economy going forward?

Well, listen I really think that I have been here for two months, and I said I did visit the plants, some plants, I have many more actually to visit. I really would like to make the following statements. I mean the strategy that was set by my predecessor is a very good strategy that paid off, that’s paying off today, its basically maximizing free cash flow and EBITDA margin generation from the MC business through continuous productivity improvements, which will keep on driving on a daily business and reinvesting in the AEC, as you know, in order to grow up and to gain share and to develop new technologies and to push, which we can do, and I’ll come back to that. Really push the displacements I like to call it like it’s a displacement of metallic solutions by composite solutions, and it’s a great future. I can talk to you at length about - there’s a great future for AEC not only on airframe structures but also on jet engine for the future. So I think it’s a great strategy. We need to stay focused on it, and I was just saying, my primary goal in the next month in the next two years is really to stay focused on that ramp up on the AEC side right? It’s really ramping up, it’s really ensuring that day after day we deliver and meet our customers’ needs, improve our capacity, decrease our non-quality costs, decrease our set up times, improve our utilization, improve our efficiency and therefore improve our productivity. So that’s really what we should all stay all our engineering manufacturing quality HR teams. HR is extremely important here to help us bring and develop our employees, train our employees and bring in additional talent in the team? Which is why I’m staying all focused in the past and I will stay focused in the next few months and years. So, therefore no change today about the strategy.

Yes, very good. Good to hear you feel that comfortable this quickly. We’ve seen some CEOs take a couple of quarters. So good to hear how confident you are with the current business just a couple of months under your tenure. Regarding the French facility, I’m assuming that that closure has been in the works for a while and that the timing of it coming under a new CEO is purely coincidental. Is that accurate?

Well listen you’re talking about the Selestat, France closure. Yes, sure. I mean listen the savings from the Selestat closing relates to both as we explained both labor and fixed plant operating costs? And of course the savings contributes to our overall objective to hold our margins and deliver on adjusted EBITDA in the upper half of $180 million to $195 million range? So we’re still evaluating, if you will, the impact on fixed assets and (inaudible), and we could have future restructuring charges related to that (inaudible)? John would like to add on?

And Ben we did announce the plan, the proposal some time ago before this transition took place, and in France it takes some time to get through the process. So really the key development this quarter was the approval by the French Labor Ministry that would then trigger the restructuring charge and now we’re moving forward on that plan.

I know there was a conversation, I didn’t realize about that this had specifically been announced in the past, and my apologies for missing that. One other question from me is in regards to margins, with raw material costs like somewhat to do – to derivatives of petroleum and lots of chatter around aluminum and steel tariffs, I’m curious to what degree your gross margin assumption this year really relies on flat oil and the failure for tariffs that will really take shape. What risks do you see from a raw material perspective in your margin assumptions for the year?

Listen we have long-term contract LTA contracts with our suppliers that really protect us, if you will, number one. Number two we have a very, I would qualify benchmarking against what we did in the past, a very solid procurement savings program as well across the two businesses. So in relationship to your specific questions on prices and so on, we have not seen much of an impact this year. We are protected as I just said, but it’s definitely something we are monitoring with John and the entire team but no real [evolution] or no real impact no.

Next we’ll go to the line of Drew Lipke with Stephens. Please go ahead.

I wanted to go back to the LEAP ramp, and can you remind us what your production capacity calls for today in terms of monthly production rates, and if we do see a step up to a rate of 70 per month, Olivier, you’ve been through a number of aerospace cycles how do you think about adding incremental capacity today that would come online in 2020 going to the rate of potentially 70 a month and just kind of thoughts on the cycle there?

Well listen, you always have to plan ahead, as you very well know. So I hate in manufacturing productions to overreact and we’ve seen in 3 or 4 weeks to decide about - and you do not ramp up in the four weeks as you very well know (inaudible). So you need to plan for the ramp up, and we are - I mean it’s not yet given that for sure Airbus has not said yet that they would formally for sure go to 70-plus, they are still – in the release a few weeks ago he said 70, 70-plus, we’re in the process of studying it. You saw the pushbacks of some of the engine guys, towards that ramp up. But that being said, I have already with my team launched a feasibility study to see exactly what it would require to get there, like 70-plus, in terms of increasing our labor capacity. So it’s takes time in our business, its takes at least six months to train the operator for new machines maybe sometimes even a year. So it’s very specialized, but I’m used to it (inaudible) as well as, as it is on the weaving and braiding side. So it takes 3 to 6 months let’s say to train operators, we have to find them, we have to train them, we have to -- so we’re making that list, what would be by plans necessary, and by shift we’re looking also at how we could be reorganizing our shifts. I don’t want from an efficiency productivity standpoint, and safety standpoint, I don’t want to run the plants at too much of an overtime, so we’re monitoring that as well. So we kept our overtime targets. And also we are also in the process of understanding how many more assets right we need to bring in our key plants in order to deliver on that potential ramp up? But we have everything, and we have the space. We have the square footage in our plants, we have just as you know we have just opened, inaugurated our new facility in Queretaro Mexico? So we have to fill it. We have space and it’s a very good problem to have? I mean it’s a very good problem to have to have a strong backlog and to see growth coming out of those plants. So we’ll know how to execute on it? It’s all about careful planning.

And then just on the LEAP ramp, how should we think about the sequential progression through the year? I think looking at your previous investor presentations, kind of points to LEAP revenues for the year maybe kind of in that $130 million range, and you’re obviously on an annualized basis well above that now and we’re still seeing the production ramp. So I know you mentioned it would be volatile throughout the year, but how should we think about that specifically?

Well I think you know, you very well know the ‘17 actual productions of LEAP engines. I think that CFM produced about 459 combined. You know that in ‘18 (inaudible) just came out again a few weeks ago in GE as well basically still confirming the 1,100 to (inaudible) engines this year, despite the fact that they were I believe about 70 short in Q1. They are sticking to the 2019 target of 1900 plus LEAP deliveries going to 2022. So anyway you saw that we did in Q1, a 60% increase. You can rapidly make the calculations and you see very well what we will be shipping and producing based on those ramp-up from CFM. You can project what our increase will be Q2, Q3, Q4, but certainly in the order of magnitude of what we saw in Q1.

And then just last one from me, kind of big picture, how do you see after taking a fresh look here, what are the benefits and the synergies of having the Machine Clothing and the Engineered Composites under one corporate roof as it stands today, and how do you think about, what hurdles those Engineered Composites need to clear before you have confidence that it can maybe operate as more of a standalone operation?

Listen I think as I said, I mean I view it normally, only been here for a couple of months, and I reiterate and restate that the strategy is right to have MC business growing well. I mean the MC business as I said is well stabilized now, we can’t keep on thinking about the MC business as a business fighting a market in structural decline? I think it has been restructured, it’s well positioned in the right growth grades, paper grades. We just need to keep on working, as I said, on productivity and on mezzanine, and improving our profitability and our cash generations. So all that is good, we know we have a clear program to execute on it. It’s also about execution and growing in Asia. And it’s basically we’re injecting our cash into AEC to build that aerospace business. That aerospace business in my mind today it’s still, it’s a goldmine of growth, as I said, it’s on the F-35 it’s on the Boeing 787, it’s on the LEAP engine, and it does not yet take into account all the anticipated share gains and/or acquisition of new (inaudible) that we’re going to be making this year and the next couple of years on other platforms where we’re not on today. So it’s an incredible growth machine and EBITDA margin machine, EBITDA generation machine. But today it’s still relatively small in size and I really want to grow it? (inaudible) improve as we said the EBITDA margins and stay focused on delivering the goal that my predecessor rightfully so set north of $0.5 billion organic growth and maximizing EBITDA margin in the 18% to 20%, and then we’ll see once we’re there, once we’re a larger size, everything is possible and we will review any strategic options? But it’s not the time now right to discuss that.

[Operator Instructions] We’ll go to the line of Chris Hillary with Roubaix.

I think you answered this question just a moment ago to a certain extent, but I just wanted to ask, as you come in and look at the aerospace platform, what types of short-term and medium-term opportunities do you see to supplement the business? I think you talked about add-on, market share wins, but is there some more color that you might give on what the things are that you might be working on in a one to three year time horizon?

Yes, sure. But I think you have certainly read the access to the investor deck that my predecessor and (inaudible) have been presenting through that market? I think that if I summarize it at the high level, I see four major drivers - levers of organic growth for the AEC business, two of them, the first two, really applying between ‘18 ‘19 and ’20, and the other two starting past 2020, but four altogether. The first lever is what I like to call really executing, I talked a lot about execution this morning, but executing on the continued ramp up of existing programs on which we have secured contractual content and on which we are already well established. So it’s clear by that I’m talking about the LEAP engine components. I’m talking about the multiple F-35 airframe components produced not only by our Salt Lake City business, I’m referring to all the sponsors, the tail-rotor pylon, the horizontal stabilizer, (inaudible) potential by the way of (inaudible) plus as we said in ‘24 with upward potential for foreign sales. But also on the F-35, I revert back to the engine, you have from Bernie, Texas location. We have all this very sophisticated highly engineered Lift fan vents? Also in the same category you have the as you very well know what I call the Boeing 787 structural airframe components, primary structure that the (inaudible). And then you have all those - all the other (inaudible) except the F-35 and the Boeing (inaudible) okay. So all that is really existing - executing and they’ll continue to ramp up. Then you have the second lever, the second lever has to do is, what I like to call, the anticipated incremental new share gains or sometimes first time content acquisition on existing and ramping up programs. So that’s really here all the share gains that we anticipate that we’ll be talking to you about as it develops, but all the share gains that we anticipate to be making in ’18, in ‘19. One example would be forward fuselage frames from Salt Lake City on the (inaudible). You saw last quarter, that was the first 787-10 delivered I believe to Singapore Airlines? So that’s an example, could be more anticipated if you will share gains from our Salt Lake City business on F-35 wing (inaudible) and tooling very much anticipated, several share gains on recently launched next-generation jet engines other than the LEAP, and I won’t mention them now of course for confidentiality. Several other anticipated share gains on the structural side, on other platforms that were not actually - we don’t have any content today? So that’s really a second lever. And also those two levers really drive the growth, if you will, between ‘18 ‘19 and ‘20. And then you have a third lever of growth, which is really what I’d like to call, it might be difficult, but I’d like to call that new contract wins on future and potential future commercial and defense platforms. So an example of it already well is in the pipeline is of course the revenue growth on the GE9X (inaudible), on the Boeing, on the 777X-9. So it’s the new platform. While it is not yet being produced it will be entering service, it’s planned in ‘19 and you have ramp-up past ’20, but definitely a very good example of growth engine past ‘20. Then of course as you very well know, you have the questions about the past ’20. You have the overall question in the aerospace market about the NMA, the Boeing 797. You know what will happen, will it be launched or not, if it happens in 2025, and of course if it does happen the Boeing which is actually confirming - which has confirmed a week ago that the EIS will be in ‘25 if it happens, it opens the door using our existing technology and maybe (inaudible) derivative technologies to position ourselves properly not only on the fuselage, on the structural elements, but also of course on the engine. Now the big question is what type of engines will that 15000 pounds of thrust, high bypass ratio engine, will it be the CFM engine or will it be another technology we don’t know. But regardless I mean it does offer a very attractive growth opportunity as well past ‘20. And then there are other opportunities also on definitely past ‘20 that we’re already working on using new technologies on the defense side, the land, sea, air and space applications. Then you have the last lever, last but not least, which could start already applying in ‘20 and which will do certainly past ‘20 is a potential strong diversification outside aerospace. I know that my predecessor shared that with you, but you have auto, armor or any other and that’s where our 3D operating technologies would apply with a potential, I think John and Joe shared with you, about $5 million right in ‘20. And further R&D potential definitely past 2020. Even thought for the time being, there are so many opportunities within the aerospace market that I’m encouraging my team to stay focused on the growth on the aerospace side. But I’ll be happy to share that with you in more details when we meet together and later on. But I mean that’s really summarizing at a high level, the four levers of growth on the aerospace side.

Sure. And then one quick follow-up, there’s been some unfortunate headlines on metal fatigue. Do you think that implies that - there has been some unfortunate headlines on metal fatigue in aerospace, do you think that implies there’s more opportunities for your woven composites to find other applications or more usage within aerospace?

Well listen, I think we have an excellent value proposition coming from the metallic side of the business. I knew very well the extraordinary growth potential of composite solutions both on jet engines and on the airframe. But as you know it all has to do with fuel efficiency again, it all has to do with improved performance, it all has to do with being more environmentally friendly, it all has to do with fatigue improvement fatigue resistance, it all has to do with damage to tolerance improvement, it all has to do with (inaudible) plus improvement. And definitely I do think that in the core section of the engine and even moving towards the hot section of the engine, you will see more and more composite solutions displacing metallic solutions. So that’s what I would have to leave it at and you have exactly the same drivers on the structural side on the airframe side. So our business is definitely from a weight reduction, from an improved performance standpoint is a growth engine. We just need to stay focused on the R&D and push our technologies and keep on displacing metallic solutions.

And there are no other questions. You may continue.

Well thank you all for attending the call today. I did enjoy meeting with all of you at least by phone, and I once again reiterate I would like to meet with you soon face-to-face. I enjoy speaking with you. And I’m looking forward as I said to meet with you in the future in person. Thank you. Bye, bye.

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