Constellium SE (CSTM) Q1 2022 Earnings Report, Transcript and Summary

Ladies and gentlemen thank you for standing by, and welcome to the Constellium First Quarter 2022 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. [Operator Instructions] It is now my pleasure to introduce Director of Investor Relations, Jason Hershiser.

Thank you, operator. I would like to welcome everyone to our first quarter 2022 earnings call. On the call today, we have 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 statements 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 IFRS disclosures. I would now like to hand the call over to Jean-Marc.

Thank you, Jason and good morning, good afternoon, everyone. Thank you for your interest in Constellium. Let’s turn to Slide 5 and discuss a highlight from our first quarter results. I would like to start with safety, our number one priority. We delivered best-in-class safety performance in the first quarter with a recordable case rate of 1.6 million – sorry 1.6 per million hours worked. In the first quarter, we had several sites achieve safety milestones with anniversary from number of years up to seven for one of our plants without a recordable case. I want to congratulate all of our employees on this excellent performance. But the safety journey is never complete and we all need to remain focused on this critical priority. While our performance in the quarter was excellent, we are always focused on maintaining and improving our safety performance. It can never be taken for granted. Turning to our financial results, shipments were 401,000 tons, up 4% compared to the first quarter of 2021 due to higher shipments in PARP and A&T. Revenue increased 48% to €2 billion. This was primarily due to 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 value-added revenue, which reflects our sales excluding the cost of metal was €652 million, up 21% compared to the first quarter of last year. Our net income of €179 million, compared to €48 million in the first quarter of 2021. As you can see in the bridge on the top right, adjusted EBITDA was €167 million, 38% above the first quarter of 2021 with PARP adjusted EBITDA increasing by €14 million and A&T adjusted EBITDA increasing by €34 million versus the prior year. This performance was ahead of our expectations for the quarter and a new record for us in the first quarter. Underlying this performance was a rebound in aerospace demand and solid cost performance, as well as continued strong demand from packaging and industrial customers who are experiencing significant cost pressures which Peter will discuss in more detail, but thanks to our pricing power, contractual protections and our work on costs, we are managing the current inflationary environment very well. Moving now to free cash flow, we extended our track record of consistent free cash flow generation with €26 million in the quarter. As you can see on the bottom right of the slide, we demonstrated our commitment to deleveraging and ended the first quarter at 3.2 times or down 1.4 times from the end of the first quarter last year. We remain committed to achieving our medium-term leverage target of 2.5 times. Overall, I am very proud of our first quarter performance. We delivered strong adjusted EBITDA, solid free cash flow generation and further deleveraging despite significant inflationary pressures. Looking forward, there are clearly uncertainties on the macroeconomic front and on the geopolitical front with the war in Ukraine, which I will come back to later in the presentation. However, on a positive note, we have demonstrated our ability to successfully manage the business through challenging times and we are demonstrating our ability to offset the current inflationary pressures. In addition, we are seeing a strong order book in most of our businesses. As a consequence, we are optimistic about our prospects for the remainder of this year and beyond and we are raising our 2022 adjusted EBITDA guidance to a range €640 million to €660 million. That increases our previous guidance of €600 million to €620 million. In addition, we now expect free cash flow in excess of €170 million in 2022 that increases our previous guidance of greater than €150 million. At our recent Analyst Day, we presented the long-term vision for the company that includes volume growth underpinned by sustainability-driven megatrends, improving profitability and returns and an ambitious set of sustainability targets. We are highly focused on executing our strategy, achieving our ESG targets, delivering on our long-term guidance of greater than €800 million of adjusted EBITDA by 2025 and increasing shareholder value. 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. Please turn now to Slide 7. We began disclosing a new metric for our business VAR or Value Added Revenue at our Analyst Day earlier this month. As a reminder, VAR is effectively our gross revenue minus the cost of metal. Going forward, we will report this metric each quarter. Value added revenue was €652 million in the first quarter of 2022, up 21% compared to the prior year. €28 million of this increase was due to higher volumes in PARP and A&T, €67million was due to improved price and mix. The price and mix bucket includes a €10 million customer payment related to a contractual volume commitment in A&T. The balance of the change was due to favorable FX translation tied to a stronger U.S. dollar. There are two important takeaways from this slide. First, as Jean-Marc noted, the top-line dynamics in our business are strongly favorable. Second, we have adjusted EBITDA of €167 million in the quarter, our margin on value added revenue in the quarter was 25.7%. Now, turn to Slide 8 and let’s focus on our PARP segment performance. Adjusted EBITDA of €82 million increased 20% compared to the first quarter of 2021. Volume was a tailwind of €6 million, as higher shipments in packaging and specialty roll products offset lower shipments in automotive roll products. Packaging shipments increased 6% versus last year on continued strong demand, automotive shipments decreased 6% versus last year on continued impacts from the semiconductor shortage. Price and mix was a tailwind of €24 million on improved price including inflation-related pass throughs and a stronger packaging mix. Costs were a headwind of €20 million as higher operating cost due to inflation more than offset favorable metal cost. FX translation, which is non-cash was a tailwind of €4 million in the quarter due to a stronger U.S. dollar. Now, turn to Slide 9 and let’s focus on the A&T segment. Adjusted EBITDA of €53 million increased 169%, compared to the first quarter of 2021. Volume was a tailwind of €11 million. Aerospace shipments increased 23% and TID shipments increased 11%. Price and mix was a tailwind of €32 million on improved price including inflation-related pass throughs and stronger mix with more aerospace and a better TID mix. As I mentioned before in the discussion of VAR, the price and mix bucket in the first quarter included a customer payment of €10 million related to a contractual volume commitment. Costs were a headwind of €10 million on higher operating costs due to inflation and production increases. FX was a tailwind of €1 million in the quarter due to a stronger U.S. dollar. Now, turn to Slide 10 and let’s focus on the AS&I segment. Adjusted EBITDA of €37 million decreased by 3% compared to the first quarter of 2021. Volume was a €1 million tailwind as industry shipments increased 11% on strong broad based demand, while automotive shipments decreased 12% due to reduced demand resulting from the semiconductor shortage. Price and mix was a €13 million tailwind on improved price including inflation-related pass-throughs and stronger industry mix. Costs were a headwind of €15 million on higher operating cost due to inflation. Now turn to Slide 11 where I want to give an update on the current inflationary environment we are facing and are focused on cost control to offset these pressures. First, in the first quarter, as expected, we experienced more significant inflationary pressures across the business than in previous quarters, many of which were exacerbated by the war in Ukraine. As you know, we operate a pass through business model, so we are not materially exposed to changes in the price of aluminum, our most significant cost input. That said, metal supply remains tight today and we are tactically and strategically doing what we can to carefully manage our metal inputs. The cost of alloying elements like magnesium are significantly higher this year due to supply disruptions and to the actions we have taken in recent quarters to secure supply. Non-metal cost like labor, energy, maintenance equipment and supplies and transportation are all higher compared to last year. With respect to energy, as previously noted, we purchase it on a rolling forward basis, which has helped us mitigate some of the current cost pressures. However, our energy cost will run materially higher this year, particularly in Europe given the extraordinary energy price increases. Now let me discuss the various tools we have to offset these inflationary pressures. Our business has continued to focus on cost control and again delivered strong cost performance in the quarter. Our recently announced vision 2025 initiative, which will continue many of the horizon 2022 projects around metal, operating excellence and fixed costs will help us combat rising cost in the future. On the commercial side, many of our existing contracts have inflationary protection such as PPI inflators or surcharge mechanisms. We are also signing new contracts with better pricing and inflationary protections. To provide one notable example, we have had very good success in adding magnesium price protection mechanisms across our customer base. While inflation will be significant in 2022, we believe it is manageable and it will be largely offset by improved pricing and our relentless focus on cost control. The net impact of inflation and the actions we are taking to offset it are included in our revised guidance for 2022. Now, let’s turn to Slide 12 and discuss our free cash flow. We generated €26 million of free cash flow in the first quarter on strong adjusted EBITDA and lower cash interest despite working capital build associated with increased activity and higher metal prices. As you can see on the bottom left of the slide, we have continued to deliver on our commitment to generate consistent, strong free cash flow. Since the beginning of 2019, we have generated over €490 million of free cash flow. Looking at 2022, we now expect to generate free cash flow in excess of €170 million. We expect CapEx to be between €250 million and €260 million. We expect cash interest of approximately €100 million, which represents a milestone for the company and reflects the significant actions we have taken to reduce debt and cash interest. We expect cash taxes of €20 million to €25 million. Now, turn to Slide 13 and let’s turn to Slide 13 and discuss our balance sheet and liquidity position. At the end of the first quarter, our net debt was €2 billion. This is roughly flat compared to the end of 2021 as €26 million of free cash flow generated in the quarter was mostly offset by unfavorable non-cash FX translation with the strengthening of the U.S. dollar. Our leverage reached a multi-year low of 3.2 times at the end of the first quarter or down 1.4 times versus the end of the first quarter of 2021. Given our revised 2022 guidance for adjusted EBITDA and free cash flow, we expect leverage below three times by the end of 2022 and we remain committed to deleveraging and achieving our 2.5 times leverage targets. As you can see in our debt summary, we have no bond maturities until 2026. We are proud of the progress we have made on our capital structure and of the financial flexibility that we are building. Our liquidity was strong at $853 million as of the end of the first quarter. With COVID-19 hopefully largely behind us, we are likely to reduce the extra liquidity we added during the pandemic over the coming quarters. I’ll now hand the call back to Jean-Marc.

Thank you, Peter. Before updating on our end-markets, I want to address the war in Ukraine as it relates to Constellium. Please turn to Slide 15. I need to start by recognizing the tragedy of this conflict and the humanitarian crisis it is creating. This is a horrible situation for Ukraine and totally unnecessary. Thus far the war has had a limited impact on Constellium beyond its broader impact on commodity prices. We have no operations and de minimis sales in either Russia or Ukraine. We do buy a limited amount of metal from Russia. We also, like the rest of Europe, get a portion of our natural gas from Russia. To-date, our operations have not materially affected. We are obviously monitoring the situation very closely. Let’s turn now to Slide 16 and discuss the current outlook for our end-markets. For those of you who are able to participate in our recent Analyst Day, the message is remain consistent. Demand generally remains very strong in the markets that we serve. We are benefiting from sustainability-driven, secular growth trends such as consumer preference for infinitely recyclable aluminum cans, light weighting in transportation, and the electrification of the automotive fleets. Constellium is well positioned today with our diverse and balance portfolio to capture this growth. Starting with packaging, packaging is a core market for Constellium and represented 44% of our revenue over the last 12 months. The growth in demand for aluminum cans is underpinned by consumer preference for cans versus other alternatives such as plastics or glass. Aluminum cans are infinitely recyclable making them the most sustainable beverage packaging container and a well understood participant in the circular economy. The packaging market is strong in both North America and Europe. We expect mid-single-digit demand growth in the medium term, which is supported by can maker capacity additions in both regions as exemplified by recent announcements of two new can lines and the expansion of an existing plant by adding another can line in Europe. We are doing our best to meet the needs of our customers. We recently announced a series of projects to unlock 200,000 tons of capacity by 2025 to serve this growing market and another 140,000 tons by 2030. These Brownfield projects will expand our capacity in both North America and Europe and come with very attractive returns for our shareholders. Now let’s move to automotive. Automotive represented 25% of our revenue over the last 12 months. Constellium is well positioned in both sheet and extrusions to benefit from the secular shift to aluminum in automotive and the electrification of the automotive fleet. Electric vehicles need to be light to meet their range objectives, which makes aluminum the logical material of choice for auto body sheet crash management systems, structural components, and battery enclosures. We also expect continued light-weighting of internal combustion engine vehicles to meet increased regulation to societal focus on sustainability and demand for improved safety and performance. Near term, automotive demand continues to be hindered by the semiconductor shortage. OEMs experienced production stoppages again in the first quarter. We expect these continue in the second quarter of this year and to modestly improve in the second half. From an end-market demand perspective however, we remain very positive of this end-market and in its growth potential dealer inventories remain low and we believe underlying consumer demand remains very strong, especially for light trucks, SUVs and luxury vehicles where Constellium has greater exposure. Let’s turn now to aerospace. Aerospace returned to year-over-year growth for us in the first quarter. Over the last 12 months, aerospace represented 7% of our revenue, which is down from 15% in 2019 pre-COVID. Major OEMs have announced build rates increasing in the near-term and we are now seeing this translate into increased customer orders that we still expect the path to full recovery to be gradual. Over the longer term, we remain confident that the fundamentals driving aerospace demand remain intact including growing passenger traffic and greater demand for new more fuel-efficient aircrafts. Turning lastly to specialties. Specialties represented 24% of our revenue over the last 12 months. We continued 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 economies in Europe and North America, which is also of note that many of the sustainability-driven secular growth trends impacting our other world markets are very much at play here as well. For example, light weighting is driving increased applications for aluminum in rail, trucks and boats. In addition, increased investments in renewable energy is increasing demand for our extruded products. Specialties markets are generally strong today in both Europe and North America. Turning to Slide 17, we detail our key messages and financial guidance. Constellium’s performance in the first quarter of 2022 was very strong. We delivered record adjusted EBITDA of €167 million through solid operational performance and strong cost control in the face of significant inflationary pressures and other supply chain challenges across our business. Importantly, we also further extended our track record of free cash flow generation and further deleveraged our balance sheet to a multi-year low of 3.2 times net debt to adjusted EBITDA. Looking forward, we are well positioned to deliver a strong performance in 2022 and beyond. Demand remains strong across most of our end-markets. I strongly believe the demand growth we are seeing across our end-markets is durable given the sustainability-driven secular growth mega trends behind them. We are confident in our ability to offset the current inflationary pressures with improved pricing and our relentless focus on cost control. We remain focused on execution and we are excited by the opportunities to grow our business and enhance its profitability and returns. For 2022, we are now targeting adjusted EBITDA of €640 million to €660 million and free cash flow in excess of €170 million. Our guidance assumes business conditions remain roughly as they are today. Long-term, we are targeting adjusted EBITDA in excess of €800 million by 2025. We remain focused on operational performance, cost control, free cash flow generation, the achievement of our ESG objectives and shareholder value creation. I am very optimistic about the future. With that, operator, we will now open the Q&A session please.

[Operator Instructions] And our first question comes from the line of Emily Chieng with Goldman Sachs.

Good morning, and thanks for taking my question. My first one is around the updated EBITDA guidance and free cash flow guidance there. I believe historically you are seeing some seasonality in your EBITDA profile and Q2 and Q3 have historically been the stronger quarters. So, I guess, given this robust performance that was seen in Q1, is that what’s driving the increased confidence in raising for your guidance or is it increased visibility on cost control trap caused to be up?

Yes. Good morning, Emily, and thanks for the question. Well, both, you are right that there is seasonality in our business and Q2, Q3 tend to be stronger, Q4 tends to be weaker. We are seeing very good results that’s our ability to pass through inflation pressures on to our customers. We are seeing good results in terms of executing in our plans and managing costs. And also the visibility in our order book has grown with. This is substantial raise to our guidance and a lot of it has to do with the aerospace markets and we saw the order book firming up for the rest of the year quite recently and this is a very good element for the future. So, that’s what’s driving the guidance update.

Understood and that makes sense. And my follow-up is, just taking a different route there and we have seen some news headlines around like gas delivery holds from Russia to a couple of countries in Europe. Any early impacts at this point that you can foresee to your customer base or to your own operations in Europe at this point?

Yes. You are right to point that, as they announced yesterday that they would start deliveries in Poland and Bulgaria. We don’t have operations there. So it doesn’t have any impact on us. And as for the customers are concerned, we do have some customers that have operations in Poland and that could have some impact on them. I don’t know. It’s very recent. But I don’t think that to be material to the rest of the company. But clearly, we are monitoring the situation very closely, because should that situation involves other countries and it would have a detrimental effect on our operations and the operations of our customers, as well.

Understood. Thank you.

Thank you. And our next question comes from the line of Curt Woodworth with Credit Suisse.

Yeah, good morning, Tom, Mark, and Peter. Congrats on the start.

Thanks.

Thank you. Good morning, Curt.

First question just within the A&T segment, it seems like volume and mix certainly within aerospace was significantly maybe better than you expected last quarter. So I was just wondering if you could provide a little bit more color on what you are seeing on the aerospace side of the business and how you see volume and margins trending into 2Q? And then, just, within the pricing, you caught out €32 million in price in A&T. Was the €10 million one-time benefit included in that number? And can you parse out the pricing benefit between leverage to aero versus the TID segment, because my understanding is that typically the aerospace pricing is fairly fixed? Thank you.

Sure. I’ll start and Peter will help me, Curt. So, to give you a bit of color for what’s happening in aero, I mean it’s useful to go back in time, right. We commented a while ago about our sales in aero going down 50% compared to where they were before when actually the build rates were not going down by as much and the reason for that was material destocking as throughout the supply chain people were holding cash and depleting inventories as much as they could through the crisis. And now what we knew would happen at some point is happening. The timing of when it would happen was always unclear, because you never know until you know and typically what we’ve seen in the past cycle is it takes a couple of months for the supply chain to experience a bull effect and start back up very quickly. So that’s what happened in the first quarter and we didn’t know whether – initially whether that was very strong and durable, but we are now seeing it with our order book has been durable and again, that’s why we got quite strong visibility for the rest of the year. So, this is happening and what this is creating is, customers wanting to buy outside of the major contracts we have in excess of what they would like typically on the spot market or in their short-term contracts. And therefore that creates a lot of excitement throughout the industry to get all these volumes ramped up and ready. We are fortunate enough that we had made the bet that 2022 was the year when it would snap back. So we brought back some resources and that’s why you are seeing some increased cost as well in A&T to make sure we ramp up and meet the demands of our customers. So we are in a good place and we are looking at the rest of the year as being strong and getting progressively stronger. So that’s a good thing. When it comes to your question on pricing, yes, the €10 million one-off payment is included in the – I think €32 million we are showing. So that’s a one-off clearly and maybe, Peter, do you want to add a few comments?

Well, the only thing I’d say is that, so, again, the aerospace tons as we said in the past, they are very, very enumerative tons. So the margins on those tend to be very good. We are – we do – we are in long-term kind of contracts on the aerospace tons. So we haven’t renegotiated a lot of aerospace contracts in the context of this period. But I would also say that the TID margins are very strong currently and we have negotiated a number of TID contracts and we are able in those contracts to get higher prices and including some of the inflationary pass-throughs. So you are seeing that effect too in that price bucket.

Okay. And then, within automotive, can you just comment on what you are seeing there in terms of the supply chain the visibility and if you could maybe compare and contrast kind of how you are seeing trends evolve between U.S. and Europe in the end of the second quarter? Thanks very much.

Yeah, so, we are still seeing disruptions in the supply chain and production stoppages at the different OEMs, which come with very short notice and we expect that state of flex to continue for the rest of the year with maybe some improvement in the second half, but I think a year ago we are also hoping for an improvement in the second half of 2021, which didn’t materialize. At the moment, what it means for us is that we are typically running 15%, 20% below full capacity utilization. So that gives us some margin to grow and we believe this will normalize at some point. We got the contracts to fill out the outlines. So we hope this situation resolves itself at some point, but in our revised guidance, we have not – we are not expecting for it to be resolved this year.

Yeah, the only thing I’d add is that, again in packaging, we have the – in the PARP business, we have the benefit of being able to supplement packaging tons for auto tons and in our AS&I segment we have the ability to supplement incremental industry tons for kind of auto structures tons. So, that gives some offset. We’ve kind of calibrated that at about a €5 million per quarter runrate. And we’d still be somewhere in that ZIP code. In other words, not a major improvement from what we saw in the fourth quarter.

Okay. Thank you.

Thank you.

Thank you. And our next question comes from the line of David Gagliano with BMO Capital Markets.

Thanks for taking my questions. I just have a couple of clarification questions on some of the commentary. First of all, in the A&T business, $961 or sorry €961 of margin per ton. If we simply take the 10 million divided by 55,000 tons it’s a $181 – sorry Euro, €181 margin benefit. Is that right? Should we back that out on a go forward basis which gets margins per ton down to about €800? Is that a reasonable assumption moving forward for the A&T business?

Well, I would definitely back out the one-time adjustment and then, we’ve guided to 700 to 800 per ton for that business. Now as they all comes back, then we should get into that range, but I would definitely make the one-time adjustment.

Okay. And it is straight, right, just 10 million divided by 55,000 tons, that’s straight to the margin, right?

Yes, that’s exactly right.

Okay. Okay. And then just on the natural gas exposure to Russia, you mentioned it’s more material than obviously the other raw materials. Can you quantify how much exposure there? And can you talk through direct implications for natural gas exposure to Russia outside the Poland if things change?

Sure. So, in terms of price, we essentially – the guidance we gave you consider that we have locked in and we have locked in natural gas prices for the rest of the year. So we don’t have really a price exposure. We could have an availability exposure if Russia decides to shut down the gas or if Europe decides to not buy from Russia, varying degrees of it. Now we are most – our biggest users of gas are our plants in France, which is less dependent than the average of Europe – sorry, Germany, less dependent on Russian gas for their supply. Now, what happens in case there is curtailment of gas deliveries for whatever reason, it is impossible to have them, right, because we – to get to a place where you don’t know what priorities are going to be given to by what governments to what sectors, the private consumer versus the industrial consumers. So, I wouldn’t venture into – trying to assess different scenarios because they are – the remotes to that makes impossible to tell.

Okay. Yeah. Understood. Or it’s extremely complex situation there. But can you just give us the – what percentage of your natural gas supplies for your operations in Europe comes from Russia?

It depends by country and it’s…

And we don’t buy…

Overall.

We don’t buy from Russia. We buy from the local utilities and then if you get to a government mandate or you get to a war economy, right, where utilities are going to be allocated and rationed, I think you get to a place where your exposure to Russia becomes a theoretical thing. I mean, just French needs 200% of gas - natural gas in France comes from Russia for instance, now the French utilities will decide upon depending on what the governments will tell them to do who is getting the 80% of the gas that is left and we don’t have that work. So there is no way to tell. So I am not trying to venture on the question I think, because no answer that anybody knows at this stage.

Now that’s helpful. I appreciate the additional color. Thanks.

Sure, David.

Thank you. And our next question comes from the line of Timna Tanners with Wolfe Research.

Hey, good morning. Wanted to just maybe it starts on being a little up again to take on the guidance just if we do back out the kind of more one-time item and then annualize, it does seem like Q1 is kind of a steady story for the rest of the year, but I also understood that you are expecting perhaps better volumes in the second half and steadily improving aerospace. So, we interpret the guidance is saying that higher volumes will be somewhat offset by higher costs or is there some I am missing there?

No, I think that’s a reasonably good summary. I mean, we – again, we have with aerospace hopefully continuing to improve through the year. Our other businesses are generally strong. We are not assuming that there is a big change on auto, maybe a slight improvement in the back half of the year. So, aerospace has probably been the big mover there. And then we will have higher costs as we go through the year and energy in particular as we’ve talked about – as we mentioned in our prepared remarks. So, I think that’s a fair summary, Timna.

Okay. So, margin expansion opportunity is not embedded in this guidance but in the past, we have seen a bit of a just – end volume recovery. Is that – is it just fair to say that for now you are not assuming much expansion in margins or volume?

Yeah, we are assuming that margins are staying relatively constant over the rest of the year. And again, this aerospace comes quicker, that could be some upside to that. If auto comes back stronger, there could be some upside to that. So, there is some potential benefits, but again, it’s early in the year and it’s hard to call these things and particularly when you have the backdrop of some of craziness going on with – on the macroeconomic and the geopolitical front.

Sure. Appreciate that. Thanks again.

Yeah.

Thank you. And our next question comes from the line of Corinne Blanchard with Deutsche Bank.

Hey. Good morning, Jean-Marc and Peter.

Hi, Corinne.

Most of my questions has been answered, but maybe just can you give us a little bit of view in backlog on the pricing trend between packaging and also I think you are seeing some improvement from the packaging side, but just trying to understand the mix in that segment?

Yes. Sure. So, packaging, we do see an improvement in pricing. It’s continuous and we see it on the occasion of the contract renewals and in our ability to pass through inflationary pressures. Automotive is a little bit trickier in terms of pushing inflation to customers. And – but we expect that this will normalize over time. So, when you look at the bridges that Peter shared in his prepared remarks, you see that there is quite a bit of – the net of price and cost is very favorable in PARP and is kind of neutral in AS&I which is more exposed to automotive. And that gives you a bit of a flavor for the differentiated ability we have in increasing pricing in automotive versus packaging. But over time, I expect us to be able to further increase prices in automotive. It’s just not happening as quickly as in packaging and in 2022.

Yeah, and just like we experienced in the packaging business you have to be patient, right? These are long-term contracts and we believe that the supply demand relationship is going to tell the story and ultimately it’s going to turn in our favor and we’ll have opportunities there.

Great. Thank you. And maybe one more on the free cash flow guidance and if you can just comment on the cadence that you are facing throughout the rest of the year working caps [Indiscernible]

Yes, so, on trade working capital, we did have a build of trade working capital in the first quarter and that’s really tied to a couple things. You’ve got some seasonality there. You’ve also got the aerospace recovery and you have some impact from higher metal prices. So, we expect that working capital should be – maybe a modest use for the rest of the year. And then, CapEx, we will – we tend to spend our CapEx on a more back-end weighted basis and that has to do with the fact that the best time to do CapEx is when our customers are shutdown and that tends to be kind of in the later part of the year. So, and in EBITDA, remember that EBITDA, we have our first two quarters are typically the strongest or kind of with Q3 being also a good quarter, Q4 tends to be a little bit lighter. And I would expect the overall free cash flow to be more or less equally distributed to get to the 170, more or less equally distributed over the back half of the year. There is some kind of puts and takes in each quarter. But obviously, it will likely improve from the – in the second quarter or improve from the first quarter.

Great. Thank you. That’s helpful. Fair comments.

Thank you. And our next question comes from the line of Josh Sullivan with Benchmark Company.

Very good morning.

Morning, Josh.

Hey, Josh.

Just to follow-up on aerospace, clearly, that’s a strong backdrop here. But you have some longer timeframes, 787, 777X that were telegraphed to the market, Raytheon looking at some picking in constraints longer term. Are these factored in the outlook? How are distributors maybe looking at these issues against that overall destocking trend?

Yeah, so, Josh, we are not expecting lot of good news on the wide body side in 2022 in our outlook. So really what we are seeing the increased pool for markets and that’s for narrow body single aisle aircraft. So that’s what we are seeing for 2022 and for our long-term guidance, 2025, we think we’ll be in a place where the wide bodies will have normalize back to where they were pre-COVID by and large. So, that’s what’s we have embedded in our both the short-term outlook and long-term guidance.

Yeah, and we don’t see, like you called out titanium, we don’t see titanium as a 2022 issue.

Alright. Okay, okay. And then, just as aerospace then does pick up here, how does that impacts your TID capacity? Are you able to get some extra pricing power out of TID as – is aerospace, maybe you thought a little bit more of that supply?

Yeah, so, typically, you are absolutely right, when aerospace pools as TID pricing improves. So we expect that to continue. The challenge will be for us to keep all the volumes we have in TID when aerospace goes back to its full potential and that’s why Ingrid was talking at the Analyst Day, Ingrid Joerg was talking about the investments we are making and the focus we have on debottlenecking our plants and adding some more capacity. So that we can maintain our TID volumes, grow our aerospace and enjoy the benefits of better pricing power, even better pricing power.

Thank you.

Sure.

Thank you. [Operator Instructions] Our next question comes from the line of Karl Blunden with Goldman Sachs.

Hi, good morning and congrats on the strong results.

Thanks, Karl.

Just, two clarification items, one was the volatility in energy price and I appreciate your commentary around the timing that that flows through. Is there any change that you are looking into – for contract structure for example to counter just the higher volatility we are seeing, particularly in the European region?

Yeah, it’s a good question. We are – the answer we are always looking at ways to do this better and typically for the most part, what we do is, we buy our energy as Jean-Marc said, from our local supplier and then we kind of do the price fixing with them, right? So, and there are some limitations on how far forward you can buy the energy when you are buying it from the supplier. And so there are opportunities to potentially use the financial markets to buy a little bit further out. So, we are investigating some of that, but in the short-term, we are trying to find the opportunities to lock in energy prices that are kind of manageable over the next couple of years. So, and the curves are quite backward dated. So there are opportunities to lock in longer term energy prices now despite the current elevated prices.

And on the commercial side, our custom is we want to make sure that the contracts we enter into factor in the elevated price of energy. So that’s also a big topic for us to make sure that we are not left with the exposure on the energy side.

That makes sense. Just on aero, there has been some discussion already with that you anticipated higher volumes and prepared for that through some investment and resources a little of CapEx, but is there a kind of a sense for how much growth in shipment volumes you can support before you need to see another step change in - and how much you are investing in the business? Do you feel quite comfortable with the current trends?

We feel quite comfortable with the current trends and we believe that we can go back to the pre-COVID levels and maintain the higher TID shipments with the investments that we discussed at the Analyst Day just a few weeks ago overall for the company. So, we feel we are in a good place. I mean, it’s going to take a lot of work and strong execution to get there, but we feel we can do it.

Thanks for the time.

Sure.

Thank you. I am showing no further questions. So with that, I’ll turn the call back over to Jean-Marc Germain, CEO of Constellium for any closing remarks.

Well, thank you very much, everyone for your participation today. As you can see, we are very pleased with our performance now and our outlook for the year. I think these are very challenging times and lots of uncertainties that we see but we are showing again that we are able to navigate troubled waters. We are able to pass through inflationary pressures. We see continuing demand for our products and we look at the future with as much optimism as is possible given the circumstances. Thank you so much, and have a good day. Bye, bye.

Ladies and gentlemen, this concludes today’s conference call. Thank you for participating and you may now disconnect.