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Constellium NV (NYSE:CSTM)
Q2 2021 Earnings Call
Jul 28, 2021, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good Day, thank you for standing by, and welcome to the Constellium Second Quarter 2021 Earnings Call. [Operator Instructions]. I would now like to hand the conference over to your speaker today, Mr. Ryan Wentling, Director of Investor Relations. Please go ahead.

Ryan Matthew Wentling -- Director of Investor Relation

Thank you, operator. I would like to welcome everyone to our second quarter 2021 earnings call. On the call today are our Chief Executive Officer, Jean-Marc Germain; and our Chief Financial Officer, Peter Matt. After the presentation, we will have a Q&A session. A copy of the slide presentation for today's call is available on our website at constellium.com, and today's call is being recorded. Before we begin, I'd like to encourage everyone to visit the company's website and take a look at our recent filings. Today's call may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include statements regarding the company's anticipated financial and operating performance, future events and expectations, and may involve known and unknown risks and uncertainties. For a summary of specific risk factors that could cause results to differ materially from those expressed in the forward-looking statements, please refer to the factors presented under the heading Risk Factors in our annual report on Form 20-F. All information in this presentation is as of the date of the presentation. We undertake no obligation to update or revise any forward-looking statement as a result of new information, future events 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.

Jean-Marc Germain -- Chief Executive Officer & Executive Director

Thank you, Ryan, and good morning, good afternoon, everyone and thank you for your interest in Constellium. I'd like to turn to slide five and discuss the highlights from our second quarter results. Shipments were 406,000 tons. That's up 31% compared to the second quarter of 2020. Revenue increased 47% to EUR1.5 billion. This was primarily due to higher shipments and higher metal pricing. Remember, while our revenues are affected by changes in metal prices, we operated pass-through business model, which minimizes our exposure to metal risk. Our net income of EUR199 million compared to a net loss of EUR32 million in the second quarter of 2020. Adjusted EBITDA was a record EUR170 million, 110% above the second quarter of 2020% and 2% above our previous record from the second quarter of 2019. P&ARP and AS&I each reported record adjusted EBITDA. As a result of our strong first half performance and our outlook for the second half, we are increasing our 2021 guidance for adjusted EBITDA to a range of $545 million to EUR560 million. That is up from our previous guidance of 510 to EUR530 million. We extended our track record of free cash flow generation with EUR35 million in the quarter, bringing our first half total to EUR81 million. We now expect free cash flow in excess of EUR125 million in 2021. Moving now to leverage. As you can see in the chart on the right, our leverage declined to 3.7 times at the end of the second quarter, down nearly a full turn from the first quarter and back to our pre-COVID low. We remain committed to deleveraging and we expect to deleverage further in the back half of the year. Lastly, Constellium was included within the Russell 2000 Index in June. We believe index inclusion is very important and are excited to be included in this Benchmark Index. Overall, I am extremely proud of our second quarter performance and the tremendous performance of all of our teams. We delivered strong adjusted EBITDA, Solid free cash flow generation and substantial deleveraging. This performance is a clear validation of our business model and our strategy.

Now, let's turn to Slide 6 to discuss our ESG highlights of the first half. At Constellium, the health and safety of our employees is also priority. Constellium deliver the recordable case rate of 1.8 in the first half of 2021, in line with our record low performance in 2020. Our safety results are among the best in the industry and we remain committed to continuous improvement. In the first half of the year, we should 2 sustainability-linked bonds. Our February issuance was the first SLB in the metals industry. Now approximately 40% of our outstanding bonds now as a Sustainability-Linked future. Over the course of 2021, we will be developing out 20:30 sustainability strategy which will establish a new set of sustainability targets and the steps to achieve it. I can say with confidence that aluminum will be an important part of the solution, given it's unique characteristics. Constellium is very well positioned compared to global competitors on the basis of carbon footprint. The key aspect of our strategy will be delivering on our investment to increase our recycling capacity in Europe. These projects will lower our costs, generate an attractive retail and investment and help further reduce our overall carbon footprint. Constellium is also dedicated to gender diversity across the organization. I am proud to say that our Board of Directors reflects this commitment with two additional females directors added to our Board at 2021 AGM, we then now comprise over 40% of our Board members.

With that, I will now hand the call over to Peter for further details on our financial performance. Peter.

Peter R. Matt -- Executive Vice President & Chief Financial Officer

Thank you, Jean-Marc. And, thank you everyone for joining the call today. Let's turn to Slide 8 for the second quarter of 2021, Constellium achieved EUR170 million of adjusted EBITDA, an increase of 110% compared to the second quarter of 2020. Compared to the second quarter of last year, P&ARP adjusted EBITDA of EUR94 million increased by EUR36 million. A&T adjusted EBITDA of EUR42 million increased by EUR11 million and AS&I adjusted EBITDA of EUR41 million increased by EUR42 million. Holdings and Corporate costs of EUR7 million were comparable to last year. For the first half of 2021, Constellium achieved EUR291 million of adjusted EBITDA, a 27% increase compared to the first half of 2020. P&ARP and AS&I adjusted EBITDA increased compared to prior year and strong performance, while A&T adjusted EBITDA decline due to weaker aerospace shipments.

Now, let's focus on our segment performance. Turn to slide 9 for the P&ARP segment. Adjusted EBITDA of EUR94 million increased 63% compared to the second quarter of 2020 and as Jean-Marc noted was a record quarterly performance. Volume was up EUR42 million tailwind as shipments increased 29% compared to the second quarter of 2020. Packaging shipments increased 13% while automotive shipments more than doubled. While we saw some temporary weakness in automotive demand from the semiconductor shortage, this was largely offset by strong packaging demand. Price and mix was a tailwind of EUR7 million on a greater share of automotive shipments partially offset by a weaker packaging. Costs were a headwind of EUR8 million on higher costs due to increased activity notably maintenance, freight and labor costs due to the State aid received in 2020 and not in 2021. FX translation which is non-cash was a headwind of EUR4 million in the quarter due to a weaker US dollar. Now turn to Slide 10 and let's focus on the A&T segment. Adjusted EBITDA of EUR32 million increased 34% compared to the second quarter of 2020. Volume was a tailwind of EUR11 million. TID shipments increased 51% on strong broad based demand in both North America and Europe, while aerospace shipments declined 31%. Price and mix was a headwind of EUR6 million due to a lower share of aerospace shipments relative to TID. Costs were a tailwind of EUR8 million on solid cost control and favorable metal costs. Lastly, FX translation was a EUR2 million headwind in the quarter.

Now turn to slide 11 and let's focus on the AS&I segment. Adjusted EBITDA of EUR41 million increased by EUR42 million compared to the second quarter of 2020 and as Jean-Marc noted was a record quarterly performance. Volume was up EUR25 million tailwind with automotive shipments increasing 93%, and industry shipments increasing 37% and strong broad-based demand. Our automotive shipments were impacted by the semiconductor shortage, resulting in a moderate negative effect on adjusted EBITDA in the quarter. Price and mix was an EUR18 million tailwind due to the increased share of automotive shipments and cost with a one million EURO headwind on solid cost control. Turn now to slide 12, given the unique nature of the second quarter of 2020. We felt it was helpful to compare adjusted EBITDA in the second quarter of 2021 to the second quarter of 2019. On the left side, you will find our adjusted EBITDA bridge by segment. P&ARP adjusted EBITDA increased by EUR15 million on continued improvement across the business and notably at Bowling Green. A&T adjusted EBITDA declined EUR22 million lower aerospace shipments partially offset by higher TID shipments and strong cost performance. AS&I adjusted EBITDA increased by EUR11 million on improved operational and cost performance in Automotive Structures. On the right hand side of the slide, you will find our adjusted EBITDA bridge by driver. Volume was a headwind of EUR19 million, while most of our end markets are at or above 19 levels including packaging, automotive and specialties. Aerospace remains well below. Pricing mix was a headwind of EUR52 million primarily related to lower contribution from aerospace. Costs were a tailwind of EUR80 million, which reflects the cost we have taken out of the business through the pandemic and the ongoing success of Horizon 22. We are committed to retaining as much of this cost reduction as possible. And lastly, FX translation was a EUR5 million headwind as a consequence of a weaker US dollar. As the slide demonstrates we have made substantial progress on reducing our cost base and have significant earnings leverage to an aerospace recovery.

Now turn to slide 13, where I want to highlight our progress on Horizon 22 in our continued strong performance on costs. As of June, we have nearly achieved our EUR75 million structural cost reduction target. We are investigating further opportunities to reduce our structural costs and are confident we can find them. In addition to structural cost reductions, we believe there are substantial opportunities through a number of initiatives across the company, including metal cost savings, operational excellence, cost savings, procurement cost savings and interest cost savings. On the top right of the slide, you can see our cost flex with 82% in the second quarter. In other words, our cost only increased $0.82 for every Euro increase in revenue. Each segment contributed to these strong results, notably A&T at 70% and AS&I at 66%. This focus on costs helped us double our adjusted EBITDA year-over-year, while our shipments increased by only 31% and our revenue increased by only 47%. There is a lot of talk about inflation in the economy. And while we are seeing inflationary pressures in some areas notably, labor and freight thus far inflation has been manageable and remember that many of our contracts include inflation provisions that allow us to pass through some of this risk. We remain laser focused on limiting increases in our costs.

Now let's turn to Slide 14 and discuss our free cash flow. We generated $35 million of free cash flow in the second quarter, bringing our first half total to EUR81 million. As you can see on the top right of the slide, we have delivered on our commitment to generate consistent, strong free cash flow. Since the beginning of 2019, we have generated over EUR400 million of free cash flow. Looking forward, we expect to generate in excess of EUR125 million of free cash flow in 2021. We expect capex of approximately EUR225 million, cash interest of approximately EUR125 million and cash taxes of EUR5 to EUR10 million. We remain committed to significant and sustainable free cash flow generation.

Now turn to slide 15 and let's discuss our balance sheet and liquidity position. At the end of the second quarter, our net debt of EUR2 billion declined slightly compared to the end of the year as free cash flow generation was partially offset by EUR35 million of FX translation. Our leverage return to our pre-COVID low of 3.7 times. This is a remarkable achievement considering the contribution from our aerospace business remains far below the 2019 level. We expect our leverage at the end of the year to be at or below 3.5 times. As you can see in our debt summary, we have no bond maturities until 2026. Our refinancings in the first half of 2021 are expected to save EUR30 million of annualized interest expense. We continue to target cash interest of less than EUR100 million per annum and I am pleased to say that we are rapidly approaching this goal. Our liquidity was strong at EUR887 million as of the end of the second quarter, we expect to gradually reduce our excess liquidity over the course of 2021 and 2022 as the risk of COVID recedes.

I will now hand the call back to Jean-Marc.

Jean-Marc Germain -- Chief Executive Officer & Executive Director

Thank you, Peter. Let's turn to Slide 17. Secular growth trends are creating opportunities across strong portfolio and we are taking actions to capture these opportunities. Aluminum is a contributor to the circular economy. Aluminum is infinity recyclable and does not lose properties when recycled and like paper or plastics. Each of our businesses benefit from this competitive advantage, but the focus on the circular economy is currently most pronounced in packaging where can of the beverage packaging material of choice. Aluminum cans are cynically recyclables and can return to shells on 60 days. We are currently working on a number of initiatives to increase the can sheet capacity of our Muscle Shoals plant and are exploring other opportunities across our packaging platform to further increase our capacity to serve this growing market through debottlenecking and additional investment. In addition to being a major producer of can sheet, we are one of the largest recyclers of aluminum cans globally. We are planning to build on the recycling advantage of aluminum, for our investment to substantially increase our recycling capacity in Europe both for cans and [Phonetic]. Aluminum is also inherently lightweight, strong and corrosion-resistant. These traits provides a strong value proposition for transportation applications notably for lightweighting and for the electrification of utility fleet. Now in addition to our Auto Body Sheet capabilities, our recent extrusion press and Automotive Structures investments positioned us well to capture this growing demand. In addition, we believe that our recent investments in Ravenswood to unlock CID values of timing and will meet customer demand in non-automotive transportation application. We expect the regulatory environment to accelerate electrification of utility fleets. As I have noted in the past, electric vehicles contain substantially more of the aluminum products that we produce like auto body sheet, crash management and battery boxes and internal combustion engine vehicles. We are already seeing this shift in our older days with electric vehicles increasingly represented in our customer portfolios in both P&ARP and AS&I. One notable example is our recent announcement that we are supplying the Audi e-tron with auto body sheet and extrusions based structures, including parts the battery enclosure. I would also like to highlight our diverse and balanced portfolio of end market exposures. On the bottom left, you can see, our LTM revenue as compared to the 2019 revenue. Our portfolio has remained well but it and as Peter mentioned earlier, we have significant earnings growth potential when aerospace rebound.

Now let's turn to Slide 18 and discuss our outlook for our end markets. The packaging market is strong in both North America and Europe. We expect mid-single digit demand growth in the medium term. This growth is underwritten by new can lines announced by our customers in both North America and Europe. The can sheet market has continued to improve and we have secured multiple long-term agreements with customers both current and new over the past [Phonetic]. These agreements reflect the value that we bring to these markets as one of the largest domestic suppliers in both Europe and the United States and I'm pleased with the outcome.

Moving now to Automotive. Automotive demand as remained resilient despite the semiconductor shortage. Underlying consumer demand remains strong, especially for light trucks, SUVs and luxury vehicles, what Constellium has greater exposure. We continue to experience disruptions from semiconductor shortage with new shutdowns announced just last week. We expect these fixed cost to continue into the second half of 2021. However, we expect the financial impact to be manageable, due in large part to the strong underlying demand packaging. Let's turn now to Aerospace. Despite demand remaining at low levels in the near term, we remain confident that the long-term fundamentals driving aerospace demand growth remains intact, including growing passenger traffic and greater demand for new, more fuel-efficient aircraft. This is supported by comments raising from our customers around their plans to increase output as single-aisle aircraft. In the near term, optimism in the aerospace supply chain is increasing, but increased passenger traffic and recent aircraft orders from airlines. We expect this optimism to turn into increased orders for aerospace plate and sheet in the coming quarters. In other specialties, we continue to execute on our strategy of expanding in each products in a diversified range of markets. In general, these markets are dependent from the health of the industrial economy in Europe and North America. Specialties markets are generally very strong across both Europe and North America.

Turning now to slide 19. We detail our key messages and financial guidance. I'm very proud of Constellium's second quarter performance. We reported record adjusted EBITDA extended our track record of free cash flow generation and delevered by nearly a term. We are committed to completing our deleveraging journey. I am also very optimistic about our future demand in virtually all of our end markets, is strong. Importantly, this recovery feels durable with an aerospace recovery still to come. I believe there are many opportunities for Constellium to benefit from secular megatrends. Aluminum is part of the solution to a more sustainable world and Constellium is well positioned to be a winner. We have already taken actions to capture some of these are able to achieve and we will continue to plant the seeds for future growth in a disciplined manner. For 2021, we are targeting adjusted EBITDA of 545 to EUR560 million and free cash flow in excess of EUR125 million. We remain focused on operational performance, cost control, free cash flow generation and shareholder value creation.

With that operator, we will now open the Q&A session.

Questions and Answers:

Operator

Hi. Ladies and gentlemen. [Operator Instructions].

Our first question comes from line of Curt Woodworth with Credit Suisse. May begin.

Curt Woodworth -- Credit Suisse -- Analyst

Yes, thanks and good morning Jean-marc and Peter.

Jean-Marc Germain -- Chief Executive Officer & Executive Director

Good Morning.

Curt Woodworth -- Credit Suisse -- Analyst

First question is just with respect to the free cash flow outlook for the rest of the year and also some of the moving pieces year to date, we look at the impact of metal lag and the adjusted EBITDA reconciliations in 85 million headwind year-to-date and then also if there some losses on hedges are derivatives of another $45 million or so. I'm just curious to the degree that impacted free cash flow, I don't know if some of those hedges physically settled. And then in terms of going forward, would you expect, or what is your expectation around working capital or potential continue to overhang of metal lag on the business?. My first question.

Jean-Marc Germain -- Chief Executive Officer & Executive Director

Okay. Curt, maybe I'll take those in slightly reverse order. But so on hedges, remember the hedges are, these are, which is mostly metal and it relates to hedges that we have on fixed price sales contracts. So, as metal prices rise, the derivative is in the money in a positive value and that's offset by kind of the commercial transaction underneath. So it's, we're completely hedged and it's just one-off other. So it's kind of an accounting adjustment, so on hedges, I think it should be kind of a neutral for us. On metal lag, remember metal lag what we're doing in metal lag. We're just making the adjustment between the fact that our IFRS accounts are on a weighted average cost basis and EBITDA stated on a LIFO basis. So, it's just that adjustment. And lastly, on working capital for the full year or so, this is something that we, we talked about in prior quarters that we hadn't seen working capital may expand but that as the business expanded we'd start to see it and we did see that in the second quarter and in the first half of the year. So, you know as we go forward through the full year we expect working capital to be a use for the full year and the extent of the use will really depend on the extent to which there is any pickup in aerospace or any incremental pickup in the business from where we are today.

Peter R. Matt -- Executive Vice President & Chief Financial Officer

And, I would just add that numbers working capital days. Actually, we're doing pretty well. So, it's because of increased metal prices and more business coming to us, but the teams are doing a fantastic job at managing working capital on a day-today basis.

Curt Woodworth -- Credit Suisse -- Analyst

Okay, got it. That's makes lot of sense on the metal lagging issue. I guess in the packaging market has been topical and it seems like last quarter you talked about how most of your 21 and 22 deals have been completed and now negotiation is more on a 23 basis, but I was wondering if you could help provide a little bit more context around sort of what you're doing packaging?. Can you comment on the amount of contracts that have reset, can you give any sort of transparency around how pricing compares this cycle. First last cycle. And with respect to the debottlenecking at Muscle Shoals over 75,000 tons. I think potential is more like a 100. Can you comment on exactly where that stands. How much of that debottleneck is now in the market or would you expect to get into the market next year?. Thanks.

Jean-Marc Germain -- Chief Executive Officer & Executive Director

So, Curt, on the packaging market conditions, we've seen them gradually improve over the past year and year and half and you know, I started was being mildly optimistic. Now, I'm very optimistic and that translates into pricing going up, which if you remember when we did the long-term EUR700 million of EBITDA guidance for 2022 pre-COVID. We said we were not expecting pricing improvement. We are seeing that now. Remember these are gradual resets because typically those contracts are 5 years, sometimes you have a little bit more renewing in one year than the other, but typically you would renew 20% of contracts every year or thereabouts and therefore 10% price increases only 2% price increase and any given year, but it adds up over time. So, we are seeing over cost of, we're seeing some improvement in pricing this year already, you can see a little bit of that to the variance analysis, we'll see more of that in 22, more of that in 23, more of that in 24 and I am very optimistic about the trend. What's really telling you that the discussions we have with our customers are more and more and more strategic in nature both our ability to accompany them over the long term and we saw that in Aerospace rights where we had, we moved from a historically 5-year contracts with Airbus to a 10-year contract, which obviously is a much more meaningful sizable and complicated contract, but we are seeing also some of that trend with can makers saying we're making all these investments. The beverage companies are really shifting the packaging mix. We want to make sure we are supplied. And there are economies that can be gained by all of us by having more of a long-term view. So, all that is very positive. Very conducive to a higher pricing and also set the stage for more capacity expansion. I mean the more visibility we have in our business, the happier we are about committing to some capacity expansion, as I mentioned in the prepared remarks, we're looking at what we can do in out Muscle Shoals also in net results for the markets are strong in both sides of the ocean, people want to depend more and more on onshore supply as opposed to imports and we're getting to price levels that justify making some incremental investments in our facilities. That's what we are studying and it's too early to to tell, but I hope in next 6 months or so, we should be able to have more visibility around what additional capacity, we can unleash in both Europe and the US. Now, you remember in Muscle Shoals we had announced 75,000 tons more capacity, we're well on track to deliver on that. But beyond that, we need a little bit more time to to fine-tune our numbers in our engineering.

Curt Woodworth -- Credit Suisse -- Analyst

And How do you, how do you think about balancing capital spending with respect to packaging when you have also very strong secular growth across automotive sheet and structures. And I think on your flat rolled auto business, it seems like you're getting pretty close to full utilization. So, I just kind of curious, do you plan to try to grow auto sheet more? Can you also discuss kind of the nomination dynamics within the Structures business?. I know that you took some time to digest what you have on the last 18 months, but it seems like that also is now heating up again. Thanks and congrats on a great quarter. Very impressive.

Jean-Marc Germain -- Chief Executive Officer & Executive Director

Thank you. Well all are good questions Curt. I would be remiss not to mention again that we are firmly committed to deleveraging. We are really happy with the progress we've made this quarter 3.7, but you know our long-term target is 2.5 and we'd like the long term to not be too much in the long term. So that's priority number 1, right?. Get to that 2.5 leverage, which has been a target of ours for a few years now. On this path to 2.5, we we will invest and we have the capacity to invest beyond maintenance capital right to get to profitable returns on growth projects, but we will make choices as you point out, because we want to make sure we do not compromise that best trajectory to 2.5 leverage. Within that, we think packaging as excellent opportunity, we're very pleased with the investments we've made in the TID and you remember the first Investor Day that Peter and I did back in 2017, we talked about Constellium not only being packaging aerospace and automotive, but I think a lot of specialties, right TID being one of them, and it is very important that we take care of that quarter of our business that has a very good products, very good applications where we got some good customer connections directly to OEMs and you see that translated in the margins we see in A&T today despite the very low aerospace. So, we'll keep on investing in that segment too. In terms of Auto Body Sheet, I think we are quite happy with where we are today and given the prospects of, I am not seeing a second pipeline in the US or 3rd one in Europe in the near future. We will continue to optimize our mix and and make sure that we deliver the differentiated products to our customers and that's going to be our focus. So, that's how we think about growth. Peter, anything you want to add.

Peter R. Matt -- Executive Vice President & Chief Financial Officer

Maybe just so Curt, as we said in the past, we've looked at kind of our capital spending and forecasted it out for several years and in that forecast, we have kind of various growth initiatives that we hope to undertake and then we prioritize them. Right. So, we're going to be very focused on where we start to spend on growth initiatives that we are super disciplined about the capital we're spending and that we're targeting high returns. And then the only other thing that I would supplement is that you asked about Auto Structures and there I would say our path on Auto Structures is we'll probably, you'll probably see us moderate the growth relative to what it was just a couple of years ago, but specifically focused on kind of very high return margin optimization initiatives.

Curt Woodworth -- Credit Suisse -- Analyst

Thanks, makes lot of sense.

Operator

And our next question comes the line of Josh Sullivan from The Benchmark Company. You may begin.

Josh Sullivan -- The Benchmark Company -- Analyst

Hey, good morning, great quarter. Can you just talk a little bit about the inflationary pressures and how you're able to pass a lot of those through. Is there any dichotomy between maybe some of the inflationary pressures and your European operations versus your US operations at this point?.

Peter R. Matt -- Executive Vice President & Chief Financial Officer

Sure. So, let me just kind of step back a little bit and talk about inflation. So, we have a couple of mitigants to inflation. So, one is in a number of our cost areas. We have our cost committed on a forward basis. So for example, energy is the best example of that where we've kind of bought our energy forward for, in the case of energy. It's about a year forward. So, we do have some mitigants in that case. We also have the mitigants in some of our contracts where we have the ability to pass through kind of inflationary cost pressures. And that's not everywhere, but it is across a number of our contracts and, as a company, we are kind of focused on increasingly building in these inflationary pass through clauses into our contracts and I will say in recent contract negotiations we're succeeding and getting them. So we feel kind of positive about that. Now, as to kind of specific areas of inflation we talked about labor a bit, we talked about transportation, so we are seeing some inflationary pressures in those areas. I think we feel we can still keep it under control for the time being, but we definitely are seeing if they are. And then lastly with respect to your question on Europe versus the US, I would say we're seeing kind of it depends on the topic in the spend area, but I would say in general, slightly more inflation in the US than we are in Europe.

Jean-Marc Germain -- Chief Executive Officer & Executive Director

And, maybe just added in this on labor inflation, we have contracts with bargaining units. I think they give us quite a bit of visibility over many years. So, we don't see inflationary pressure where we have that on the all the work for this year raises have been zero, right as a consequence of the COVID crisis and as Peter was mentioning, many of our contracts have inflation protection clauses. In addition, the best protection we have against inflation is actually our margin. The higher our EBITDA margin with inflation on EBITDA margin, right. That's a good thing. So, by balancing all that we are looking at, we're very, as Peter said, we're laser focused on containing costs, but we are quite sanguine about what we see in the market when it comes to inflation of these things.

Josh Sullivan -- The Benchmark Company -- Analyst

I appreciate all the detail. Maybe, just one on the general engineering market. Can you talk about some of the structural differences that can keep this cycle going long term?, I mean, do you see competitors raising production?. It does seem to be a bit of a relief now for the market, that how long can that cycle continue?

Peter R. Matt -- Executive Vice President & Chief Financial Officer

So, I think there is a number of factors that are in play here, some of them are external to us and some of them are internal. On the external side, you recovering economies in Europe and North America, you see the trend toward onshoring and shorter supply chains and you see [Phonetic] duties in extrusions in the Rolled Products in Europe, in the US and all that is creating a very good and very favorable environment, you're right that some competitors are increasing capacity as well in this space. But quite frankly, it's very needed given the trend toward onshoring. And specifically to us, we've had a very deliberate strategy, over the past 5 years to focus sales teams, product development engineers, application engineers on these markets building relationships with OEMs. So, we are not very dependent on distribution markets right where you're kind of the last variable to adjust. We're really deepening our relationships with customers and finding the products that are that gives them the best total cost of ownership. So that's helping us also justify higher prices and higher margins. So, I do think this recovery and our place in it as a long legs and should be quite sticky and you see that in the margins you we are reporting both AS&I we've got quite a bit of a specialties. You see it certainly in aerospace and transportation, where the margins you see today are higher than what aerospace margins were 5 years ago, and that's because we've been very good at, focusing on the where we really provide differentiated products in TID and even in a a few niches there where we are doing a pretty good job of optimizing what markets for us, but customers we bring real value to and that's a constant work of optimizing our assets in our production capabilities to best meet customers that have a need for the products we can deliver and offer a better margin. So I think it's got a long legs.

Josh Sullivan -- The Benchmark Company -- Analyst

Okay. if I could just sneak in one last one on the aerospace side, can you just talk about any indications of progress in the market at the distributor so levels the Airbus production announcements help at all?. Thank you.

Peter R. Matt -- Executive Vice President & Chief Financial Officer

Yeah. So we are hearing the same things. And we are here you directly from our OEM customers. So, there is anticipation for recovery and our customer resulting us be ready yet placing the orders. But, I think the momentum is building, it feels like destocking is getting close to it's end, it depends complicated. As you know, even better than we do. Josh, it's a very complicated, supply chain, there's many, many different parts in play here. But it feels like destocking is getting toward the end. So we stand ready to for demand pickup.

Josh Sullivan -- The Benchmark Company -- Analyst

Thank you.

Operator

Our next question comes from David Gagliano with BMO Capital Markets. You may begin.

David Gagliano -- BMO Capital Markets Equity Research -- Analyst

Hi, thanks for taking my question. I just wanted to drill down a little bit on the, the numbers themselves in the quarter. I think on a recurring basis there is so much volatility in EBITDA per ton in the A&T segment and I realized the volumes are relatively low and it can move our analog is mix. I wanted to bridge 2Q versus 1Q as long as the same 48-49, but EBITDA per ton went from EUR396 to EUR794. I'm just wondering or something like that. I'm just wondering can you break down that jump between, for example metal price related gains versus mix shift and other major buckets.

Peter R. Matt -- Executive Vice President & Chief Financial Officer

Sure happy to do it. So, couple of things. Let me just start by saying, The quarter, as you know was very strong in TID and that gives us some leverage on costs. Secondly, kind of our cost performance in the A&T segment in general, I think has done very good and we're meaning, we're able to maintain kind of a cost structure that's some helping us maximize that leverage. Thirdly, I would say that there are some timing impacts in the quarter, which is just, these are kind of mix related timing effects that are benefiting in the quarter as well. So, David as we step back from this, we still think if we go back to the kind of Aerospace margin A&T margins of 7 to 800 per ton on a normalized basis, that's still probably a decent place to be, but kind of I think that the performance in the quarter and the absence of an aerospace recovery is is a very strong performance and I wouldn't expect it to be kind of recurring in the 3rd and 4th quarters, particularly without in aerospace recovery, particularly given the fact that remember in aerospace most most pronounced the second half as weaker given the kind of shutdowns in the middle of the year on the shutdowns at the end of the year.

Jean-Marc Germain -- Chief Executive Officer & Executive Director

And I think good sales as well is UCT ID volumes picking up as Peter was mentioning in the second quarter, we still have cost extremely well controlled and and any on that basis. Any increase in volume as a disproportionate effect on EBITDA and we had a few as Peter was mentioning, very high margin aerospace sales, which would be rounded up in the tonnage, but that are executing extremely contribute you that took place in Q2 was supposed to being spread over Q2, Q3, Q4.

David Gagliano -- BMO Capital Markets Equity Research -- Analyst

Okay. So I didn't quite get the breakdown. Specifically, but I understand, I understand your point about non-recurring and so I guess maybe another way to ask the question is how much of the, the jump that we saw in quarter-over-quarter in 2Q versus 1Q is expected to really be non-recurring on a forward basis.

Peter R. Matt -- Executive Vice President & Chief Financial Officer

I mean it's. I mean, I'd say, if you put that number at something around, kind of, I don't know mid single digits, but it's a hard, it's a, it's hard to put your finger exactly on it, but I would say something around that range will be.

David Gagliano -- BMO Capital Markets Equity Research -- Analyst

Okay. Okay, so, or maybe another way, I mean, so we had EBITDA.

Peter R. Matt -- Executive Vice President & Chief Financial Officer

Well, David. Actually just one other thing to say it's not nonrecurring isn't the right word to use here because there is some timing impacts. But it's not like it's not nonrecurring right. In other words as Jean-Marc said you had some aerospace shipments that came in the quarter that were very remunerative tons that benefits the quarter but that's just the timing difference between, we expected that maybe in Q3 and they came in Q2. And things like that. Adjustments like that.

David Gagliano -- BMO Capital Markets Equity Research -- Analyst

Okay and then just real quick. Shifting gears, 2 other quick questions here, just the capex, it seems to be heavily weighted to the back half of the year, I believe and I'm just wondering, is there anything specific on second half year versus first half?

Peter R. Matt -- Executive Vice President & Chief Financial Officer

Yeaah, no, it is very back-end weighted, I mean I think we spent, we're giving guidance for 2.5 and we spent 67. So there is a lot to be spent in the second half. I think it's the consequence of a couple of things, one is, every year. Second half is more prudent to capex because that's when customers shut down both in the summer in automotive and the and in Europe, specifically most industrial companies shutdown for 2 to 3 weeks in August. And then you got the holidays around the Christmas time. So, that's when we will be spending our capex on a major maintenance where we got to take the mill down for a week or 2, you want to do it in the, in the off-season as opposed to the peak season like where we are in the second quarter. The other aspect to it. We were quite unsure feel about what the recovery from COVID would look like back in the November-December. So, we constrain capital at the beginning of the year as we got more and more confident going into March, April, we decided to release some of the, and that obviously as a bit of a lag before we to so for these 2 reasons. We got a quite a hill to climb and obviously when we talk about our cash flow guidance for the full year. We're very happy with the first half, we've got to recognize in the second half that would be quite a bit of capex spent. But all to productive uses obviously. So that's quite exciting.

David Gagliano -- BMO Capital Markets Equity Research -- Analyst

Okay, that's helpful. The, my last question just slightly bigger picture on the again. Just on the numbers. As we look at the 2023, obviously aerospace is still is still kind of treading water a bit, but likely to improve and the other businesses are really humming with some potential upside on Auto, I guess. So, the question is really I, it looks to us like EUR700 million of EBITDA in 2023 not easily attainable, but within sight here and that was the guy prior to COVID I'm wondering what do you, what are your views toward the 2023 outlook and how it compares to what you thought it was going to be pre-COVID?

Peter R. Matt -- Executive Vice President & Chief Financial Officer

I think we agree with all your statements David, except that we will stop short of giving guidance for 2023. I would just add that packaging is actually getting strong and stronger and he is even better than what we thought it would be both on volumes, but certainly on the pricing. So, that's very helpful. So as we said a number of times, we were ahead in every in every respect. On the business side. Right. The markets are good. Our position in the markets with strengthening automotive is strong can sheet is strong specialties and super strong aerospace is still an unknown as you point out in our cost performance is excellent doesn't see it and we're very committed to keeping flow. So, we still like the 700 million target for will stop short of setting exactly when it happen.

David Gagliano -- BMO Capital Markets Equity Research -- Analyst

Okay, thank you very much. It's helpful. Thanks.

Peter R. Matt -- Executive Vice President & Chief Financial Officer

Thank you. David.

Operator

Our next question comes from the line of Corinne Blanchard from Deutsche Bank. You may begin.

Corinne Blanchard -- Deutsche Bank -- Analyst

Hey, good morning guys.

Peter R. Matt -- Executive Vice President & Chief Financial Officer

Hi Corinne.

Corinne Blanchard -- Deutsche Bank -- Analyst

Hi, very impressive quarter. I just have 2 questions. As most of them have already asked and. And so, but could you just give us a bit more clarity on the guidance for the full year. So you're right, it's between 5.45 and 5:60 million, but that's imply. I would say relatively lower EBITDA in the second harvest is, is it, just give us like the main driver it It is also some impact from the semiconductor shortage that would be helpful.

Peter R. Matt -- Executive Vice President & Chief Financial Officer

Sure. So we are assuming a continuation of what we've seen in the first half of the year, strong end market, no recovery in aerospace, but strong end markets. Otherwise, we are assuming that the Microchip shortage is continuing to penalize us like it has in the first half and we're expecting cost performance to continue to high level. Now, as you point out, it means the second half is not as good as to the first half, but again we've got the seasonality, as I mentioned earlier, where there is much more shutdowns at our customers and much more maintenance in our plants, which means less sort of the new mall cost that's a recipe for not as good. EBITDA in the second half and I think if you go back to where we were in 2019 pre COVID you see that kind of seasonality. Right. So that's a good kind of benchmark a template for what normal could look like for us. So I think that's where I would answer it. And obviously, whenever we give guidance, we're very committed to meet or exceed guidance. So at the moment we're giving the guidance that we see the. The best we can give given the market condition.

Jean-Marc Germain -- Chief Executive Officer & Executive Director

Yeah, no, I can't. The only thing I'd add is that you still do have some COVID hangover going on and who knows what that translates into in the back half, but that's the only other factor I doubt.

Corinne Blanchard -- Deutsche Bank -- Analyst

Yeah, that's, [Phonetic]. My next question is what [Phonetic] risk increasing everywhere in the US and also in Europe with country started lockdown again there as you started to look into it is like when you [Phonetic]guidance. So, right now how do you see for the [Phonetic] aerospace and the [Phonetic]. Do you expect they interfere and impact?

Jean-Marc Germain -- Chief Executive Officer & Executive Director

It's difficult to tell, it's true that the headlines make seem a bit worrisome at times, but we are not seeing it in our order book and quite frankly when you travel around and you see airports tax, you see a slight tax, you see people going about living their lives in pre-kind of business as usual way. So, it doesn't feel like to catastrophes is the bonus, but obviously we didn't think catastrophe was of the, but as in know January or February of 2020. So we're going to be. So as Peter said, there maybe a little bit of caution here, but it doesn't feel like we are up for the 4th wave or 5th wave that would be the same as the first one, by far. So that's not embedded in our guidance a of the first wave.

Peter R. Matt -- Executive Vice President & Chief Financial Officer

Yeah, I just. I mean it seems like per annum. It seems like the governments around the world are committed to staying open. So, when we think about guidance as Jean-Marc says it's definitely not. We don't have a shutdown embedded in our guidance at all and what where it might manifest itself is in slightly longer supply chain, slightly greater supply chain challenges in certain instances or something, things like that. But manageable manageable effects.

Corinne Blanchard -- Deutsche Bank -- Analyst

Okay, thank you. Just a last one quickly, on the semiconductor shortage I think in 1Q with you had said about 3, 3 million impact for EBITDA, I don't think you mentioned any number for 2Q, was it in the same range?. And is that going to be as well around that range 3 to 5 million going forward?

Jean-Marc Germain -- Chief Executive Officer & Executive Director

Yeah, I think, I think that's the right range going forward. I mean, so there is different impacts from the different businesses. And one of the things that we love. Our diversified model and in this instance P&ARP is a great example of how that diversification really helped us because you clearly see in some kind of shutdowns on the automotive side related to semiconductor, but the demand on the packaging side is so strong, we're able to kind of basically divert every ton that we can't ship into auto into packaging, right. So it's a very, a very mild effect in PARP. And then in Auto Structures even there we're able to divert some of our shipments. So, but I think 3 to 5 is a good number to use going forward.

Corinne Blanchard -- Deutsche Bank -- Analyst

Great, thank you. That's it from me.

Operator

Our next question will come from the line of Christian Georges from Societe Generale. You may begin.

Christian Georges -- Societe Generale -- Analyst

Thank you very much. So, Jean-Marc, just to clarify something you said a bit earlier about the lines you said no cup lines in Europe or the US, did you mean required or did you mean announced?

Peter R. Matt -- Executive Vice President & Chief Financial Officer

I, what I meant is we are not planning actively building another line in either the US or Europe. We believe that some will be needed over time, but it's not like we are actively planning to build a new one, and that's again looking at allocation of capital, and where do we get the best return for investment.

Christian Georges -- Societe Generale -- Analyst

Good. I mean in with the market may need as the semiconductor shortage in particular perhaps you know moves on then and we continue to see a ramp up of electric cars, lightweight requirements, which will take on what do you see right now available for with these companies to be able to rely on sufficient supply?

Peter R. Matt -- Executive Vice President & Chief Financial Officer

Yeah, I think we said that historically as soon as 2023 market would be needing more capacity. So, maybe it's 24 [Phonetic] recently closed, but again conditions to invest our demand, the real demand, strong contracts was very favorable prices and the absence and of another alternative, which would be even better and that's the factors we're balancing and as I sit now. I don't see us investing more in auto body sheet. We're very happy with what we have. We're very happy with what do we can do with the assets we have and we're really focused on optimizing in this sector as supposed to growing. That may change in the 6 months' time, we'll see.

Christian Georges -- Societe Generale -- Analyst

That's OK, very clear. And then the second thing is when you mentioned your target leverage still very much at 2.5 times as soon as possible, should we read this. Also as a that being when you will contemplate paying a dividend or is that not associated with it?

Jean-Marc Germain -- Chief Executive Officer & Executive Director

Yeah, I think it's a good question Christian. So we are, for the time being, we're very focused on bringing the leverage down. We think that's why the highest impact item on our share price. So, we'll focus on that in the short term, as we start to have visibility on that 2.5 times. I think it's very fair to say that the broader capital allocation discussion will come on the table. And we'll, we'll address it at that time, but for the kind of immediate future. I think we're going to focus on delevering.

Christian Georges -- Societe Generale -- Analyst

Okay, very clear. And, does the different thing on the top division. If I look at last year, the second half of 2020. You did an EBITDA of 157 million. I mean you had some pretty would shipments as well. After that, if you go to the first half. Looking to the second half of this year, Is there any difference between the second half of this year, through the second half last year?.

Jean-Marc Germain -- Chief Executive Officer & Executive Director

Well, I think about the markets are are a bit better and the recovery is more advanced than the second half and we are seeing and especially as usual right out of the crisis, the US rebounds, much more quickly than Europe. So, we had the rebound last year in the US already in the second half. We didn't have as much of it yet in Europe. So, we should see Europe stronger in the second half of this year that it floods in the second half of last year.

Christian Georges -- Societe Generale -- Analyst

So. the picture look pretty good in second half, right.

Jean-Marc Germain -- Chief Executive Officer & Executive Director

I think all our businesses are looking pretty good, Chris.

Christian Georges -- Societe Generale -- Analyst

That's helpful. Okay. Just one last question on the aluminum. I mean we see we know that some some strain on the upside right now we issue that that supply from China and so on. But looking at the Midwest premium, I think it's now, I think you still be could high. The left-hand that happened there was a lot of afford about these very high price of the, of the premium in the US, I mean is this in any way impact. I know you, but the condition anyway affects you financially on the given quarter?

Peter R. Matt -- Executive Vice President & Chief Financial Officer

Not in a material fashion and we've learned our lesson from the past and we've done the pretty-good job shielding ourselves from the volatility in regional premiums in both the US and Europe. So it's kind of a kind of a timing effect, but nothing really economically in the material 6 months or one-year period.

Christian Georges -- Societe Generale -- Analyst

And [Phonetic] independently of the premiums continues to strengthen toward the 3,000. I mean and we get that for payouts, do you see that as a possible headwind for some of your end market or is it really not a source of major concern for you?

Peter R. Matt -- Executive Vice President & Chief Financial Officer

It is any historically customers choices around what material to use, has been largely unaffected by metal prices. We've been in, I think back in 2007-2008, LME reached 33-35 and we didn't see a change in with fact here but packaging material customer as well brought to and when one commodity rising, the other ones also arise, right. So I think if you look at steel for these, but pretty high levels. Isn't it?. So I'm not even sure that when you look at aluminum versus other the commodities, I am not even sure that the volatility of aluminum is greater than the actual volatility of other commodities that may not be quoted. With that I'll still moving up and down quite a bit. So it doesn't change. It doesn't impact OK.

Christian Georges -- Societe Generale -- Analyst

Okay. That's very clear and the very last question on your A&T because you're running your and other specialty at 47 tons right and I was with about 57 tons before the downturn for 70. I mean is 70 and 85 tons of capacity. Something that you can take in your existing facilities?

Jean-Marc Germain -- Chief Executive Officer & Executive Director

Yeah, is we can make everything we're making plus everything we used to make in aerospace, we look forward to that day when it comes back and still lagging 100 million Euros for just EBITDA in aerospace, right. Only because of the downturn in the aerospace market. So, we look forward to these good signs coming back.

Christian Georges -- Societe Generale -- Analyst

Sure. Great quarter. Thank you very much.

Jean-Marc Germain -- Chief Executive Officer & Executive Director

Thank you.

Operator

And our last question will come from the line of Sean Wondrack from Deutsche Bank. You may begin.

Sean Wondrack -- Deutsche Ban -- Analyst

Hey, good morning Jean-Marc, Peter and team.

Peter R. Matt -- Executive Vice President & Chief Financial Officer

Hi Sean.

Jean-Marc Germain -- Chief Executive Officer & Executive Director

Hi Sean.

Sean Wondrack -- Deutsche Ban -- Analyst

[Phonetic] to follow up on the metal premium question. Am I thinking about this rate, it's basically excluded from EBITDA, but it might have a transitory impact on cash flow and that should even out over time?

Peter R. Matt -- Executive Vice President & Chief Financial Officer

Well, maybe the rate to think about this is at. So just in terms of more specifically our metal premium Jean-Marc were saying before is, generally speaking, like the metal price itself, we're passing it through. Right. So in our customer contracts were passing it through or we're using financial markets to hedge it. Okay. So for the vast, vast majority of that we pass through Jean-Marc was referring to is there are some isolated incidents where we have customer contracts that don't allow us to pass it through. Right. But typically, those contracts are short duration so they might be 6 maximum 12 months contracts and so what happens typically is that OK, we have to absorb the Midwest premium change in the short term, but then when the contract comes up for renegotiation. We go back and we kind of embed and improved price to reflect the higher premium. So it's, that's why he was saying it's a timing impact in our financials.

Sean Wondrack -- Deutsche Ban -- Analyst

Okay. that makes a lot sense. Okay, great. And then on the can side between North America and Europe. Have you seen a greater relative increase in pricing across North America given that Europe has lagged a bit or are you seeing sort of stable across the board?.

Peter R. Matt -- Executive Vice President & Chief Financial Officer

We were seeing the trends across the board. I mean there is a need for more can sheet in both Europe and North America, and that is by creating a very favorable environment for pricing on both sides of the ocean. Maybe America started it earlier and Europe is catching up to North America.

Sean Wondrack -- Deutsche Ban -- Analyst

All right. Okay. And have you considered any entering any new geographies and packaging?.

Jean-Marc Germain -- Chief Executive Officer & Executive Director

We have into a very focused on what we have and constantly optimizing what we have and increasing our capacities in the most capital-efficient manner and to entering a new geographies, not the, the best way to manage your your return on investment.

Peter R. Matt -- Executive Vice President & Chief Financial Officer

Yeah. And if you in China, if you look at the growth profile in both North America and Europe. It's a very exciting growth profile right now.

Sean Wondrack -- Deutsche Ban -- Analyst

All right. We've been hearing the same. And then the last one from me just looking back even an early mover in terms instituting some accountability your ESG goals and investments in recycling seem attractive considering they align with their ESG initiatives. And do you see some more investments in recycling going forward?. Is there any potential for M&A there do you think at all the organic. Thank you.

Peter R. Matt -- Executive Vice President & Chief Financial Officer

Yeah. So we're committed to organic investment, we are doing it in Europe and we have partnerships in the US as well. So, we believe recycling has great potential. Good for the planet, and it's good for our financials. So, we like it very much. And we'll keep on exploring a new opportunities. But again, we want to be very responsible in managing all our growth projects and make sure that deleveraging continues to 2.5 target at any price. Our additional projects we would undertake organic or M&A whatever in the recycling other needs to keep us on that trend line toward deleveraging. So that's what we're focused.

Sean Wondrack -- Deutsche Ban -- Analyst

Okay, great. Thank you for answering my questions.

Peter R. Matt -- Executive Vice President & Chief Financial Officer

Thanks, Sean.

Jean-Marc Germain -- Chief Executive Officer & Executive Director

Thank you.

Operator

We have no further questions in the queue, I'd like to turn the call back over to Jean-Marc Germain for any closing remarks.

Jean-Marc Germain -- Chief Executive Officer & Executive Director

Thank you very much all for attending the call. We're very excited with our progress this quarter, very excited about the deleveraging that is happening fast and also very excited about all the great market conditions and that are ahead of us. So we look forward to continuing on our journey and updating you further after the end of Q3. Thank you again everyone, bye bye.

Operator

[Operator Closing Remarks]

Duration: 68 minutes

Call participants:

Ryan Matthew Wentling -- Director of Investor Relation

Jean-Marc Germain -- Chief Executive Officer & Executive Director

Peter R. Matt -- Executive Vice President & Chief Financial Officer

Curt Woodworth -- Credit Suisse -- Analyst

Josh Sullivan -- The Benchmark Company -- Analyst

David Gagliano -- BMO Capital Markets Equity Research -- Analyst

Corinne Blanchard -- Deutsche Bank -- Analyst

Christian Georges -- Societe Generale -- Analyst

Sean Wondrack -- Deutsche Ban -- Analyst

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