Okay, we're going to go ahead and get started with the next presentation. First off, thank you everyone for joining us today. My name's Joe Noyons with Three Part Advisors. Up next, we have one of our investor relations clients, Ampco-Pittsburgh. It's traded under the symbol AP on the New York Stock Exchange. Ampco-Pittsburgh is a producer of specialty metal products and custom engineered equipment for the industrial markets. They operate in two segments, Forged and Cast Engineered Products, it primarily serves the industrial metals and steel industry. They also have Air and Liquid Processing segment that is also seeing a lot of growth demand from the naval market, the nuclear power generation market, and the pharma market. Excuse me. Presenting on behalf of the company today is the CEO, Brett McBrayer.
You also have the CFO and President of Air & Liquid Systems Corporation, Dave Anderson. You have Sam Lyon, the President of Union Electric Steel. From there, Brett, go ahead and take it.
All right. Thanks, Joe. Good morning, everyone. I'm Brett. I want to walk you through a little bit about really who Ampco-Pittsburgh is. We're going to have Sam and Dave take a portion of this presentation to discuss it. Want to begin by just who is AP? If you look at last year, we had about $434 million of annual revenue. If you look at our businesses, we're split between two segments. About 67% of our revenue comes from our Forged and Cast Engineered Products group. The other 33% comes from our Air and Liquid Processing group. Backlog at the end of the first quarter is around $346 million. We're seeing improved adjusted EBITDA margins. We ended at 6.7% at the end of last year. Market cap's a little over $205 million.
One of the things that you'll see about Ampco-Pittsburgh is we have some very specialized and distinct customers. We have a pretty significant presence in the areas in which we play. If you look in our Forged and Cast segment, we're the number one supplier in North America and a top tier in Europe, which is our two major markets. From a nuclear standpoint and from a naval standpoint, we have very high share of that business and continue to see growth in those areas. Before we get into why invest in AP, a little bit about our history and our story. I've been with the company since 2008. Excuse me, not that long, goodness, 2018.
One of the things coming into the business, we saw a very good business, but a lot of opportunities, if you will, to address some issues that were really impacting us from an earnings perspective. The focus was to look at our assets that we had in our portfolio and determine what was core for us to be successful. Then the ones that we really thought were valuable assets, how do we maximize those assets and become more profitable, improve our margins? That journey started back in 2018, and we've been working slowly at that portfolio, trying to optimize it, right-size our footprint. Really that culminated in October of last year with the exit of our U.K. cast roll facility, which was part of Sam's business. It was a big drag on the corporation, a money loser.
The Ukraine-Russia conflict that happened several years ago really exacerbated the issue for us. Exiting that business was a huge step for us in really improving the performance of the company. We also exited another non-core business, which was a steel distribution business. If you look going forward the next couple of years, you're going to really see some impact from those moves. We expect about $7 million-$8 million of adjusted EBIT improvement annually, just from those exits. We have some really strong growth opportunities that Dave will talk about that we're excited about on the air and liquid system side. We're going to use that growth and that momentum to move to improve our balance sheet, pay down our debt, then look for other growth opportunities moving forward. Why AP?
Why do we think we have some positive items coming at us, why should you invest in AP? Well, again, we have a new portfolio based on some of the recent activities we've taken part of. If you look on the forge and cast side of the business, we're really seeing improved fundamentals, it's really driven by the tariffs. Also we're seeing players, our competition in that market, we're starting to see several of these players drop out, which gives us more share opportunity. The tariffs we're going to see is going to have a significant impact in Europe that's going to help us moving forward. We'll see a little bit in the second half of the year, but going into next year, we really expect that to have a significant impact for the forge and cast side of the business.
Air and liquid processing side of the business, we can't make enough. It's really about how do we get more capacity out of our existing operations. We have some modernization that's happening on our Navy side of the business that we're excited about, but it's how do we continue to accelerate and capture that. With this improved cash flow, we're seeing some balance sheet improvements, we'll continue to focus on improving our balance sheet going forward. I think the other thing is that if you look at our AP, we're really four distinct businesses. There's the Forged and Cast Engineered Products group, which is a distinct business standalone. We have the Air and Liquid Systems Group, which is really three separate individual businesses standalone.
Each one has their own value proposition, and I think that gives us strategic optionality in the future as we look at how the growth happens with each of these segments and opportunities for us, really from a revaluation perspective on the AP group. Very excited about where we are and where we're going. I want to turn it over to Sam to tell you a little bit more about the Forged and Cast Engineered Products side of the business and why we're bullish on the future.
It's just-
Right.
All right. Good morning. As Brett said, my name is Sam Lyon. I've been with the company for about six years and came from a metals background, Brett already talked about the reorganization a little bit. The business is really North America-focused, we have three main plants in North America, then we have a plant in Sweden, a plant in Slovenia, then a joint venture in China, of which we have 60% controlled ownership of. We have about 1,430 employees, a little more than half in the U.S., and the others in the other facilities that I mentioned. Brett mentioned us being the number one supplier in North America. We have very high market share with Cleveland-Cliffs, U.S. Steel, which is now owned by Nippon. The main players that you see below, Steel Dynamics, Nucor, Ternium, Brett also mentioned consolidation in the industry.
There's a roll manufacturer in South America that was part of a larger group. They decided it was non-core, they've just recently exited the cast roll market and the forged roll market, of which our facilities in North America are forged roll market, the facilities in Europe mainly are cast roll. The other thing is if you're making more steel, we're making more rolls, it's a razor blade model. The roll gets consumed as you make steel or you make aluminum. It gets consumed over three, four, five months, then they have to purchase a new one. Once you're in the rolling mill, you have a very high likelihood that you're going to get the replacement business, it's usually bid on a year-over-year basis, so we negotiate once a year with most of our customers. Raw materials and energy are typically a pass-through.
Raw material is almost 100% of the time, and energy is about 75% of the time it's a pass-through. Then we end up hedging the rest. The reason I tell you that, it's kind of important, people are worried about inflation and worried about moving these things, and we've been able to mitigate that through that kind of a strategy with our customers. The North American market, Brett mentioned the tariffs. The tariffs in the first Trump administration were 25% on imported steel. They didn't have a lot of strength to them. People would cross-ship things. They would ship things to other countries, do a little bit of processing on them, and come in here.
They put a melt and forge requirement on all the steel and aluminum that comes here, meaning it actually has to originate in the U.S. That's really strengthened those protections. Then they've also doubled the tariffs. If you follow Nucor at all, they've raised their price from probably $600 a ton to about $1,100 a ton over the last six months or so. They've bumped their prices up to where they're still a little cheaper than the import, but they've been able to capture a lot of margin that way. The rest of the North American market is following. As a result of this, Canada and Mexico were big importers into the U.S. They decided they need to put their own protections in place, which they have. Now Europe is putting protections in place.
That's also going to strengthen their market, which will, in turn, allow us to ship more in there. You can see the customers across the bottom. My last slide, I'm kind of talking about the whole thing on one slide, but for the first time, there's new aluminum mills and smelters being built in the U.S. in probably, what, 30 years, I'd say, Brett. We've realized that while globalization can be a positive thing, you can't buy everything on the outside. There's been a lot of momentum to pull things in. Also friendshoring as well is a tailwind for us. If we look at what's going on in the industry, in Q4 and Q1 of this year, we saw the results.
We had a dip in our business as a result of the tariff situation that was going on. There were tariff put on rolls. Everyone in North America kind of went, "Whoa, what's this going to mean? How much does it cost?" You couldn't even figure out how to calculate what the tariff was going to be. All that's been normalized and actually reduced a little bit. We're seeing our order book strengthen as a result of that. The backlog's improving, certainly in North America. I mentioned the fact that two of our competitors had exited the market. We're seeing opportunities there. Then the portfolio actions that Brett mentioned, the U.K., and the small distribution business, AUP, which will add $7 million- $8 million annually of EBITDA for us.
You can see along the bottom, the $292 million in 2025, while flattish to 2024, that does reflect the two businesses gone in the fourth quarter. We actually transferred some business to Sweden, and we're seeing strength in the North American business. We really didn't even see a dip at all in our revenue as a result of those closures and don't expect to see one going forward. Longer term, if we look at the compounded annual growth rates estimated for our customers' end markets, which is what really drives our demand, they're all positive, low to mid single digits, and that was not the case if you look at 2020- 2025. It was actually decreasing. Our drop-through margin is pretty significant. We have a pretty high fixed cost aspect to our business, so any incremental business is very positive to us, north of 25%.
We're looking forward to the next few years of stable to increasing demand resulting in our business increasing as well. This is a pretty good backdrop, and we're very excited about this going forward. I already mentioned most of this about the tariffs, and I think the other thing that I just want to re-emphasize is that the investments that are being made in North America, Ternium building a new mill in Pesquería. Nucor has a new plate mill that's about to be commissioned. Steel Dynamics built a new mill in Sinton, Texas, and putting new galvanizing lines on it. I think Cleveland-Cliffs is restarting a tin plant. There's a lot of activity happening. Steel Dynamics is building a new aluminum plant, a rolling mill. There's a lot of confidence from our customers that these tariffs are going to stay in place.
They're investing billions and billions and billions of dollars, and that's going to be a benefit for us. That's all I had. Dave.
Thank you. Good morning. I'm Dave Anderson. I've been part of Ampco-Pittsburgh for about 16 years now in various roles. In 2022, I took over running the Air and Liquid Group, and then in January of this year, I added CFO for Ampco-Pittsburgh to that plate. As Brett mentioned, there's really three distinct businesses that are part of Air and Liquid, roughly the same size, and I'll go through a little bit of what each one of them does, but they make up the portfolio for Air and Liquid, as you can see, roughly a third for each of the different businesses. In 2022, when I took over managing Air and Liquid, my goal was to turn it into a growth-oriented company. You can see we have been successful in doing that. We have grown each of the last few years.
We continue to see opportunities for that to continue. We're in some very attractive markets at the moment with significant barriers to entry, which I'll touch on as I go through each of the businesses. We're well-positioned not only for the growth we've seen, but for the growth we expect to see in the future. Aerofin. Aerofin makes custom heat exchangers, really into three markets: industrial, HVAC, and the one that generates the most interest these days is the nuclear market. We've been a significant player in that market for decades. We're the largest supplier of heat exchangers to the North American nuclear plants. It's really not even that close. We deal with more than 90% of the North American nuclear plants. As you can see, the bookings in that market are going just upward at a pretty good clip.
I'm sure everyone has seen nuclear has become much more in favor in recent years. There's the small modulars, the restarts of the different plants, there's a lot of really good activity. We continue to focus on growing that piece of our business. We continue to see activity across the board, there continues to be a long-term trend towards nuclear power, which is very favorable for us. That is a market that there are very few competitors. It's very difficult to supply into the nuclear plants. There's a lot of certifications. Most heat exchanger companies that you may see out there can't come close to being certified. There's only a couple of players in the market, which is very nice for us. Buffalo Air, we make custom air handling systems. These are high-end systems.
This is not competing with a Trane or a Carrier or people you may see that do more standardized systems. We build high-end units for pharmaceutical research centers, hospitals, places that have unique needs. Again, a lot of growth, a lot of movement in the right direction. It's particularly pharmaceuticals. We're seeing a lot of activity. Merck, Eli Lilly, Johnson & Johnson, all customers of ours that we're seeing really good activity in the U.S., both in refurbishing plants and adding new capacity. For air handlers, there's a lot of opportunity to continue to grow. You can see where we've been going. If you think of an air handler that we build, it's roughly the size of an apartment. It's large. You can only go so far. Roughly 600 miles from our Virginia plant is about the market we play in today.
That means there's a lot of other places where we can draw another 600-mile circle and compete in that market. This one has really good upside, a lot of activity happening there, and we have a large installed base where we get repeat work. We're doing a lot of work with Merck right now, who's on a green initiative to replace older units. We're seeing a lot of activity from them as well. Buffalo Pumps. Buffalo Pumps makes higher-end, again, custom pumps. Really two primary markets, as you'll see on the end market exposure, About half of it is commercial pumps, and that is dominated by pumps we supply for gas turbines. Gas turbines are seeing huge demand due to the data centers at this point.
Companies like Solar Turbines, GE, who are builders of gas turbines, we deal with both of them and others, and there's a lot of activity. If you want to buy a gas turbine today, it's a very long line. There's a lot of market activity happening there. We're seeing a lot of positive movement. The other part is the U.S. Navy. We've been a supplier to Navy combat ships since before World War II, so we're firmly entrenched. Much like the nuclear market, it's a very difficult market to be certified to supply to combat ships, so there's only a few players that can do it. The nice part is the Navy realizes they have a long-term growth plan, and they need to invest in the U.S. industrial base in order to achieve that plan. We're one of the people that they have invested in.
We have commitments from the Navy for $9 million in funding, which basically means they're buying us equipment. Which to me means the best possible way that we have modernized our plant is by the Navy paying for it. That equipment that's been coming in and is still coming in is paid for fully by the Navy, but we can use it for anything we want. It's a really nice option. It's allowed us to modernize our facility, which in turn means more capacity that we can supply into the Navy markets. That is a growing long-term market. We feel great about the potential there. The equipment that is just coming in, just coming online in Q2 from the most recent batch, we'll have more equipment coming from the Navy later this year. Capacity, as Brett mentioned, the name of the game for us is capacity.
We can go get more work. We just need to keep increasing our capacity. Just some of the customers, some of which I've talked about a little bit. Solar, GE. Defense, we deal with the major shipyards in the U.S. Pharmaceuticals, Merck, Eli Lilly, Johnson & Johnson. Going forward, for all three of the businesses, we continue to see good growth opportunities. Aerofin's really well positioned in nuclear. We're seeing activity in the small modular market, which is something that I'm sure you're familiar with. Buffalo Air, we continue to see growth coming and the opportunities for geographic expansion. For Buffalo Pumps, really both sides of the commercial and Navy business are showing really good potential. Just a couple financial slides that we'll cover. Path to double-digit EBITDA. As Brett mentioned, our EBITDA was up in 2025, 6.7% for adjusted EBITDA.
Q1 was a little better than that. We were in the sevens. Our target is 10+. We believe that's certainly reasonable with the markets we're in, the activity we're seeing, as Sam touched on, the elimination of the U.K. facility, which was a drag on us. We believe that's a very reasonable target for us. The other thing we want to focus on is debt. We've incurred a fair amount of debt over the years. Some of that was modernizing some of the plants. Now that we've eliminated the U.K. facility, our cash flow improves, and one of our goals, along with growth, is really to move down the debt levels that are on our balance sheet. Brett already covered this somewhat, this is just really the same slide again on why Ampco-Pittsburgh is a good investment at this point.
I think, as Sam pointed out, the FCEP business is going in a good direction. Elimination of the U.K. was a huge step for us. For Air and Liquid, the growth opportunities are there, and our expectation is we will go get them.
[crosstalk] Anything else, or you want to just go to questions? Yeah, let's hit questions. Anybody, any questions for myself, Dave, or Sam? Microphone. Yep. Yes.
Is there kind of a medium term, and maybe I missed it, kind of top line targets? I can see the path to the margins, and it seems like bookings are coming in really well. Just trying to see where that accelerates to the top line.
For Air and Liquid, you can see some of the targets we had was roughly in that 8%-10% per year is certainly reasonable growth targets for us, what we're seeing. Yeah. I think low to mid-single digits, but certainly we can grow 5%-10% for the next several years from.
Thanks.
Maybe saving Q&A for their one-on-one meetings.
Maybe. Just a great presentation.
Yeah.
Perfect presentation. I think on the nuclear business, you guys are some of the only games in town. Has there been any change in the competitive dynamics? Just curious in those businesses.
There's no new competitors. Like I said, it's a very difficult market to get into to get the ASME welding certifications required. Most of the people out there can't even come close.
Yeah.
There's no new competitors on the market, which is great for us, and we have the dominant share of that piece.
Probably-
We're firmly entrenched
The next biggest competitor we have is a distant second. They play in a very small portion of the plants in North America.
I think just to comment, in both businesses, the barriers to entry are pretty large. The revenue that you could generate from trying to get what he already has isn't enough for a big player to do. On our side of the business, the capital infrastructure is just very large. For the size of the business, even though we're one of the larger We are still the largest Western roll manufacturer at $300 million. You'd have to invest $500 million to get the equipment. It's not like it's a giant growth market, so the barriers to entry are very large.
Yeah.
Are you guys seeing anything in your supply chain as far as availability of equipment and laser welding equipment or anything like that is creating a bottleneck that?
No, we're able to get equipment. There are some longer lead times. The Navy equipment has taken close to a year from order to when it comes in. As far as materials for our stuff, that's not a problem at all. In some of the markets, gas turbines, as I mentioned, we're supplying into those and there's a huge backlog for people that want gas turbines today. I view that as a good problem. It's just a nice, consistent growing backlog for us. If you want a gas turbine, there's a long line.
Yeah. I think for our customers, there was a concern because all the capital equipment had a big tariff on it now, that's been normalized and reduced quite a bit. I think the process was just put these tariffs on everything and let people come and beg to get them reduced, which was a way to get it done fast, and that's actually happened. A lot of our customers knew, and Dave saw it too. He had to buy new equipment, then pay a tariff on it, and a lot of that stuff's now reduced to make it easier.
Do you have a question?
The capital needs of the business over the next few years, how quickly can you get to that three times leverage target?
Air and Liquid is not very capital-intensive, so it's a couple million dollars a year typically. Sam can address his.
$8 million-$10 million
Yeah, $8 million-$10 million. Some of that, there was some significant investments on that side in the last few years, so it was much higher for those years. I think the target is probably two years on the debt level.
Okay.
Yeah.
Yeah, 2018 was 24 months, so I think it's realistic.
Yeah.
Anybody else?
That's it for today. Thank you.
All right.
Thank you very much.