Constellium SE (CSTM) Q3 2015 Earnings Report, Transcript and Summary

Good morning and welcome to the Constellium Third Quarter 2015 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Paul Blalock. Please go ahead, sir.

Thank you, Denise. Good day everyone and welcome to Constellium's third quarter 2015 earnings call. On the call today is our Chief Executive Officer, Pierre Vareille; our Chief Financial Officer, Didier Fontaine. And 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 and such statements including statements regarding the company's anticipated future 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 and we undertake no obligation to publicly 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 included attached to today's slide presentation which supplement our IFRS disclosures. I would now like to hand the call over to Pierre Vareille, our Chief Executive Officer.

Thank you, Paul. And thank you all for joining us today. During the third quarter Constellium shipped 374,000 metric tons, representing an increase of 41% compared to one year ago. Revenue was €1.26 billion, representing an increase of 36% over last year. Adjusted EBITDA was €79 million, an increase of 10% over our last year despite the impact of €6 million from the scalper outage in Neuf-Brisach in France which we previously disclosed. Overall, third quarter results reflect strong progress and we expect 2016 to show marked improvement in each of our three segment. Automotive rolled product shipments were up 13% over our last year and automotive extruded products shipments increased 11%. In particular, the automotive structures and industry segment achieved record adjusted EBITDA of €22 million due to strong organic growth led by the automotive structures business. We continue to experience strong growth across our targeted markets and I'm pleased to report on a year-to-date basis, the combination of our automotive and aerospace business become increasingly important. In our legacy operations, our automotive and aerospace business now comprise 28% of shipments, up from 25% one year and 42% of revenue, up from 35% a year ago. Even more importantly, automotive and aerospace combined now account for more than half of our standalone adjusted EBITDA. We're also exploring alternatives to reduce cash flow impact to Constellium of the investments at Muscle Shoals. And of course, we're actually aware that our stock price and we're not satisfied with share performance. We always have the obligation to maximize shareholder value for Constellium. Lastly, we're not today transacting to pay the coupon of the white holders in kind whether we cash in 2016. Turning now to Slide 6, total packaging and automotive rolled products shipment of 262,000 metric tons increased 67% compared to last year, mainly driven by additional volume from Muscle Shoals. Automotive rolled products shipments increased 13% in the quarter reaching 65Kt for FY 2015. In U.S., our packaging shipments from Muscle Shoals were 109,000 metric tons. Whereas in Europe, we have slightly reduced shipments compared to last year. You may need to search a demand for closures. As previously disclosed, we experienced the scalper outage in our Neuf-Brisach facility which impacted Q3 adjusted EBITDA by €6 million and we expect to recover half of this impact in Q4. Lastly, on October 27, we reached an agreement to the United States worker that shows for the new contracts till November 2020. However, we're still keeping the opportunity for new finishing lines in the U.S. Turning now to Slide 7, aerospace and transportation segment continues to have demand. With aerospace volume now comprising 47% of volume, up from 44% in Q3 last year. Total shipments were 59,000 tons, down marginally from last year. Our recovery plans in aerospace are proceeding well and we have improved our personal efficiency and product mix. In particular, we went through these now back to normal and we'll have a good year. And is trying to expecting to further extend in 2016. Moreover in 2017, will benefit from a full year original capacity from the new. In Q3, adjusted EBITDA in A&T was positively impact by €2 million and by €3 million from ready-shift reduced premiums compared to last year. Lastly, results in the second half of the year are typically softer due to seasonal [ph]. Turning now to Slide 8, the automotive structures and the industry segment. Customer demand in the automotive structures not get to remain strong. While the industry market continues to have less growth in a competitive environment. During the quarter, total shipments were marginally 251,000 metric tons, with auto structures volume of 11%. Lastly, as global automakers continue to have relentless march to light vehicles to meet regulatory requirements. There is an unprecedented amount of new business expected to come to market into the future. And we're focusing on wining our fair share of the opportunities. I will now hand it over to Didier Fontaine to further discuss our financial results.

Thank you, Pierre. And welcome everyone. On Slide Number 10, you can see our Q3 adjusted EBITDA breach as compared to last year, although we improved in adjusted EBITDA by $7 million to reach $79 million despite this capital update. Clearly, our fee income by conference €7 million and by $2 million and $19.4 million. Margins can operate benefit from the one-time €4 million Q3 2014 on a going forward basis, we now expect to incorporate to have read about €2 million. On Slide 11, you can see our segment as compared to third quarter last year. Last year with PSP, I told you we increased 23% to €40 million but as EBITDA decreased by 26% to which €153 million down. This is primarily due to the lower contribution from Muscle Shoals. Adjusted EBITDA from our P&ARP business was €184 million, including the Body-in-White. Excluding the €6 million during scalper outage, adjusted EBITDA would have been €220 million. AT&T adjusted EBITDA improved 9% to re-strengthen and adjusted EBITDA in total improved 11% to €546 million. In AS&I, the adjusted EBITDA increased €4 million to a record €22 million and the adjusted EBITDA by term improved 26% to €428 million which is a record for us. And lastly, it's interesting to note that the Internet business model achieved through adjusted EBITDA from total -- practically through those structures. Turning now to Slide 12, Q3 2015 adjusted free cash flow as compared with operations. Cash flow from operating activities reached €80 million, including €4 million that's compared with last year. Capital expenditures increased to €85 million of which €41 million are related to both initiatives. Adjusted free cash flow was slightly negative despite the €28 million increase in CapEx. Turning now to Slide 13, for the last two years our relentless focus on reducing net-trends, working capital have continued to pay off. With the addition of Muscle Shoals, our capital moved higher and still provides room for future improvements. As you can see, we reduced DSO by 9 days since the first quarter 2015. And in Q3 our DSOs were 28 days, representing the set program from the same value of last year. Although 2014, the net debt and the leverage moved slightly higher in Q3. Overall, we have €577 million of liquidity and this liquidity consist of €331 million of cash and €246 million -- under our facilities. We're so successfully renegotiated covenants on the €145 million revolving credit facility which we expect to be added to our liquidity at the end of the year. Now turning to the Slide Number 15 and we've previously announced, we have reduced on budget capital expenditures by €50 million annually for the next three years, reaching a total of €350 million for 2015, €400 million for 2016 and €300 million for 2017. This without any changes around growth initiatives. As you can see, recovery CapEx is larger for €145 million to €168 million and represent the adequate capital spending internally towards the business. On top of that you will see that the vast majority of the spendings of the CapEx is for Body-in-White initiatives. I will now turn it back to Pierre.

In summary, Constellium achieved in the third quarter with shipments, revenue and adjusted EBITDA are growing 41%, 36% and 10% effectively. The continuing decrease of our automotive business contributing to our top segment has rose 3.25 per month. In 2016, we expect a much improvement in each of our few segments as we continue to implement our long-term strategies. We expect liquidity to be at the similar higher levels at the end of the year. And this is before the benefit €145 million revolving credit facility that Didier Fontaine just mentioned. Lastly, we're exploring alternatives to reduce the cash flow impact to Constellium of our investments at Muscle Shoals. In conclusion, our Pure Play downstream business model is complaining. And we continue to have a steady position across our targeted businesses in automotive and aerospace which now represents the majority of our EBITDA in our legacy operations. Packaging continues to be the bed rocker for Constellium, providing stability to our business model. Thank you for listening today and thank you for your interest in Constellium. Operator, we will now open up the line for questions.

[Operator Instructions] We have a question from Brett Levy, CRT Capital. Please go ahead sir.

Thank you Pierre, thank you for your comments. Let's see -- from the standpoint of what you're going to build in Muscle Shoals and sort of, how does that contribute to the collateral base? For the wise notes, is everything you're building sort of accruing to the benefit of the collateral base and that they are senior secured notes or is it possible that that's a construction project that's kind of independent of the collateral base at the wideness?

Didier Fontaine answering. I think there is all option on that and it's possible that the project is dealt independently of the covenant of the Lina on the black [ph].

All right. And then when you guys say that you want to reduce your cash exposure to Muscle Shoals, does that mean that in any way you are stepping away from the investment. Or you're just looking to in spite of the fact that your investment would stay about the same, picks and notes and that sort of thing. I can set it -- is sort of. It reads a little bit lucky doll, you want to emphasize your investment as much as opposed to just you're going to pick one coupon?

Sadly CapEx is concerned and the Body-in-White opportunity is concerned. We keeping the same product of those clients and exactly the same business plan as we had before. There is no change, I can see no change. We're decreasing our CapEx because first, we're now closer to the commitments and of course we have much bit of view of the CapEx and the first envelope which we disclosed was very prudent. And second, we're taking advantage of Billboard system, i.e.; we can delay the [ph] which we had because we cannot although -- internal sources to feed our finishing line. So no change in the software for bidding.

All right. And then you guys say that 2016 was so marked improvement. Can you talk a little bit about the drivers there, whether there is any new automotive platforms or aerospace platforms? I mean, quite clearly you have some customer window into 2016 that gives you cause for your optimism. Can you share a little bit maybe, an analogy or two -- customer story or two that would give us the same sense of optimism that you have for 2016?

I think it depends on the BUs, business units or segment as far as aerospace and those position is concerned, we had some operational issues, i.e, no direct capacity and leading to some problems. This is now pretty much resolved and as we've said that we will have a few -- in a few months now, the and then in 2017 we will have the full effect of the. So aerospace competition was more of operational issues. As far as AS&I is concerned, we have demand from the automotive customers is increasing very quickly. We have contracts which are very -- which are quite favorable and we know that 2016, we will ship more than we shipping in 2015. As far as the industry is concerned, the trend is, I would say, would be similar to what we have in 2015 although we have seen now some elements of improvements in the market, but we're very cautious on this market, but we're very cautious in this market, but which is not the very strategic market for us. Again, automotive structures in the AS&I segment is by far the force behind the record level of EBITDA which we're now achieving. As for as profits concerned, we, if you look at Muscle Shoals, we will have resolved all the mid-term management issues which we had. We will - and of course, it gives us much more clarity for the EBITDA of Muscle Shoals' next year and obviously we have acquired the company since nine months now. So of course day after day we can improve. And as far as Europe is concerned in Europe, we're starting to impact - we start to impact in 2016 significantly. In particular we have this line in Europe which we will launch in the next few months and we're trying to pull ahead the position of the line, because the demand of the customers is every day more higher. So if you look at the three different segments in all the segment that we said there will be marked improvement and let's say marked, it means - it's really mean something in my mind. I think to be frank, I think we have turned the corner now, I think we had some tough quarters; I think we can say that we have turned the corner.

And our next question is from Brian Yu from Citi. Please go ahead.

My question is the follow-up on - you're with the exploring alternative that Muscle Shoals and specifically there is something where you're looking at a partnership or sale and would this alternative be just for the expansion phase at Muscle Shoals or will they include the entire facility with existing - operations?

I'm sorry at this stage, we can't comment on that. We have numerous options on the table. We have hired Goldman Sachs to advise us for this operation and as soon as we have something for the market, of course, we will inform everyone, but for the time being there are similar option at the table and we're looking at several options.

Okay. Maybe I can ask it a little bit differently which is with the CapEx cuts that you guys have instituted, it seemed to me there is enough cash on hand especially in light of reiteration of the improving results in 2016. I'm wondering why take a look at that now when it seems like you know need the liquidity?

It's a very good question. You know, we always said and we still believe and it's even now more true, that the equity brand for the company. We're keep repeating that since few quarters that it seems that the message doesn't really come across and we understand that the stock price as -- is under pressure because of that. We're committed to increase shareholder value, so we're very -- we know that we have disappointed the market. So we think that the by, I would say, lifting this pressure on the liquidity even more, the market will appreciate that. So, it's really what we're trying to do. Again, there is nothing new at -- why there is nothing new in the company expect, I would say positive things now, but it seems that when you look at the stock price and we don't comment on stock price, but we think that we have to protect our shareholders.

And our next question is from Matthew Fields from Bank of America. Please go ahead.

Just wanted to follow up on Brian's question maybe from a different angle. So the decision to take a harder look at strategic alternatives at Wise, it was sort of basically a response to investor concerns rather than a change to the business or an overall demand environment?

Exactly, it's only on investors' concern. Again we're since the beginning, we have been very confident that there is no real issue that we're working for the shareholders. So is the shareholder think that there is an issue, we're doing what it takes. But again, everything I said, we were since the Thursday, we were very confident in the liquidity profile of the company which still are very confident of the liquidity profile of the company. And there are no new, if there are news, they are only good news.

And then just to make sure I heard something right, right before you went to Q&A. You said that liquidity would be similar or higher at year-end and that's before the €145 million revolvers is added to that liquidity balance?

Yes exactly, because this €145 million are linked to covenants which is the leverage of below 5 and the leverage below 5 on also external factors such as dollar to euro foreign exchange which we don't control. So we don't it would be--

I'm sorry. So, we should think about €580 million plus €145 million as a sort of a starting point on?

If the leverage is below 5 which is what we intent to reach.

And that's just can't tell that leverage is calculated is just Constellium debt and just Constellium EBITDA, right?

Yes.

Okay. And then the union contracts, the new union contracts, I know that you said you're keeping the option open between Wise or Ravenswood as to where you felt the top line or you exaggerate? Well it was the sort of short-term contract with the union where the uncertainty around it is a sticking point and discussions with OEMs, do you think the new longer-term contracts will help you secure more capacity?

Yes, of course, we think that it's only - it's a good news for everyone; good news from - good news for us because it gives us a lot of visibility because now 2020 we have five years ahead of us. And of course, we think that the customers will be very happy to hear that. But having said that, the first line is already committed; second line we're not very worried about the - I would say the commitment for this which is due to start on 2018. So we have three years in front of us because we probably - we start the ramp up. So we're very optimistic honestly. Just for the recall, we need to say that we would put the finishing line in Muscle Shoals because we don't intent to do Body-in-White in the future. So the optionality between...

Okay. And then sort of lastly you sort of thanks for the guidance, I need to the business segments and why 2016 should be better than 2015. You said the why should be substantially improved next year over this year. Do you think that you could get EBITDA to at least the same point or better than the LTM EBITDA when you bought it?

I think the answer to that is no. - we have transferred out some business from Muscle Shoals to Ravenswood which is the right - so we're transferring it as 2016 and also because the results from Muscle Shoals, we continue to be much higher than this year. But it's not at the level at which we expected few - when we acquired the company.

I'm sorry, not as high as the $140 million level, but maybe as high as the LTM actual results, the $100 million level?

Yes more or less.

And our next question is from Jorge Beristain from Deutsche Bank. Please go ahead.

[Indiscernible] with Deutsche Bank. So, I just wanted to reclarify just, so there is no misunderstanding on your last answer. I think the question was that in 2016, will the EBITDA had a Wise, the better than what you have done in the last 12 months?

The answer is clearly yes. Thank you for the clarification. Yes, definitely yes. Much, much better.

And the other question I had was just when you're saying you're exploring the Muscle Shoals alternatives to lower the CapEx. I just want to make sure we're clear on what we're talking about, because you've already cut a lot of your CapEx. But in the next stage, are you talking about simply redistributing the CapEx that would be required at Muscle Shoals possibly either through a partner or other some -- other financial splitting of that CapEx or do you actually think that there is more opportunities from this point forward to lower the CapEx in absolute terms at Muscle Shoals?

So again, we're looking at CapEx again and as I said a few days ago, we expect CapEx to maybe the little less than what we said. But frankly most of the has already been done. So it would be on the pretty marginal. So when I say we're looking at all options, I'm not talking about releasing CapEx, again, it's a plus some kind of bonus on top of the €150 which we mentioned before. Let's looking at something more radical.

And just on the Body-in-White, obviously we're all aware of the issues that Volkswagen has had with their diesel engines. Is there any kind of positive read through given your closeness with them on the A8 and the Audi line generally that we may see sooner awards of more ships to aluminum by someone likes Volkswagen or other OEMs that this kind of is a silver lining kind of events for you guys?

Yes. I know we're not -- the first thing is that even if nothing changes, the industry would be the bottleneck for the switch from steel to aluminum. I always repeated that I think my colleagues we're saying that. So we don't have -- we would not have the capacity. So if there was a major increase of the switch from steel to aluminum. So, for us operationally, it's not really relevant as we speak. We have a plan and those are GAAP line which we will go inline in 2018, we have another one for the top line, sorry top line meaning finishing line in 2020 and that's the investments we'll commit and even if they need - of the market we don't see us commenting more. Now, so it doesn't make any difference, funky to us, the market is already far efficient to support our CapEx and investments. Whether, now, if I take a marginal view from P, I don't know. We don't know, we think that first we will have to accelerate the light-weighting of their vehicles which would be a huge change again in the industry, but it's too soon to say, we can't say now, with no more in a few months. So I am very prudent on this side, but again it doesn't change anything for us.

And just lastly quick question, when will we know about the location of the scalping line as we thought it was somewhat contingent on your labor negotiations, but now you're saying you still haven't decided. Is there a date by which you will make a decision that you can share?

We're working the two projects in parallel, meaning that all the cities are mainly parallel in the two locations I was mentioning before that's what we said to at the beginning. The contract was at first exquisite, obviously, it's not the only one, it doesn't make any significant difference as far as cost is concerned. It doesn't make any difference - any significant difference as far as Ravenswood is concerned, exactly the same. And it depends about many things, we will have to make the decision before the end of next year, obviously.

And our next question is from Matt Vittorioso from Barclays. Please go ahead.

Just want to get back to the Wise Metals questions, not to beat a dead horse here, but from the perspective of Wise Metals bondholders that asset seem to be on certain trajectory when you bought it, we paid a fair amount for the asset across a €1.4 billion, you came out with guidance of €140 million of EBITDA. As we stand here today, obviously the asset hasn't performed the way you thought it would, you just said that you'd move some of the - some of the business over the Ravenswood so essentially taking some EBITDA away I guess from Wise Metals bondholders. Can you just talk about your current view on the value of that asset. Again you paid a fair amount for it, do you still believe in the earnings potential of that asset, the Wise bonds have traded down in the market which would suggest that holders there are concerned about the trajectory of that asset or your commitment to that asset. So maybe there should be just a good opportunity to talk about your view or a reiteration of your view on the value of that asset?

The first thing that if you look at the we should have taken away, if you look at the way we've run the business in the last nine months, frankly we have put lot more money into Muscle Shoals that we have taken value out of Muscle Shoals and the math is really compelling. You are saying that if you look at Muscle Shoals and you do the math, the EBITDA Muscle Shoals doesn't cover the financial costs of Muscle Shoals in those types. But we did not acquire the Muscle Shoals for the, we acquired these for the Body-in-White opportunity. We knew that the Body-in-White opportunity would do to the aluminum market what they can has done to aluminum market 30 years ago now and we know that the same will happen for Body-in-White. And that's the reason why we acquired Muscle Shoals.

Maybe just in response to your first comment to come back on one of the original question, clearly you're putting a bunch of money into the Muscle Shoals assets. But I think the first question on this call was about whether the while the bondholders actually benefit from that and I guess, I wasn't really clear on your answer. Did you say that the investment they does contribute to the collateral for the three quarters secured notes or you're saying it's being done outside of the collateral basket?

Part of it is Muscle Shoals. The both revenues are pursued within or without which is not defined yet.

Okay, maybe I'll follow up offline. Just another quick modeling question on the working capital front. Obviously, you've done a good job taking -- getting some cash out of working capital. You have any high level expectations for the fourth quarter? I know you said on your slide that there still room to go, just trying to figure out what cash burn might look like for the fourth quarter?

I didn't get your questions, sorry.

Just on the working capital front for the fourth quarter, I mean, the last couple of quarters, you pulled the bunch of cash out of working capital. I know you highlighted the opportunity to keep going there. Any big picture expectations for the fourth quarter as we think about what cash flow or cash burn might look like?

I think we're going to generate cash in the fourth quarter; we're going to reduce the working capital as we're traditionally doing that at year-end. So, going to generate cash in the fourth quarter.

One last modeling question on the aero structures, in that segment that EBITDA per ton was pretty strong here in the third quarter. What's your sort of big picture guidance on the modeling front, I mean is this - is something in the 400 plus range per ton sustainable as this - how would you advise people to model that segment going forward?

I think you can keep on modeling €400 per ton plus.

And our next question is from David Gagliano from BMO Capital Markets. Please go ahead.

A lot are already been covered. I do want to ask just one first of all just a clarification question on the CapEx, just on the deposit does not include the investment by the way for. How much is left for that investment?

Do you mean the investment in the Bowling Green facility, the JV. So the investment as we - as we said is return north of $51 million which we split 51%, 49%.

And how much is left to spend?

1/3rd of that.

What was that one what?

1/3rd.

Okay. And then just the follow-up question on Muscle Shoals just obviously the acquisition wasn't for the current EBITDA generation until we get that. But in the sort of the long-term within the framework of the potential here in three years' time. Can you remind us again, how much of this capacity that's coming online is actually committed at this point under contract. And when are we going to hear more about future commitments for all the platform?

It's only starting to be committed very, very - at a very start. We have - we're in intense discussions with several OEMs. So it could be now committed very, very quickly; but at this time it's very, very minimum.

Okay. And you mentioned you're in discussion, so it could now be committed very, very quickly meaning three months from now, we should get an update or six months?

In the past, because there are two kinds of project, there are the small projects where you get the door of this model, the - in that case you're talking the increments of 10,000 tons for instance or 15,000 tons. And then you have the last projects, the last project where of course the F-150 is an exceptional project, but you can have the large project of 100,000 tones, of 50,000 tones and we're also discussing results. So that's the reason why my response kind of would be very precise, because if such a project and there are several on the market right now, if we get such a project, immediately the line would be fully committed.

And then in terms of the conversations you are having now, are those four large projects or small projects?

We have both, but we have conversations for large projects, yes. And the capacity is top of the market. So which mean that if such a large projects were to be launched, we would get the share of it.

And then just very last question. When you have these conversations for contracts, will this be fixed volume and fixed margins that will get -- that we will receive -- will they be fixed margin and fixed line contracts? That's the first part. And the second part is will you tell us what those margins are some indication at least?

So as far as is concerned, this project are to platform. So we don't take volume per se. It is a platform was very well, the volume is larger than that platform doesn't go very well. So every time we make an offer, we have sensitivity and we made offer on base case and we've always take a cut of these base case, because we're from time to time little optimistic all we want to be very cautious which is the other way to look at it, as far the EBITDA of this business is concerned.

I think on the full stream from the substrate to definition product, you are still looking at above 900 dollar by dollar.

I am sorry. I didn't understand that answer.

On the full stream coming from the to the finishing line, you are at 900 dollar by dollar.

Our next question is from Matt Murphy from UBS. Please go ahead.

Did I hear you say that you thought Q4 would be free cash flow positive?

Yes. I just said free cash flow positive.

And then that includes that you actually think you're going to -- your 350 million CapEx for the year?

Yes, sir.

Okay. And then I'm just thinking about getting below that 5 times covenant I mean, can I just take that that 17.88, if I don't assume it materially improved in terms of net debt and divide by five, I get €358 million in EBITDA on the year, is that math applicable or do you have other adjustments you make to think about getting below five times.

We have other means than EBITDA to reach the 5 times and once again that said we will be highly dependable on the FX because - increased the value of all that.

Right, okay. And then maybe just on the exploring alternatives. I'm just wondering when you might expect to be able to tell us more if this is a, you know, a month's timescale or year timescale or what?

No, it's more than that. We're looking at many options, so you should not expect some think, everything so it could be one month. But if I want to be on the business side, I think it will be before the announcement of the euro which is on March 14.

And our next question is from [indiscernible] from Wells Fargo. Please go ahead.

I was just wondering about there was an announcement, I think in the past week or so about some expansion going on at Logan, UACJ potentially expanding capacity. Could you just talk about it has any impact on you guys and your relationship with UACJ?

No, I think it's a very good news. We, it's totally upstream activity. So there is nothing in finishing, so the impact mean that - but the only - the only thing we should mean is that UACJ will be able to deliver mostly straight to the finishing line. So it's an investment to increase the upstream capacity and its - so the impact can only be positive for us.

That kind of leads to my next question, I mean you guys kind of been ask a little bit each way, but can you kind of talk to us about how you're thinking about putting the line at Muscle Shoals or the loss in Kentucky. Is there a transportation advantage to be one place or another, it seems like now that UACJ giving more upstream capacity, my lend itself to be putting the audit line in Kentucky. Can you just talk about kind of the things you're thinking about that?

No, I mean look at the EBITDA per ton of these products, transportation cost is really marginal, it's not -- if not, the main argument to decide to put the line in Muscle Shoals in. We're looking at the operational issues what we do without partners supply and so on and so on. So the transportation doesn't really work, doesn't really make a difference. And as we explained, so the first line, the substrate will come at from.

And then just my last question on strategic alternatives on Muscle Shoals. Had the board part of the other strategic alternatives for the business or is it strictly capped to Muscle Shoals?

Let me, that way we're looking at alternatives for Muscle Shoals right now. The Board and I, we think that the value of the business in total is not very well reflected right now. So we don't see how the could happen. We're really focusing on Muscle Shoals right now. But what we're trying to -- what we're considering that we're seeing is that, promptly the market doesn't really understand the value of the company, because we have not been able to communicate it the right way. So we think that we hope that we will continue to communicate it better and the market to understand where we're.

And our next question is from Michael Boam from Highbridge Capital. Please go ahead.

I just wanted to ask a question regarding your liquidity, the 577. I now RCF coming back, but are of these amounts available to you, based on where you'll receive the inventory that are today or are they total size the facility available to obviously very different?

This is linked to the size of what the level today.

Okay, so you could draw down 577 while excluding the cash, you could draw down €577 million today?

That's correct.

And then my second question is just with respect to leverage. Can you tell me how big the facilities on the factoring facilities are in total? And what is drawn at the moment?

So on the facilities, you have 120 million higher, we have that on the presentation at the end of the. On the right, you have 57 million available.

Sorry, I'm not talking about what's available; I'm about what's drawn?

What's drawn, okay?

Obviously that's the share on your balance sheet that includes none of these facilities.

Okay. On the wide, on the revenue nothing is drawn, on the wide available €107 million is available, sorry €107 million is drawn, so the total amount drawn under JV is €107 million.

And then the factoring?

Zero.

And our next question is from [indiscernible] from BNP Investments. Please go ahead.

I have actually three questions. My first question would be on the guidance you gave in the summer, regarding Wise Metal, if I remember correctly €60 million to €70 million EBITDA guidance, it looks to me, if I get it correctly that you've done so far, €55 million in the first three quarter, should we expect Q2 hit the high end of the guidance or even bit - that rent?

So the guidance was in the €60 million to €70 million just to be precise, but €60 million to €75 million, so and at this time we're prudent, so we're not seeing that to hit the higher range of this guidance.

Okay. And coming back also on the cash flow - the cash flow evolution for the fourth quarter. So it's - assume you intend to spend another €100 million in CapEx, given what you guided earlier. So we then expect a pretty significant working capital inflow in the fourth quarter?

That's correct. We're going to spend a little less than €100 million; around €90 million and yes, the improvement in terms of the working capital.

Okay. And my last question on the covenant now below 5. Can you tell us what is your, how you calculate that ratio for the purpose of the covenant currently?

The total debt over to consider over to - over the last 12 months.

Okay. All right. But how do you calculate it today, I mean, what's you level?

5.3 today.

5.3, okay and you expect to be below five at the end of the fourth quarter?

Provided the certain number of things happen and the dollar is not determined.

And our next question is from Mike Boylan from Stifel Nicolaus. Please go ahead.

I just one question was really on the heels of the last one and on the prior one. So on the calculating the 5 times, we're using the 2021 in debt, is that correct?

Where you think the net debt which is 1.788.

And so, how is that calculated using those borrowings minus cash?

That's exactly, that the net debt.

So I mean I see cash at 3.31. So that doesn't come out to 1.788. So, how do you to 1.788?

That was cross currency swaps in the debt. So the total debt is 2.119. Last question, equivalent of 3.31 giving a net debt of 1.788 and --

Okay, So how do you reconcile out on the balance sheet when you see borrowings of 2021, how do you get from 2021 to 2119?

Because we need to add the fair value of the cross currency swap, basically that you don't have.

The cross currencies are -- those numbers are not listed on that here or they?

Yes, the fair value of the cross currency swap is 58 million.

58 million and it's on here?

In the page 14 of our press release, Q1 -- page 14 of our press release.

No, I see the 17 and 1788; I'm trying to reconcile it on the balance sheet from the press release. So I see the 2021 don't see the cross currency swap number unless it's here on some other name?

It's on the financial assets probably.

What's that?

It's probably on the financial assets.

Financial asset?

In the press release on page 14, the fair value of the cross currency swap is 58 million shown on that page of the press release.

Okay, but if I just try to reconcile a balance sheet, I have trouble find it.

And our next question is from Brian Yu from Citi. Please go ahead.

So with the A&T business, last year. I think a customer had stopped buying or reduced their purchases of AIRWARE. Do you see that coming back in 2016 and perhaps contributing to our margins?

We're very cautious on that, it's linked to a specific program which right now is not taking of as expected. So for the time being we don't have any figures, any upside from this program. We know that the customer has lot of inventory obviously because again the program is delayed, so that it is not in our figures. It could be an uplift, it's a program where to have next iteration, but we don't control.

Okay. And also A&T would that the pressure furnace that it sounds like you'll be bringing online very shortly. Is there an estimate of how much volumes that you will be able to -incremental volumes you probably get, what's the pusher furnace online next year?

So the pusher furnace is online in as we always said in H2 of 2016, then we have to quality it, so, most of it which would be only in 2017. And we think that it would be in two - then we have to see if we can fill it immediately, I would say, but the capacity is 40,000 tons. Just to finish we have a significant impact of course in 2017, very significant.

And our next question is from Brett Levy from CRT Capital. Please go ahead.

Yes, I just wanted to let Pierre finish. Brett, I think you're scaring some folks who are on the Wise Metals bondholders, my sense is that the things that you are floundering here keep the bondholders whole and there is not a plan to either default on the Wise bonds or sell the company to something that is sort of on day one looking insolvent; something along those lines is sort of, I don't know if you can give any reassurance to the Wise Metals bondholders that this plan is sort of not designed and kind of hand them out to dry?

No, I can't give such a gesture because as I said all options are on the table.

And then the other one is to protect shareholder value. Obviously, the shares are down, would you guys consider a stock buyback program?

Sorry, what?

The share buyback.

We understand that the financial market thinks and again, this is not what we think that we have a liquidity program. So we of course -- we would love to make share buyback and it's part of the options, but the first thing which we want to do is to push the market as liquidity is not the problem.

Okay, so not immediately?

Again we have a to look at all options. I don't think I can comment on this.

And our next question is from Bruce Klein from Credit Suisse. Please go ahead.

I still didn't the understand the answer. I don't think I heard the answer regarding device expansion whether that the value and the building in the CapEx accrues to the benefit of the collateral of the secured. Can you try one more time to answer that, I didn't answer that?

The past in the future is still open.

I'm sorry, what, I didn't get that?

In the past, what has been invested so far is part of the --

And I am asking about the future CapEx that you are going to spend?

As for the future that's what I'd tell you, the future is--

Is going to be include or not going to be included?

That's one of the option is to be included, another option is not to be included.

You are saying, one of the option is to included and one is to not included?

That's correct.

But you are not saying which?

Exactly.

And the other question was some of your contracts you guys had talked about I think in the past at the Wise level were difficult as relates to pass-through in premiums. So, what -- I guess some of them were reset, it sounds like which is, I assume some of the basis for your more optimistic outlook on Wise in 2016. Is that reset done and how does that conversation go with customers and how are you able to get them to be receptive to changing the formula or perhaps some thinking about that incorrectly?

All of these is done. We will have no major management issues starting 1st of January 2016.

Now I understand, but how you are able to achieve that?

By discussing with the customers. And if -- when most of the -- the most important customers have accepted to -- let me rephrase that. The first thing is that we have something of the premium. The premium either customers that accepted the formula which is neutral to them and to us or hedge. And the second thing -- looked due to the fact that in 2015 we're using top much slab and not enough of our capacity in cast house and its fixed which mean that next year, most of our capacity of not all of the capacity of the cast house will be used to recycle all the scrap and so on which had a significant impact on the profitability of the business which is much cheaper than buying slab outside. So, what we call the middle management issue is premium which is better and also this - the fact that next year we will not buy slab from the outside.

Okay. You know, the prior, why, I guess why are these contracts in place in the first place, like what change, what were they thinking, what were they respond if the all management team could see what you've done?

So, again a solid term is concerned and you can see that everybody was caught by surprise, is not only Wise Metals at - see where we were over and we had already - discussed with customers in a long time, in the U.S. it was not the case and the premium if you look at the evolution of the premium in 2015, its absolutely incredible. I mean the premium went up very quickly and by the end of 2014 and went down very quickly by the beginning of 2015 which is I think the build industry. So then we went back to the customers, we took the hit which you've seen and we've said to the customers we have to protect outside and you have to protect your side against the new change, drastic - dramatic change in the premium. So and it has been resolved.

Okay and lastly just the restricted payment basket, where is it sit at the end of the third quarter at the--

At Wise Metals, the reason I think is a very, is below 10 years.

And our next question is from Laurence Jollon from Shenkman Capital. Please go ahead.

First question is, do you believe that Muscle Shoals EBITDA will improve significantly in 2016 compared to 2015?

Yes, it will improve.

Okay. Second question, are the Muscle Shoals assets crucial to your ability to satisfy the medium-to-long-term demand in the U.S. Body-in-White market?

Yes, it is.

Okay. Third question, do you have any intention of walking away from Muscle Shoals and essentially abandoning those assets.

All option are on table.

Fourth questions, if you answered, yes the questions one and two, how could you leave question three unanswered? I am not sure why you're laughing my question?

No, no. I am not laughing. I am sorry, if -- I am not laughing. I think it's a very serious question and a very good question. As I said, we're looking; we have possibilities which -- laughing or smiling at your question, because it's an excellent question which we're also asking ourselves.

The problem Pierre is that in your answers to prior questions, particularly around giving assurance to Wise bondholders, there are investors that are walk away from this call concerned that 800 million to 900 million of your debt. So 40% of your debt, you just suggested earlier that you can't give assurances that you would stand behind that debt. So, I'm just hoping you can clarify that, because people will walk away from this conversation and assume I believe wrongly that you may not support 40% of your debt. Can you respond to that?

Yes, I can. We saying to you and repeating, we can't comment right now. We have hired an adviser to look at all options. That is the least of several options, maybe 10 or 12 we're looking at. There are many and so I will -- I'm sorry and it's a very serious question, it's a very important question, so I'm not laughing or smiling. But the question which I don't -- I will not respond to today.

And our next question is from Matthew Fields from Bank of America. Please go ahead.

I think Laurence actually asked lot of the questions. I kind of wanted to get out there, but as a follow-up, how much cash did you contribute to Wise in the quarter?

15 million.

So that brings the total to to-date this year of $135 million of cash contributions to Wise?

That's correct.

And then we've seen the Midwest Premium tick up a little bit in the last couple weeks, will we see a positive impact from that in Wise results in the fourth quarter?

It will be neutral or margin, we don't see a significant impact either way.

Okay. And then lastly, you said that you'll be free cash flow positive in the fourth quarter especially with the contribution from working capital. Wise Metals has always had a pretty tough fourth quarter working capital lines due to one particular customers demands on accounts receivable. Is that going to be a different scheme this year or is there something else going on in the fourth quarter?

We plan to factor those receivable with no non-recourse basis.

And our next question is from [indiscernible]. Please go ahead.

First of all I just want to clarify that I heard you right. The leverage test its net debt, not total debt, right?

That's net debt.

Good. And the second question is you talked about wanting to get under 5 times by year-end. And I just want to clarify whether or not that would require you to draw down on more of factoring, whether you have to factor more receivables or you have to be drop further on your - in order to do that or if you can do that organically by growing EBITDA and generating free cash flow?

Now, this will come fast actually most receivables of balance sheet.

And our next question is from [indiscernible]. Please go ahead.

My question is what is the hot mill capacity that you have available through UACJ, joint venture that you could use for Body-in-White North America?

Sorry, can you repeat the question, I am not sure I got it fully.

So I am trying to understand, you know, the theses behind why there is a shortage of hot mill capacity in the U.S. my question is, I'm asking you the - within the JV with UACJ is that still facing hot mill capacity to meet your Body-in-White plains?

Yes, the will supply the joint venture in Bowling Green, up to 40% of the plant.

So you are still short 60% of your plan on the hot mill?

Yes which will come from Wise Metals or you've seen that the UACJ has also investing.

And our next question is from Justine Fisher from Goldman Sachs. Please go ahead.

The first question that I had is on the 145 million of additional liquidity, given that there is so much focus on the leverage calculation and that it sounds like it's going to be a close line and that depending on our next years, even though the anticipation of the next year goes better. You might gain or lose access to that over various periods of time. Have you considered putting in more permanent source of liquidity to replace that?

Yes, we're working on it, but the several plans are under discussion.

And then to piggyback on a question that was asked earlier about the availability of liquidity based on your inventories and receivables and obviously the aluminum price is down significantly. So is that factoring into your estimated availability under inventory base facilities at the end of the year versus at the end of third quarter?

That factored.

Could you give us a percent is to how much you expect your borrowing base, I guess, to the client by or range that you're kind of looking at?

We're looking at the borrowing base -- well, we're looking at two things. On the, the borrowing base will go down by 10%. However, we're going to put, we're going include more customers in the borrowing base. It will be more than offset the drop due to.

That's interesting color. And then the last question I had was on the way that you've adjusted the Wise contract. So first of all, I think you had said earlier in your comments that you don't expect an impact from the metal lag issues in the fourth quarter, but then later on, you said, as of Jan 1. So, I just wanted to clarify whether we should expect a $20 million of impact in the fourth quarter and then you also mentioned that you've eliminated the problem by either negotiating pass through this neutral diversified or hedging, what percent is pass through versus what percent hedge, because I feel like people probably still a little bit concerned about the ability to 100% hedge that out, because was proven with numerous companies last couple years that it was not possible to 100% hedge out to Midwest premium exposure?

What you said is that, all the we have our customers are starting 1st, January 2016. But at this time, we're zero percent of hedge.

There is no hedging, there is every single contract is now?

The new contract would be on basis.

And then one more question. Just on that Wise entity. I'm not going to ask you or you are going to do the able to answer, but just can you remind us how much potential there is to add more debt to that facility. And my guess, the restricted payment basket is small then there is no way to kind of dividend cash-in from additional debt facility anyway. But could you just remind us whether or not the company has ability to add more secure debt at the Wise asset?

No and like I said that seems today why there is not enough capacity to increase debt. The only capacity to increase are very limited capacity to increase it through equity contribution.

And ladies and gentlemen, this will conclude our question and answer session as well as today's call. Thank you for attending today's presentation. You may now disconnect your lines.