Constellium SE (CSTM) Q1 2017 Earnings Report, Transcript and Summary

Good day, everyone, and welcome to the Constellium Full Year and First Quarter 2017 Results Conference Call. [Operator Instructions] And please note that this event is being recorded. I would now like to turn the conference over to Ryan Wentling, Director of Investor Relations. Please go ahead.

Thank you, everyone, for your interest in Constellium. I would like to welcome you all to our first quarter 2017 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 today's 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 20F. All information in this presentation is as of the date of the presentation. We undertake no obligation to update or revise any forward-looking statements as a result of new information, future events or otherwise, except as required by law. In addition, today's presentation includes information regarding certain non-GAAP financial measures. Please see the reconciliations of non-GAAP financial measures attached in today's slide presentation, which supplement our IFRS disclosures. I would now like to hand the call over to Jean Marc.

Thank you, Ryan. Good morning, good afternoon, everyone. Thank you, again, for your interest in Constellium. On Slide, 5 you will see some of our financial highlights for the first quarter of 2017. Shipments were 375,000 tons that's at 4% compared to the first quarter of '16 on higher Automotive and Packaging shipments. Our revenue was up 15% to €1.3 billion. This was primarily due to higher metal prices, which, as we passed through, as well as the increase of shipments I just mentioned. Our net income at €13 million improved from a net loss of €8 million in the first quarter of last year. Adjusted EBITDA was €93 million. I'm proud to note that AS&I achieved another quarterly record adjusted EBITDA and continued its strong momentum. Meanwhile, A&T and P&ARP delivered solid results. Peter will talk in more detail about our financial performance in just a few minutes. So turning to Slide 6, I'd like to share with you a few business highlights from the first quarter. In P&ARP, as we're finishing an investment program to expand our automotive Body in White capacity. In the first quarter our automotive Body in Whites -- our automotive rolled product shipments, sorry, were at 28% compared to last year. I'm also pleased to that our CALP line ramped up at Neuf Brisach in France and Bowling Green, Kentucky, are on schedule. Additionally, we continue to expect Muscle Shoals to begin supplying ABS substrate to the Bowling Green joint venture later this year. Lastly, as you may have seen, our new recycling furnace at Muscle Shoals is now fully operational. This furnace increases our recycling capacity by 170 million pounds, that's about 5.2 billion used beverage cans every year. Muscle Shoals now has a capacity to recycle 1 in 5 cans sold annually in the U.S. This is obviously a major accomplishment as it increases our ability to source metal internally, it reduces our costs and it improves our sustainability profile. In A&T, I'm proud of the performance of our team. They were able to deliver, despite industry headwinds, solid EBITDA, and I'm confident in the long-term strength in this segment. Aerospace demand exceeded our expectations during the quarter, despite the ongoing inventory destocking in the aerospace supply chain that we have discussed with you the past several quarters. In our Transportation, Industry and Defense business, we continue to expand our exposure to these markets, with shipments up 3% during the quarter. And importantly, we are moving forward with our strategy of targeting more profitable niches within the TID markets. Now let's move on to AS&I. They continued their strong momentum. Automotive extrusion shipments were up 10% year on year on strong demand. Our growth investments in automotive structures are on track. We continue to expect our White, Georgia facility to begin production this year; and our San Luis Potosí, Mexico facility to start production next year. The industry side of AS&I also continues to deliver strong performance, with other extruded shipments at 4%. We will also continue to expand into attractive niches within our industry business. In February, we refinanced the 2018 Wise Senior Secured Notes as you know. This transaction simplified our capital structure, extended our newest bond majority to 2021 and reduced our interest and other costs going forward. We also launched Project 2019, which Peter is leading and he introduced it you during our Analyst Day in March. Project 2019 is a cash improvement initiative focused on 3 core areas. Reducing costs, lowering trade working capital and reducing capital spending. I'm pleased to report that the initiatives of the Project 2019 are already underway throughout the company and we're in the process of identifying and launching many others. As Peter told you several weeks ago, we will leave no stone unturned. I have previously made the commitment to you that we would be free cash flow positive in 2019, and Project 2019 is an important step in that journey. I believe that there is tremendous value that can be unlocked through Project 2019, and I look forward to periodically reporting our progress to you on this very important initiative. With that, I would now hand the call over to Peter for further detail on our financial performance. And afterwards, I will wrap up with some further updates on our end markets and our financial guidance. Peter?

Thank you, Jean Marc, and thank you all for joining the call today. Turning now to Slide 8, you will find a change in adjusted -- or the change in EBITDA by segment compared to the first quarter of last year. For the first quarter of 2017, Constellium achieved €93 million of adjusted EBITDA, an increase of €1 million year over year. I will walk through each of these segments at a high level here and then go into more detail in a few minutes. AS&I was the best performer, increasing adjusted EBITDA by €4 million to €31 million in the quarter. P&ARP adjusted EBITDA of €41 million was down slightly from €42 million last year. A&T adjusted EBITDA of €28 million fell €2 million short year over year. And Holdings and Corporate was flat year over year at negative €7 million. Additionally, I want to point out that net income improved to €13 million in the quarter -- in the first quarter of 2017 from a net loss of €8 million in the first quarter of last year. A substantial part of the improvement can be attributed to a €22 million gain on the amendments to the Swiss pension plan and to the Ravenswood salary, pension and OPEB plan. Turning now to Slide 9 and focusing on the P&ARP segment. Adjusted EBITDA of €41 million was €1 million below last year. As part of our strategy to increase Automotive Rolled Products shipments, we are completing a major investment program to enable the production of auto body sheet substrate at Muscle Shoals later this year. During the quarter we had two planned maintenance outages related to these upgrades, which resulted in higher maintenance and other costs relative to the first quarter of last year. However, despite these outages, Muscle Shoals delivered strong production during the first quarter and is running in line with our expectation in April. Overall, P&ARP was able to increase shipment's by 4% compared to the first quarter of last year. Looking forward, we expect to incur further maintenance outages related to our automotive readiness upgrades through the end of the year. We expect to partially offset the impact of these outages with cost savings and productivity gains. Now turning to Slide 10 and focusing on the A&T segment. Adjusted EBITDA of €28 million fell 4% compared to the first quarter of 2016. Aerospace demand, while exceeding our expectations during the quarter, continues to be affected by the excess inventory in the supply chain. Lower shipments and the effect of the transition to new customer contracts were partially offset by improved and aerospace mix and solid cost control. Shipments decreased by 3% to 61,000 tons in the first quarter of 2017. Aerospace shipments fell 9% to 28,000 metric tons while transportation, industry and other rolled product shipments increased 3%. Adjusted EBITDA per ton was flat at €468 per metric ton. Turning now to Slide 11 and focusing on the AS&I segment. AS&I continues the strong momentum exhibited in recent quarters, demonstrating solid execution across all products and facilities. Adjusted EBITDA of €31 million was a quarterly record and increased 13% compared to the first quarter of 2016. Results benefited from higher shipments and solid cost performance. Shipments reached 60,000 tons in the first quarter of 2017, an increase of 7% year over year on solid demand. Automotive extrusion shipments increased by 10%. And adjusted EBITDA per metric ton increased to €514. Turning to Slide 12, I want to say a few words about our balance sheet and liquidity. Our net debt position at March 31, 2017, was €2 billion and our cash plus amounts available on committed facilities -- or under committed facilities was €515 million. In April, we agreed to a €100 million revolving credit facility backed by French inventories. This facility will be included in our liquidity in future quarters. We remain very comfortable with our current liquidity position. Lastly, while not on the slide, free cash flow in the quarter was an outflow of €33 million compared to an outflow of €182 million in the first quarter of last year. The first quarter includes a €71 million reduction in factored receivables during the quarter. Capital expenditures were €60 million in the first quarter of 2017, and we continue to expect capital expenditure of €275 million in 2017, with spending expected to pick up in the remainder of the year. I will now hand it back to Jean Marc.

Thank you, Peter. Before opening for questions, I would like to share a few end market updates. And starting with automotive market, which, as you all know, is a very important growth market for Constellium, we maintained our positive outlook for this market. As we noted at our Analyst Day last month, over the period 2016 to 2021, the growth rate of aluminum rolled products for automotive applications is forecasted to be 19% earlier in the U.S. and 12% per year Europe, where the market is more mature. We see low risk to these forecasts in the short term as automakers have already locked in designs and materials. In addition, we believe that our mix makes us less vulnerable to an industry downturn given the platforms of vehicles we supply. And for instance, while the U.S. SAR was softer in the first quarter of 2017, the U.S. production of automotive programs was up year over year. We believe this can attributed to our greater exposure to light trucks, SUVs and luxury cars which have a greater need for light weighting and have been in higher demand. Over the longer term, we remain confident that increased aluminum usage is a secular trend for the automotive market, driven not only by light weighting enablers -- like fuel efficiency, safety, battery technology, but also by customer preference and driving enjoyment. We will continue to closely monitor this market and we will remain prudent with our investments. As I have said many times, we will not make incremental investments without firm personal commitments. Just turning to packaging for a moment. Packaging is a stable market and provides a good base load capacity for our plants. We also like packaging's with session resistant qualities. In the United States, we expect the continued progression of auto body sheet demand as well as craft bear increasingly moving to cans to help further tighten the market. In Europe, demand continues to grow based on substitution of aluminum for steel as well. Turning to Aerospace, we remain positive in this market. And as the aerospace market grows from the first quarter of this year, we expect to grow in line with the market. In the near term, we continue to see excess inventory in the supply chain which will continue to affect shipments for a while. However, I will note that our aerospace demand was better than we expected for the past quarter. Finally, we see steady demand in our Transportation, Industry and Defense markets, where we are executing on our strategy of expanding into niche products and markets. While we see strength in many of the TID markets that we serve, weakness persists in the North American transport market. We continue to expect higher overall transportation, industry and other rolled product shipments to offset lower aerospace shipments in 2017. Turning now to Slide 15, I would like to reiterate our financial guidance and give you a little additional color on the second quarter. We continue to expect high single-digit growth in adjusted EBITDA annually this year and over the next three years, leading to over 500 million of adjusted EBITDA in 2020. And looking at each of our different business units, we're expecting every business unit to be up year-over-year. In the second quarter, more particularly, our packaging business will benefit from the usual seasonality as we enter the peak summer season, but we'll continue to be affected by planned outages for our automotive readiness program. As we noted at our Analyst Day, based on our order book, we expect a strong second quarter in Aerospace, and AS&I is expected to continue the strong momentum in the second quarter. We maintain our guidance of capital spending of 275 million in 2017, I'll remind everybody it's an 80 million reduction compared to last year. It goes without saying, but I'll say it again, we continue to target positive cash flow in 2019. The of Project 2019 is an important steps towards achieving this and makes me more comfortable in our ability to achieve this objective. And I have say, I am pleased with our performance on free cash flow in the first quarter of the year. Lastly we are targeting a leverage ratio of between four and 4.5 times. So overall, I'm pleased with Constellium's performance in the first quarter of 2017. We made solid results on the quarter with adjusted EBITDA of €93 million, with another record performance in our AS&I segment and a 20% increase in automotive shipments. We remain focused on operational execution and disciplined capital deployment, and on harvesting the benefits of our investments. With that, operator, we will now open the Q&A session, please.

Thank you sir. [Operator Instructions] And our first questioner today is going to be Curt Woodworth and he's from Credit Suisse.

I was wondering if you could provide a little bit more specific guidance around the second quarter. Obviously, you talked sort of directionally about how you see things trending. But can you quantify, I guess, the impact of the outages on P&ARP for 2Q and next Q? And do you think that 2Q EBITDA would be back to kind of the trend line that you see from the medium term in terms of high single-digit year-on-year growth?

So yes and yes. So I can elaborate this and the outages. So we are in the beginning of this year, right, in the first quarter at Muscle Shoals substantial outages. And just to give you a flavor for how much that was, it's 15 more days out of 90 days in the quarter where we were down for maintenance at Muscle Shoals. So clearly, that comes with extra expense. We do not expect that levels, there will be more outages for the rest of the year, but we don't expect that level of outages days or maintenance days in the rest of the year. So yes, we do expect some improvement. And seasonally, obviously, with the peak season approaching, we will see some improvement in sequential EBITDA. I think, did I answer your question?

Yes. And then, I guess, it's just an aggregate for 2Q for year-on-year EBITDA growth, high single-digit is reasonable?

Yes.

Okay. And then just a follow-up on Muscle Shoals and the comment that you're going to start to ship substrate into the joint venture. Can you give us a sense for, I guess, what the run rate is for how much substrate you think you're going to be shipping into the JV next year? And any guidance on what the transfer price could look like for that?

We will not comment on the transfer price. We will stay away from that. We will start shipping substrate in commercial quantities towards the end of the year, Q4 of this year. So you've got to bear in mind that, at the moment, as we're ramping out, substrate is coming from other sources. Several of it seasoned, therefore it's more expensive as well. And we expect to be, by the time the Bowling Green line is fully, is producing at full capacity, which should be end of 2018, all the substrate will be coming from domestic sources. So that's kind of give you flavor for how it ramps up. It ramps up later, but faster than the [closed] sales out of Bowling Green.

And Curt, remember we're 51%, so our share of that would be 51% of the substrate.

Our next questioner today is Novid Rassouli with Cowen and Company. Please go ahead with your question.

Actually, this is Han dialing in for Novid. So just a couple from me. So despite the aerospace shipment was actually down this quarter, but adjusted EBITDA per ton was actually fairly stable year-over-year. So just wondering if you guys can give us a couple of moving parts there?

Sure. No, I mean, I'm very pleased with the performance of our A&T business this past quarter. I think it's attributable to a number of things. You're absolutely right to point out that Aerospace going down and, I guess, more profitable in EBITDA part of metric than the rest of the business, we expect EBITDA to go down overall. For A&T, actually, it's not the case. What is it Q2? First of all, in Aerospace, we are focusing on higher value-added products. That's our strategy. Making sure we improve constantly our mix. So we've got an improvement in mix in Aerospace. That's factor one. We knew about, that's contracted. It's happening, it's no surprise. But also, we've got a number of activities last year to really improve the performance of our plans, both Ravenswood and Issoire, as well as Montreuil Juigne and our CF facility in Switzerland. And all plans are delivering on their commitments. And it's really nice to see that the operational performance is at a higher level than last year. And that cost efficiency is showing in terms of EBITDA factor. So you've got just two factors that will play on the mix side improvement. And on the operations side, a very nice cost performance.

Got it, that makes sense. So also related to Aerospace destocking, do you guys have. Can you give us some color on how that is evolving in the current timeline, for when you actually see the end of the destocking cycle?

Yes, it's a difficult question to answer, because the supply chain in Aerospace is quite complicated. But broad brush, you've got -- definitely destocking extends from wide body aircraft build rates. The single body ones are doing better, so much less exposed. And depending on how much of your business goes through distributors compared to more direct channels to the OEMs, you've got also a different impact there. All in all, when I look at -- and therefore, different competitors in the space will have different views in terms of how much destocking is ahead of them or not. In our humble opinion on the basis of where we are, we believe that destocking is going to continue for a few months. Burt we're seeing signs that by the end of the year we should be done with it.

Okay. Got it. That's very helpful. So I guess last one from me. You touched based on the maintenance outage, planned outage on Muscle Shoals. Just wanted to get a sense of how long this readiness program will last and then maybe will there be any other outage planned outside of '17 time frame?

So '17 is really a big year. There will be some modest outages in '18 as well, but nothing that I should talk about really now or in '19. I don't expect it to have any material impact on the results in '19, all right? So this year was important to say. Listen, when we look past performance in the first quarter, you can look at it and say while it doesn't go up, yes, special cost and -- two outages, really, that were long, substantial. I mentioned 15 days out of 90. And a few more days and we would have wished, I guess, and maybe a couple of days more. But that is a significant part of our '17 program that's behind us. We still have about the same in the second half, also in the second volume -- next three quarters. And then in '18, we should be back to normal conditions of maintenance and downtime.

Okay. And then the costs related to upgrades that's required for the automotive readiness program?

That's part of the 2 -- yes, sorry.

Sorry, go ahead.

I didn't let you finish your question, I apologize.

So yes, I was just wondering if the maintenance expense and other costs related to the upgrade require for the automotive readiness program is combined? Or is it -- are there two separate parts?

Yes. There's -- I mean, there's two separate parts which are the CapEx and the OpEx side. So the CapEx of the auto readiness is included in the 275 million guidance, and the maintenance cost is also included in our high single-digit EBITDA growth year-over-year, right? How it happens, those CapEx and OpEx growth during the year? It's a bit -- it depends on when we take the outage efficiency and all that, but that's included in all of forward guidance.

And our next questioner today will be Christian Georges with Societe Generale. Please go ahead with question.

So firstly, just on P&ARP again, so you've got some interference from the substrate development in Muscle Shoals. But in Europe, you also have your BiW line starting out, right? Did that also interfere with your earnings in the quarter?

No. Actually, the ramp up in SG3 is -- we don't have all the readiness that is needed on the hot mill and cold mill in Muscle Shoals. We don't have that in that in fact because the plant is already for you capable. So there is only a matter of starting up, which has already happened in the last quarter. But they're ramping up the SG3 lining at the site. So we are not fazed by construct with the same scope of Changchun, [indiscernible] than we are in the Muscle Shoals.

And [indiscernible]. Sorry, go ahead.

Sorry, go ahead. No, you go ahead. You go ahead.

I was just going to say -- I mean, there are some normal start-up costs that you have with starting a new line, but it's just not up the same magnitude.

Okay. And speaking of the next quarters, should we see at some point, at [indiscernible] there some benefit with BiW this year? Or is it something for next year onwards?

So definitely contributing to a larger extent next year. This year, we've got two [indiscernible] in play, one is any ton that we produce and sell is contributed to EBITDA, right? However, initially when you are qualifying and doing tests with customers to get qualified on the given part, you're incurring some qualification costs. So that mutes the contribution that you make from the first tons you're selling. So expect 2018 to start to see some contributions, to see it really. And in '17, the first six months out really no contribution at all because whatever money you're making on selling the product, more than spending and qualifying that product. And then, progressively, over the course of second half, we'll see some net contribution to EBITDA. This is going pretty much like we planned. It's not easy, obviously. And that's a good thing, because you don't want to be in a business where everything is easy because there are so many people. But it's going pretty as we planned on the technical qualification side with customers.

And another question just on the AS&I. Your EBITDA return is remarkable as we move forward. I mean, is it, in your view, the best you can achieved, because 1 7 is a pretty specular increase? Or do you see that you have more cost reduction potential or mix improvement come through?

So I think it's really about mix and scale. This business is very much about developing more and more engineered products or parts for our customers. And the more legitimacy we gain with them, the more we're able to internalize more in the design of the cars and get producer to the finished products that they would mount on the vehicles. So as we do that our EBITDA at that time should increase because value-added is increasing, right? So that's, I'm very optimistic about the future for this business. We mentioned that we had, yes, we mentioned, sorry, I was just checking with my colleagues here. We did announce that we have won project for battery boxes. So that's yet one more example of us venturing because of our legitimacy into a new product territory, developing advanced parts for our customers, and that comes with a reward for us. So I'm very pleased with the way things are taking shape there.

So AS&I is your star division, right, now because the highest volume growth profile. And this [comfortable] reason was possible EBITDA return margin business?

Well, that's your comment to the team, they will certainly appreciate it. Thank you.

And our next questioner today is going to be Matthew Fields with Bank of America. Please go ahead with your question.

I just wanted to follow-up on the last question about the third line at Neuf-Brisach. The pace of the ramp-up, are we, should we be factoring in like kind of a run rate full mix shift from packaging into auto margins at the very end of 2017, so starting to fully contribute to that mix shift in the beginning of '18?

So not sure I fully understand the question, but I'll try to be as clear as possible on the answer. So we are not planning to exit packaging in Neuf-Brisach, right? We are planning to ramp up the [SG3] line over the course of 3 years. So by the end of '17, '18, '19 it's fully up and running, 100,000 tons. At this point in time the margins on this line, on this product line are going to be very much the same as what we have today in EBITDA per ton in automotive products, and we'll still keep a substantial contribution from the packaging business.

I just meant on the 100,000 tons that goes to that line, that will presumably come out of packaging capacity?

No, because some of it will, but our job is, again, switching the assets, making the most with what we have. The bulk of [19] was very selective, continues improvement projects, a little bit of [castle] yield there, the rest of the plan, so that we can maintain as much as possible our existing shipments and get that as additional contribution to our shipments, to our revenue and to our EBITDA.

Okay. And then one of the comments you made in the presentation about Aerospace is, from Q1 '17 I guess onwards, we expect to grow in line with the market in Aerospace. Can you just give us a sense of what you think that means for your volumes?

Yes. Thanks, that's -- thank you for asking the question. I think when we had the Analyst Day, there was a side where we said our long-term for automotive -- automotive, aluminum applications in Aerospace is a growth rate of 2%. And then one and one people came to us and said, "Does it mean that you're planning to lose market share?" Because I think out there in the market people are expecting a higher growth rate in mind 4%, 5%, 6%. I don't know. What we mean here is our view is that our markets are going to grow at 2%. What do we know is there will be more than quite a few people, but we don't know the future for sure. So if the aerospace market was to grow at 4% per year, we will grow at 4% per year as well. So really because the construct of our contracts which are market share related, right, and we can be excluding on the part or we can share the part with another competitor or two or three. The more aircraft are being built, the more our shipments grow, and that's what it means. Now, you have an EBITDA per ton average on Aerospace, and that's -- whatever assumption you make on growth in Aerospace if you want to know what the contribution to growth is, then that's good proxy, right, to use for EBITDA per ton.

Okay. Thank you. And then on AS&I segment, the automotive growth of 10% year on year is great. Can you give us a little color on the market for the other extruded products that were down? Kind of what end markets are those? And a little bit of color behind the decline.

Yes, it's a very fragmented market in terms of applications, right? There are some applications that actually go into mostly -- some of those go into a bunch of various industries. And we're seeing substantially this -- and the same kind of growth rates in those markets. And it's a big problem to have and that's why we're expanding our facility in the Czech Republic, in Decin, to make sure we can seize all the opportunities that are out there.

Are the other extruded products mostly out of Europe?

Yes, correct. There is nothing actually in the U.S. But we ship a little bit from our European plants for the U.S. base in Europe.

Okay. And then lastly, are there any other sort of major Aerospace upgrades or maintenance projects on par with the Ravenswood products or things like that coming down the pipe in the next year or so?

No. Our strategy is to harvest the investments we've made, and that's what we're doing.

Just one correction. I think you noted that -- you said that other extruded products had shrunk during the quarter, but they actually grew during the quarter, 4%. The automotive extruded products grew by 10%. Sorry, just wanted to make sure it's correct.

Good catch.

And our next questioner today is Evan Kurtz with Morgan Stanley. Please go ahead with your question.

This is Piyush Sood dialing in for Evan Kurtz. I had a few questions. First one, just want to see if you can break out any EBITDA benefit from wider aluminum scrap spreads in 1Q?

Sorry, so break out the benefit from wider scrap spreads?

Right. Wider scrap spreads in 1Q?

Yes, it's -- no we -- yes, we can, but we won't, and it's not that material.

Okay. But do you see scrap as becoming a bigger factor for your U.S. operations because there's the expanded Brazilian capacity?

Absolutely. Absolutely. And we want to increase the use of recycled metal. It's good for the planet and it's good for our financials.

Okay. And second one, what is the best way to divide metal price lag onto your segments? Can we just divide based on shipment? And the second part to this question is if aluminum price is stabilized, how soon do you expect the lag to decline to a number that's much smaller than what you had in 1Q?

So the first question was how do apportion metal price lag?

Right. It's -- onto your different segments.

Yes, I think I would have it follow shipments.

Okay, that's helpful. And how about if aluminum stabilizes, how quickly do you expect it to drop off?

I would think over the course of -- yes, I think it's over the course of -- certainly over the course a quarter, maybe two, it should stabilize I would think.

Okay, that's helpful. And on the -- and then last question from me. On the automotive readiness program, is that over and above the €5 million in startup and development costs in 1Q that you broke out?

You're referring to the what startup cost?

Yes, there's 5 million of startup costs. And three relate to new sites, two relate to the startup. And the two are tied to the automotive readiness.

You said three and two, but they have been taken out of -- so in your adjusted EBIDTA, you've already kind of added some back?

Yes, that is right.

[Operator Instructions] And our next questioner today is going to be Sean Wondrack with Deutsche Bank. Please go ahead with your question.

If we just look back a few weeks ago, I think you're expecting Q1 to be slightly down year-over-year. You came in up a little bit year-over-year. What changed or what performed a little stronger than you're expecting?

I think we had a very nice performance in A&T. And I think we -- when we talk we didn't -- not much in the important months, obviously. But we were seeing good performance in January and February, and these guys continue to accelerate into March. That's the main driver.

Yes. And the other kind of factor contributing was AS&I did continue to perform strongly through the quarter. So there was some upside. But I agree with Jean-Marc, the big...

Yes. And as -- when we spoke on the 22nd of March, we're also just recovering from the very long allergies we had at Muscle Shoals, and it's always [indiscernible]. And the guys recovered strong after normalizing their asset. They came out strong, so that helped as well. Nice booking in the last few days of the month and some very nice shipments figures. So all of the planets aligned. Well, we're -- so a lot hard work. So...

Great. And actually at Investor Day, one of the takeaways I had was that TIDs actually could potentially be a big growth driver for your business. It seems like it's more contractual oriented. Can you talk about a little bit about that side of the business and potential opportunities you have there with the government, etcetera?

Yes. So -- no, you're absolutely right. I mean, that's the takeaway we wanted to leave the people with. We're glad you took it. They, I think, there's a myriad of applications for our technical rolled products right? We have strengths, I don't know, in general engineering and however you name them, right? And the key there is because these products are made using the same assets as Aerospace, you need to have a well-performing supply chain and plant system so that you can, because Aerospace is always priority number 1. So once you can really stabilize your flows and deliver on the customer commitments in Aerospace, then you can have the luxury of having a long-term strategy in TID. And a lot of the customers we have in TID value the technical performance of our products, the know-how we bring to them. But they really need to know that we are dependable and we are going to be there over the long run. And I think we have gotten to a place where after -- a lot of the people in our supply chain in Aerospace over the past few years, we have really stabilized this, we got good contracts, good visibility in Aerospace. We have also made a number of investments in the past to really upgrade our plants in A&T. And all that together has given us a breath of fresh air in terms of our ability to look for a lot of different strategies by market segment, and go and rebuild business with customers or develop into new markets and applications. So that's what the team has been working on very diligently. It has been a long process to plant all the seeds. And the way I'm looking at Q1 is very promising first crop. But I do think that we got a lot of potential to take it much further, and that what's the team is working on very actively. So we got very significant lease and opportunities in defense. In industry, there's a bunch of things where the superior technical characteristics of our products out of Switzerland are really appreciating in the market. And then we got all the transportation markets, which in Europe are very good, but in the U.S. still lag. Well, in terms of [around,] that's going to be very good for us as well. So we've got all these irons in the fire and progressively trying to reach the benefits of all the hard work at second base.

That's good to hear. And then last quick question. Peter, this one's directed at you. Obviously, you did a very good job at working capital in this quarter. As I think some of the cash flow items. Cash taxes for 2017 and 2018. Have you provided any guidance around that? Or how should we think about that going forward?

Yes. So for '17 on cash taxes, we set a number of between 20 and 25, so that's the guidance that we've given on taxes.

Okay. Is that expected to change substantially in '18 or...

No, no, no. Based on what we can see, we should be kind of in that range.

Our next questioner today is Karl Blunden with Goldman Sachs. Please go ahead. Your line is open.

Just a quick one here on competitive environment. We saw a press release yesterday about a location being chosen for € 1.3 billion greenfield expansion or a greenfield project to bring auto body and aerospace play to Eastern Kentucky. Just wanted to get your feel for whether that impacts any of your plans or how that specific location would impact your [role] to the industry?

Yes. And I saw that as well. We saw it that as well yesterday, I -- same time as you saw it. So it's very early to tell. It came as a surprise. I mean, if I look at what is needed in this business, right, to succeed, you need beyond having the assets, right, or you're finding somebody to build the plant for you. You need technology, you need customers, you need financing and you need patience. And I don't know to what extent this group has some or any of these four elements. So we will monitor that very closely. We like to doing business in Kentucky. There are some very good plants over there. There's a quite few actually. So we'll monitor that very closely. But I think at the moment it looks like an announcement, and we'll see whether it comes late into an actual plant at some point. The other point is having a plant that's able to do aerospace and automotive is a tall order.

Our next question today is a follow up from Matthew Fields with Bank of America. Please go ahead with your question.

Yes, I actually wanted to ask about the Brady Industries' announcement as well, so I appreciate your perspective on that. And while I have you, is there any kind of update on moving the goalposts on the second CALP line in the U.S.? Any sort of different tone with OEM discussions as maybe you'd laid down during the Investor Day?

No, no, nothing new. I mean, we keep on discussing. We're looking at different possibilities. But as I said, I want firm commitments from OEMs at prices that justify investing in a second CAPL line. And at the moment, we're not there yet.

Okay. And then maybe this is not a big for you, but you mentioned that the craft beer segment is growing in the U.S., and we've seen kind of articles popping up about canning being a bigger business there. How big of a business is craft beer in the U.S. is for you? And are you partnering with brewers or independent canners? And sort of what's the growth rate you see on that?

Yes. So that business happens to us through can makers, or at times some of those craft deals belong to large beverage companies and goes through the contracts we have with them. So it's not directly to the breweries. And I think it's nice not so much in terms of the volume in itself, but the fact that it is a growth into the growth segment and it contributed to a nice growth rate last year in can sheet for us, and we could -- we expect it to continue in the future. So it's a promising development. And maybe in the past, when I was in the industry five years ago, we're really hoping that someday the craft brewers would move to a can and they were all sticking to the glass bottle, which is a terrible choice. And now, they're doing it. And that's good news. That's a very good news for us. And I think it helps being gradually -- you get 1% more beer in cans every year. The beer market, it serves plus 35%, 40% of can sheet demand. Over the year -- the years it compounds and it makes our industry much more sustainable and provide longevity to our business, so I like it.

[Operator Instructions] And we do have another question today, it's from Gene Fattore with Muller Road Capital. Please go ahead with your question.

On the AS&I side, which had an impressive quarter, you had mentioned that you have some of the battery box contracts for the electric vehicles. And on the auto space, it's been very sharp decline and the increase in diesel migration, out of diesel into gas, which is pushing the OEs to look at an increased share of EV content than they thought they were going to have maybe a year ago. How big can that be for you? how big can that business be? And do you see yourself getting on many more platforms than you may be supplying right now? And again, we understand you don't give contract incidentals.

That's a good question, Gene, and it's a difficult one. We see it -- I think we are very much in the first innings of this trend towards more electrical vehicles. And I think that is excellent for us, because I do know it's even more competitive for electric vehicles, right? So but where does it take us? I don't know. I just know that there is a flurry of activity that is going on working with OEMs to help them develop the battery boxes they need for the future, and more broadly, sheet applications and extrusion applications for electrical vehicles. So that's all very exciting. But again, it feels a little bit like a rocket ship and you don't know how high it's going to go, right?

It's also -- I might just add, it's a -- the products, the battery box product from our vantage point is a complicated extrusion. So it's a nice product because we think we're one of the few that can do it well, and so we think we have some sustainable competitor advantage there.

There seems to be no further questions. So this will conclude the question-and-answer session. I would like to turn the conference back over to Jean-Marc Germain, CEO of Constellium for any closing remarks.

Thank you very much, everyone, for your participation today. Again, I think we're looking at it -- the rest of the year as a good year for Constellium. We're reiterating our guidance, we're expecting a strong Q2 and we're going to get back to work making it happen. Thank you so much, and talk soon. Bye-bye.

Ladies and gentlemen the conference has now concluded. Thank you all for attending today's presentation, you may now disconnect.