Constellium SE (CSTM) Q2 2019 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Constellium's Q2 2019 Results Conference Call. At this time, all participants are in a listen-only mode. Following management's prepared remarks, we will host a question-and-answer session and our instructions will be given at that time. [Operator Instructions]. As a reminder, this conference call maybe recorded. It is now my pleasure to hand the conference over to Mr. Ryan Wentling, Director, Investor Relations. You may begin.

Thank you, Operator. I would like to welcome everyone to our second quarter and first half 2019 earnings call. On the call today are our Chief Executive Officer, Jean-Marc Germain; and our Chief Financial Officer, Peter Matt. After the presentation, we will have a Q&A session. A copy of the slide presentation for today's call is available on our website at constellium.com and today's call is being recorded. Before we begin, I'd like to encourage everyone to visit the company's website and take a look at our recent filings. Today's call may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include statements regarding the company's anticipated financial and operating performance, future events, and expectations, and may involve known and unknown risks and uncertainties. For a summary of specific Risk Factors that could cause results to differ materially from those expressed in the forward-looking statements, please refer to the factors presented under the heading "Risk Factors" in our Annual Report on Form 20-F. All information in this presentation is as of the date of this presentation. We undertake no obligation to update or revise any forward-looking statement as a result of new information, future events, or otherwise, except as required by law. In addition, today's presentation includes information regarding certain non-GAAP financial measures. Please see the reconciliations of non-GAAP financial measures attached in today's slide presentation, which supplement our IFRS disclosures. I would now like to hand the call over to Jean-Marc.

Thanks, Ryan. Good morning, good afternoon, everyone, and thank you for your interest in Constellium. On Slide 5, you will see some of the highlights from our second quarter performance. Shipments were 413,000 metric tons that's up 4% compared to the second quarter of 2018. Our shipments to each of our three core end markets packaging, automotive and aerospace increased compared to second quarter of last year. Our revenue increased 4% to €1.5 billion. This was primarily due to the consolidation of volume grade and improved price and mix partially offset by lower metal prices. It is important to remember that we substantially pass-through metal prices. Our net income of €17 million declined compared to a net income of €55 million in the second quarter of last year. Adjusted EBITDA was €167 million that is a record quarter for the company and increased 8% compared to the second quarter of last year. A&T had an exceptionally strong quarter benefiting from higher TID pricing, strong aerospace demand, and solid operational performance. P&ARP had a good quarter with higher shipments and solid execution. AS&I continues to experience higher costs related to new product launches and the planned build out of our footprint which we have highlighted on recent calls. In the first half of 2019, Constellium generated €302 million of adjusted EBITDA with a 10% improvement compared to the first half of last year. Looking forward, based on our strong first half performance, we now expect adjusted EBITDA to grow by 13% to 15% in 2019. This compares to our previous guidance of 8% to 10% growth. Free cash flow was a positive €53 million in the second quarter and a very impressive €126 million in the first half. I am very proud of our execution on these critical objectives. We have deployed our first half free cash flow towards the gross debt reduction objective, we outlined in recent calls. You will remember that we repaid the Bowling Green in the first quarter, and in July, we announced the repayment of €100 million of our 2021 bonds. We will continue to deploy our free cash flow to further reduce our gross debt. Looking forward, based on our very strong first half performance, we now expect to generate free cash flow of €125 million to €175 million in 2019 with significant increase from our previous free cash flow guidance of over €50 million. On project 2019, we increased our run rate cost savings to €68 million as of the end of the second quarter. We remain on track to reach our goal of €75 million of run rate cost savings at the end of the year. Overall, I am very pleased with our second quarter and first half results. We significantly increased our full-year 2019 guidance for both adjusted EBITDA and free cash flow. We remain very focused on executing on our strategy on delivering on our 2022 objectives of over €700 million of adjusted EBITDA and leverage of 2.5 times. With that I would now hand the call over to Peter for further details of our financial performance. Peter?

Thank you, Jean-Marc, and thank you everyone for joining the call today. Turning now to Slide 7, you will find the change in adjusted EBITDA by segments for the second quarter and the first half of 2019 compared to the same periods of last year. For the second quarter of 2019, Constellium achieved €167 million of adjusted EBITDA an increase of 12% or excuse me an increase of €12 million or 8% year-over-year. P&ARP adjusted EBITDA of €79 million increased by €4 million. A&T adjusted EBITDA of €64 million increased by €17 million. AS&I adjusted EBITDA of €30 million decreased by €9 million. Lastly Holdings and Corporate was comparable to last year at €6 million. We continue to expect H&C costs of approximately €20 million for the full-year of 2019. For the first half of 2019, Constellium earned €302 million of adjusted EBITDA, an increase of €26 million or 10% from the first half of 2018. P&ARP adjusted EBITDA of €138 million was up 9% compared to the first half of last year. A&T adjusted EBITDA of €116 million increased by 40% year-over-year. AS&I adjusted EBITDA of €59 million decreased by 22% year-over-year. Now turn to Slide 8 and let's focus on the P&ARP segments. Adjusted EBITDA of €79 million increased 6% compared to the second quarter of last year. Volume was a tailwind of €11 million as shipments increased by 7%. Packaging rolled product shipments increased by 4% on strong demand and solid operational performance. Automotive rolled product shipments were up 23% benefiting from the consolidation of Bowling Green shipments and the continued ramp up of our automotive capacity. Our two new CALP lines in Neuf-Brisach France and in Bowling Green Kentucky are running well and the ramp ups are on track. We will continue to ramp up these lines over the course of 2019 with full production in 2020. Price and mix was a headwind of €5 million. Costs were a headwind of €1 million as favorable metal costs were offset by increased maintenance and costs from the ramp up of our automotive programs. Bowling Green generated negative €3 million of adjusted EBITDA in the quarter and we continued to expect the plant to generate negative €10 million to negative €15 million of adjusted EBITDA in 2019. FX translation and the application of IFRS 16 were each €1 million tailwind. Now turn to Slide 9 and let's focus on the A&T segment. Adjusted EBITDA of €64 million increased 38% compared to the second quarter of last year. Higher aerospace shipments were offset by lower TID shipments in the quarter. Price and mix improved by €18 million in the second quarter primarily driven by higher TID prices with some benefit from improved aerospace mix. Costs were a headwind of €2 million in the quarter largely related to higher energy prices in Europe and increased maintenance expense. Lastly FX translation and the application of IFRS 16 were each €1 million tailwind in the quarter. Now turn to Slide 10 and let's focus on the AS&I segments. Adjusted EBITDA of €30 million decreased 25% compared to the second quarter of 2018. Volume drove a €6 million improvement. Costs increased by €17 million compared to the second quarter of 2018 due to incremental costs related to the new product launches and the expansion of our footprint. We are facing some challenges on a few of our growth projects. As we have noted in earlier presentations, automotive structures projects can be challenging to start-up. As we said with Bowling Green predicting the exact timing of a successful start-up can be difficult. But we know what we need to do and we are working on it. We are confident that we are on the right path and that we have the right team in place to execute our plan. As we noted last quarter, we will slow down the growth of the business in order to get it back on track. We are targeting 2019 nominations of about half of what we have achieved in recent years. These nominations will be back half weighted as we achieved under €50 million of nominations in the first half of 2019. Lastly, the application of IFRS 16 was €3 million tailwind. Now turn to Slide 11 and I will update you on the progress we have made on our cash improvement initiative Project 2019. By now you know that there are three pillars to Project 2019: cost reduction, working capital improvement, and capital discipline. On cost savings, we achieved an additional €8 million of annual run rate cost savings during the second quarter of 2019 bringing our total run rate to €68 million of savings. These savings resulted from several different initiatives including further metal optimization initiative, in-sourcing some external third-party machining, and a number of additional actions by our procurement team. We remain confident in our ability to deliver on the €75 million of annual run rate cost savings by the end of 2019. Now let's move to trade working capital. We are proud of our much improved of our working capital performance in the first half of 2019 where we manage to more than offset the working capital growth associated with our growth initiatives. Over time, we continue to expect trade working capital investments related to the substantial growth of our business. We will work hard to offset some of this growth with working capital reduction across the business. And we remain confident that trade working capital optimization is a meaningful cash improvement opportunity for the company. With respect to capital spending, we continue to expect spending in 2019 of €265 million. We believe this level of spending strikes the right balance between maintaining our assets and investing in the future. I want to stress that we remain very focused on capital discipline and that the projects we are investing in are linked to firm customer contracts and come with attractive IRRs and payback. Now let's turn to Slide 12 and discuss the balance sheet, our free cash flow, and our liquidity position. Our net debt at the end of the second quarter was €2.2 billion and our leverage was 4.1 times. We remain committed to delevering and expect leverage to drop below 3.8 times by the end of the year. As Jean-Marc noted in the beginning of the call, we generated free cash flow of €126 million in the first half of 2019. We are very proud of our free cash flow performance and we are looking forward to building a track record of consistent and substantial free cash flow generation. As a reminder, our first half free cash flow included the benefit of €25 million from incremental factoring associated with returning our factoring balance back to historical levels. As a consequence of our free cash flow generation and the strength of our liquidity position, we began to reduce our gross debt. As noted on our first quarter call, and as Jean-Marc noted earlier, we elected not to extend approximately €50 million of lease financing associated with our purchase of Bowling Green. Further, we announced the redemption of €100 million of our 2021 bond in July. This is another important step towards our deleveraging goal for 2022 and further demonstrates our commitment to reducing gross debt levels. As we generate additional free cash flow, we will continue to reduce our debt. As you can see in our debt summary on the bottom left hand side of the page, we have no bond maturities until 2021 and pro forma for the €100 million repayments, our 2021 maturity will be less than 0.4 times our LTM adjusted EBITDA. Our cash plus amounts available under our committed facilities was €588 million at the end of the second quarter. We remain very comfortable with our current liquidity position. Now I will hand the call back to Jean-Marc.

Thank you, Peter. Turning to Slide 14, let me share a few end markets updates. I'll start with the automotive markets. Automotive remains a secular growth market for aluminium. We are confident that OEMs will continue to lightweight vehicles thereby increasing fuel efficiency and reducing CO2 and other emissions. Further electrification of vehicles a significant potential for aluminium. Aluminum allows for lightweight in order to increase the range of the vehicle and ease the preferred materials to make strong but light battery enclosures. Constellium is well-positioned to realize the benefits of the secular shift to aluminium in automotive. Turning to the near-term trends, the outlook for North American and European automotive SAAR, we saw year-over-year decline in 2019. However sales of light trucks, SUVs, and luxury cars continued to outperform the market. And I'll remind you that we have more exposure to these types of vehicles. Our automotive shipments grew 17% in the first half of the year despite an overall decline in automotive sales in the first half of 2019. We believe this is compelling evidence that our strategy to target this secular growth market is working. We do however observe pockets of weakness in autos and we will continue to closely monitor the markets. We have been and will remain prudent with our investment. As I have noted many times in the past, we will not make incremental investments without firm customer commitment and strong confidence in end market demand. Let's turn now to Aerospace. We expect Aerospace to continue to be an attractive market driven by sustained OEM build rates and healthy backlogs at the major OEMs. We will remain focused on maintaining our leadership positions with the major OEMs and expanding our relationships with business and regional jet manufacturers. In recent quarters, aerospace demand has exceeded our expected long-term growth CAGR of 2%. We expect this demand strength to continue through the remainder of 2019. Now there are a lot of questions about the Boeing 737 MAX. However based on what we currently observe, we do not expect the issue to impact our 2019 guidance. With respect to packaging, the markets remain stable. In the U.S., we expect the continued growth of auto body sheet demand to help tighten the packaging markets over the medium to long-term. In Europe, demand continues to grow based on substitution of aluminum for steel. Aluminum cans are an increasingly preferred and more sustainable solution compared to glass or plastic packaging. Aluminum is infinitely recyclable and retains its properties after recycling. In recent quarters, we have seen increasing evidence of beverage producers considering to switch to cans from alternative packaging foams. We are monitoring this trend carefully and note that it may represent meaningful opportunity for can sheets demand over time. Constellium is well-positioned to benefit from this trend as a significant producer of can sheets in both North America and Europe. And I want to stress that we are very committed to the can sheet market and our customers can depend on us. Finally, we continue to execute on our strategy of expanding into niche products and markets including transportation, industry, and defense. While the North American transportation market has seen some temporary weakness of late driven by excess supply, the underlying demand of many of these markets remain strong or stable. Turning to Slide 15, we detail our financial guidance and outlook. We expect to deliver a range of 13% to 15% adjusted EBITDA growth in 2019. We are targeting €125 million to €175 million of free cash flow in 2019. We expect leverage of below 3.8 times at the end of 2019. Our 2022 targets are over €700 million of adjusted EBITDA and a leverage ratio of 2.5 times. I'm very proud of our exceptional second quarter and first half performance. Thanks to the efforts of the team. We are well-positioned to deliver on our long-term objective. We remain focused on operational execution, harvesting the benefits of our investments, disciplined capital deployment, debt reduction as Peter said, and shareholder value creation. With that, Brian, we will now open the Q&A session.

Thank you, sir. [Operator Instructions]. And our first question will come from the line of Martin Englert with Jefferies. Your line is now open.

Within the A&T segment you noted EBITDA improvement year-on-year from some price mix mostly in transportation and industry. Can you discuss some of the pricing trends in a little bit more detail and maybe how that progresses into the back half of the year here?

Sure, Martin. So we are very pleased with the performance in A&T right. And as you point out, it's got to do with our performance in TID. But again aerospace as I mentioned in my remarks was very strong -- stronger than we anticipated and all that creates a very good backdrop for the markets in which we operate. We've also had very good operational performance in our plants in both Europe and the U.S. So that has allowed us to really capture a lot of growth and selectively go out to the best markets and the best opportunities we have. So we see most specifically on your question about pricing how it unfolds, we have seen stronger pricing environment for us which is good. And our focus has been to make sure that this is not a flash in the pan. And we have worked very hard to extend as much as possible through long-term contracts and a lot of those niches, TID niches are relationships with our customers. So in that process one can say that obviously there are also some concessions that we make on pricing to extend the contracts into longer-term contracts. But that gives us visibility two, three years out. And it's very important for us to build all the blocks to get to our 2022 objective and beyond. So that's been what's happening. So I expect the situation to continue to be very positive for us in the second half of this year. That is underpinning our revised and increased guidance for the year. So maybe in the first half of the year, we didn't capture everything we have in pricing and maybe in the second half of the year, pricing may be a little bit less, so good. But we have a very good position in these markets overall. So I look at the second half with a lot of confidence.

Okay. Thanks for all the added detail there. And if I could one other with AS&I, EBITDA remains at more modest levels in the first half due to the expansion in new products. Looking into the second half, can you discuss in a little bit more detail your expectations for earnings and volumes within that segment?

Yes. So as Peter mentioned in the beginning -- the startup of all these new investments and all these new plants and I think we've virtually doubled the square footage of our operations in the -- in auto structures both in Europe and the U.S. is proving little bit more challenging than we had anticipated and it's coming with additional costs. And you've noted that we are €17 million behind in the first half of this year compared to last year. We're working very hard to claw that back and get to a place where our performance becomes satisfactory and again it delivers on the expectations -- the expectations we have. Lot of that cost as we mentioned is fully planned out. We knew that this was happening. Some of that additional costs is also linked to programs from platforms, from customers. So I’m not ramping up as fast or that are bit delayed because these are complicated new vehicle launches that we are faced with. So really the timing may fluctuate a bit but we will end up with a very strong position within auto structures to bring that as doubled in size compared to where we were just a few years ago. And that will deliver very good products to customers at very good margins for us. So our focus is really executing the -- the launches properly, controlling everything we can and we'll come out of that with a strong platform going into 2020.

Yes, Martin. The only thing I would add -- sorry the only thing I'd add is just that the kind of -- despite having gone through this, our perspective on the long-term margin potential of the business has not materially changed. We still think it's a very attractive business.

Okay. So understand the long-term view on things but we've been running around like €30 million quarterly EBITDA there and I think previously there was some expectation that this may be back half loaded with an improvement. Would it be more conservative to assume at this point that maybe it kind of continues to trend around that €30 million EBITDA market quarterly in the back half of the year due to some of these growing pains?

I think that would be extremely conservative. We are planning to deliver more than that but it will take some time and it may not happen all at once.

Okay. Thanks for the added detail and congratulations on results there.

Thank you.

Thank you. And our next question will come from Craig Woodworth with Credit Suisse. Your line is now open.

Jean-Marc, I was wondering if you could help us understand a little bit of I guess the optionality of your asset base within can sheet, some of the can sheet makers have publicly stated that they think or can makers have stated that this year's shortage of can sheet capacity in the United States. It seems like you're one of the few companies that actually has capacity or capacity growth embedded in Muscle Shoals partly from automotive readiness. So just wondering would you be willing to look to expand capacity there, is there an opportunity to say partner with a can maker and potentially reprice capacity earlier? Just kind of want to better understand the opportunity set for you?

Yes, so as we mentioned during the Investor Presentation in December, we do have significant capacity improvement potential at Muscle Shoals. I think at the time we highlighted 75,000 tons of potential increased capacity. So as Peter was mentioning in his comments, we are investing quite a bit in maintenance to make sure that our assets are actually performing better. So within the assets we have, we believe we have potential with marginal investment. We are not yet at the stage where we look at expansion of our footprint and new mills all substantially increase the power of new stands or new motors or that kind of stuff, right. But we will -- we're in close contact with our customers, obviously. We try to meet their needs while still meeting our needs as well. It is very important that we get compensated for the value we're bringing. And so we've got an ongoing dialogue. We feel good about the long-term prospects of can sheets. And you will note that we have not made an investment decision around second or CALP line either. I know the CALP line in Bowling Green. So we've got lots of options open to us in terms of where we decide to put our investment dollars in the future but at the moment we're pretty pleased with where we are. We are pleased with our ability to grow capacity and meet our customer needs, while still meeting our profitability objectives.

Okay, that's helpful. And then just in terms of the two top-lines you are ramping now, you talked about automotive volumes being up pretty nicely year-on-year but I noted in the bridge pricing mix was a negative year-on-year in part. But I would have thought the opposite given the leverage at auto but is that simply a matter of auto being loss making at this point or can you comment on when do you think we'll be able to see a bigger inflection point from the auto ramp on EBITDA?

Yes, Craig. I think the negative price mix that you're seeing there is really more about kind of mix within the mix. So you've got on the auto side you've got inners versus outers, on the packaging side you've got can body sheet versus can-in stock. And kind of in both of those instances, kind of products carry different margins. So that can happen and actually it has been happening over the last couple of quarters but we don't see this as a trend to be alarmed about, this is really just the timing. And as we've said over time as we grow the automotive mix, you are going to start to see kind of some price mix improvements there.

Okay, that's helpful. And then just lastly on free cash flow, I mean pretty incredible change to guidance tripling of the sort of initial baseline about 50 at least. Can you comment on the key moving pieces there, was the upside sort of a function of both better operational performance and working capital and then as you get into next year, can you talk about how you see capital spending, trending, and also potential other changes in working capital factoring to get just a little bit better visibility into 2020?

Yes. So let's start with this year and the performance we've had. So obviously operating performance has been better. And so that's -- that underpins it from the start. And then trade working capital has been kind of a significant improvement here for us this year and really across kind of receivables, inventory, and payables. And, as you know, one of the things that we've been talking about for the last three years is really the opportunity that we have in trade working capital. So we've been kind of working on a very concerted effort over this time to kind of get our business to a place where we can sustainably reduce the trade working capital in the business. And I think what you're seeing this year are the fruits of many of those labors again across all the fronts. I think we feel as though trade working capital the reductions that we've achieved, we're confident that these are sustainable. Obviously, you're going to have times when you've got a plant outage or something like that and you got to build inventory around that. But in terms of the base line, we feel like we've got sustainable improvement and we feel like there's more room to go. And we always talk about Muscle Shoals but I think that's a classic example of where, as you know, we've been spending a lot on maintenance reliability and as we improve the reliability of that mill, we ought to be able to unlock some inventory there. You also know that we've been kind of very disciplined about kind of dealing with our customers on kind of payment terms. And obviously as we kind of go forward, we'll continue to work on that. So across all of our trade working capital fronts, we continue to think that there is opportunity and it will be unlocked over time. So it's not an overnight thing. Now having said that, we are investing in our business. So we are going to have some natural trade working capital build and our jobs as we see them is to try to offset as much if not all of it as we are doing this year with compensating reduction. And then maybe just kind of going into 2020, we have not put out kind of new CapEx guidance for the business. I think it's fair to say, you know our objective is free cash flow generation. You know that we're focused on debt reduction. So we certainly don't have any kind of significant increase in CapEx plan but we will as we get a little bit further into the year and our plans get a little more solidified, we'll give you more guidance on that.

And the only thing I would add is obviously free cash flow generation can fluctuate to each quarter-by-quarter, right. So what do we look at is being sustainably and substantially free cash flow generated. I think it really is what was embedded in our 2022 guidance when we showed that EBITDA would increase but to get to our leverage targets, we would pay down debt. That's what we have started to do. We're happy, we're ahead of our plan and we'll try to stay ahead of our plan obviously quarter-after-quarter, year-after-year. So we're very focused on making sure that our free cash flow generation is sustainable and significant.

Thank you. And our next question will come from Sean Wondrack with Deutsche Bank. Your line is now open.

So nice quarter. I was taking a look at your working capital again just a quick clarification. Was any of this improvement during the period related to moving the extrusions from Europe to North America, while you're qualified? And is that part of the program may be done or where are we at with that please?

I think you would be talking about the rolled products, right, no feedstock from automotive body sheets, right. So no, no that will contribute a little bit but that's not a substantial part of it.

Okay, okay great. And then just in terms of M&A be it Constellium looking at other businesses or other tuck-ins or increased interest in Constellium. Have you seen anything on that front, any more or less activity as of late?

Well I mean as an industry participant, we monitor the market. We look at what's going on. Our focus is free cash flow generation, so we can pay down our debt. Okay, that's number one. First and foremost. So first being on the lookout for attractive acquisition or tuck-ins, whatever is very unlikely. We are looking to deploy our cash flows so that will reduce our debt and reduce our leverage. That's the overarching goal. And in terms of interest in Constellium nothing to discuss about here but as we've said a number of times, I mean if somebody comes here with a very attractive alpha, we'll talk.

The only other thing I'd add to that is so you're hopefully hearing loud and clear our focus on balance sheet repair and a lot of what's driving that is that we think we need to be from a long-term perspective. In terms of M&A, we want to be in a position to be opportunistic. And oftentimes kind of the best opportunities occur when things are not so good. So our race to repair our balance sheet is to kind of put us in a position so that we've got maximum opportunity to do things that will create value for the shareholders.

Absolutely. And at the moment, we've got plenty of opportunities within our four walls. That's what we're focused on. That's how we repair the balance sheet, get to a place we are a very strong company and then we'll see what happens.

Great. Well that makes a lot of sense and what you're thinking about that. Also we've had this wave of basically conversions away from plastic straws. I was curious are there any opportunities for aluminum to take share from plastics in any other products that you're making?

We did have a little experiment about making straws out of aluminum but we're using one of our outside the other day. We have got plans that can do that, if anybody is interested. But no mostly, I think we look at it from the standpoint of its street driven by society, then consumer preferences. Governments may weigh it in terms of plastic bans and those kinds of things that we've seen in some places. And in the beverage companies, right they are the ones really making the packaging choices. It is very interesting to see that some are now looking at expanding how much the brands availability into in cans. That's good for us and in conjunction with our can makers, our customers or the beverage companies sells our customers. We will be here to supply what they need. But it's still very early stages. I think it bodes well for the future. But switching the packaging mix is long-term endeavor, right. It's -- you've got very complex supply chains, you have got plenty of installed capacity both in making the packaging filling lines and all that and the distribution channels and the spacing things and the trucks on the shelves and the trucks it takes to bring those products to the consumers so lots of changes. We play a role in it and our role is to be ready and we are ready to help our customers, when new projects and new opportunities arise.

Thank you. [Operator Instructions]. Our next question will come from Matthew Fields with Bank of America. Your line is now open.

Hey everyone. Just I'm assuming that this was the case but just to clarify the $100 million redemption of the 21 that was funded with cash on the balance sheet not revolver borrowing, right.

Yes.

Okay, thank you. The 2022 guidance of at least €700 million of EBITDA does that reflect any new can sheet contracts or is that sort of based on your existing contract mix?

No, so it is based on basically the current level of business we have in can sheet. I mean we haven't given breakdown of shipments or revenues by market for 2022. But safe way to look at it is along the lines, we've shared which is can sheet essentially zero to 1% growth right. Aerospace is 2% growth trend line and automotive is growing more like 10% growth right, roughly. So what that means is essentially with the same volume of can sheet now and in the future now the mix of contracts may change between now and 2022. We will have essentially the same customers because of the limited number of customers and suppliers. But the mix of customers, how much business we do with this customer or that customer may change.

The only other point I'd add is so we did not -- we have not assumed price increases.

That is correct.

Yes, that's what I was getting.

Yes.

You haven't factored in any upside from tightness in the market --

We have -- we have not.

Or increased regulation in Europe on recycled content or something, okay?

We have -- we have not.

So the other part of guidance 2.5 times net leverage by 2022 means about a €1 billion, one and three quarter billion of net debt which is from the just 700 times of 2.5, so that's about €400 million less than today. So you did the €100 million redemption this year. And then if you get €100 million each of 2020, 2021, 2022 you're kind of there, is that the right way to think about it, is there going to be more, more lumpy debt reductions. How do we kind of think about your sort of getting down to a lower net debt level?

Well, so as we said our goal is to be sustainably and significantly positive free cash flow. Right so and our priority is to use our free cash flow for debt reduction. So we will be reducing debt on a kind of a regular basis going forward here as we generate the free cash flow. And as to -- I think we will hopefully, we'll be able to exceed your number of I think you said 100 and a 100, so and a 100. So hopefully we'll be able to exceed that number.

Okay. And then one last one --

And I think exactly it happens and Peter will be opportunistic and will look at the -- what is the best use of our cash at any given point in time in terms of what do we -- what type of debt do we retire.

And then lastly, do you think it's advantageous or in some cases required for you to be investment grade to be a Tier 1 aerospace provider?

No, we don't. We do not feel and we think to be honest what we're trying to manage here is a capital structure that is efficient for all of our stakeholders. So obviously kind of reducing the leverage, I think is good on that front. But one of the things that we're also conscious of is not over capitalizing the balance sheet. So hence when we say, we think a BB rating is a good place to be, I think that we feel like at that place, we have maximum access to financial markets in virtually every environment. And if the environment is bad by virtue of the fact that we're kind of a BB credit, we'll have the flexibility to wait until the markets get better.

Thank you. And our next question will come from the line of Christian Georges with Societe Generale. Your line is now open.

Thank you very much. And congratulations for very good quarter results. Indecipherable share price is reacting properly today.

Thank you.

And -- so I Just want to ask a few. On the automotive sector, we're seeing a lot of warning for many of the automotive suppliers this quarter. And then we've had the problems with WLTP in Europe, the emission testing and so on. And the U.S. market seems to be pretty soft as well. So I mean is that kind of environment in automotive? And when we look at both your AS&I and your CALP performance, has they both affected by it? I mean, do we see in those results a headwind from a more difficult auto market than you'd expected?

Yes, Christian. I mean, you could say, I mean, as I mentioned, we're up 17% in shipments, right, compared to last year same time in a market as you pointed out, that is declining both in Europe and the U.S., and even more so in China. And some of the parts we make go to vehicles that are made in Europe and sale to China pricing. So, yes, we are -- we're not immune to what happens in the market. But because of the platforms we are on, the contracts we have and the fact that aluminum is penetrating in automotive, we are still growing at a pretty significant clip. So that's what we're working on. So we see that weakness, obviously. If it hadn't been, the case, our shipments would have grown even more. We've got some very good plants are running very well now, I mean, both in Bowling Green and Neuf-Brisach, we're in the 80% utilization. So we still have room to grow to get to full production in 2020, and full profitability in 2021, because it needs a bit of fine tuning. So we have potential to grow. And if the markets had been a bit better, we would have shipped a bit more and made a bit more money. So that -- that's what's happening.

Great. So in AS&I for instance, even when the automotive environment improve, that will also add to the positive impact of your new product penetration?

Yes, absolutely. I should have mentioned same thing in all the structures I mentioned a bit earlier that, exactly how we fare in the second half will depend on how fast some of those ramp-ups happen, and how much of a demand pickup we get. So yes, that is impacting us. If the market had been better, if our customers had been quicker to launch some of the vehicles, we'll be doing much better already today.

Okay. And my second question is on aerospace. And obviously you've highlighted very early on that you don't see any negative impacts from the Boeing situation. I think that has worried quite analysts overall. And when you're saying you're seeing no negative impact, is that straightforward none impact? Or is it because whatever negative you get from Boeing is offset by equivalent positive in other indecipherable?

I think it's a mix of different things. So first of all, I mean, Boeing is a very important customer. The 737 MAX is a very important plane for them and therefore ease for us. And therefore we wish for this situation to be resolved as quickly as possible. But now it's one aircraft, one platform among many. And the build, we're in closer contact, obviously, with our customers indecipherable build rates continuously, right. And therefore, that means we produce more, less for this plane, but more -- less or more for this other plane. And all-in-all, you get some kind of balancing act that play here. And even if the 737 MAX doesn't fly until next year, which is some are saying, we believe that the impact it has on us does exist, but is small, and certainly not of a magnitude that would cause us to revise our guidance for the end of the year.

Thank you. Ladies and gentlemen, this concludes our question-answer-session for today. So now it is my pleasure to hand the conference back over to Mr. Jean-Marc Germain, Chief Executive Officer, for any closing comments or remarks.

Thank you. And thank you, everyone again for your interest in Constellium. We are obviously very pleased with our results in the quarter, in the first half. But more importantly, we are confident that we will accelerate in the second half. And we are also very confident in the delivering power of this company. And we hope you are becoming very confident as well. Thank you so much. And look forward to meeting some of you in New York or elsewhere. Have a good day.

Ladies and gentlemen, thank you for your participation on today's conference. This does conclude our program and you may all disconnect. Everybody have a wonderful day.