Constellium SE (CSTM) Q4 2019 Earnings Report, Transcript and Summary

Good afternoon, ladies and gentlemen and welcome to the Constellium Fourth Quarter and Full Year 2019 Results. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and answer-session, and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Mr. Ryan Wentling, Director of Investor Relations.

Thank you, operator. I would like to welcome everyone to our fourth quarter and full year 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 the presentation. We undertake no obligation to update or revise any forward-looking statement as a result of new information, future events or otherwise, except as required by law. In addition, today’s presentation includes information regarding certain non-GAAP financial measures. Please see the reconciliations of non-GAAP financial measures attached in today’s slide presentation, which supplement our IFRS disclosures. I would now like to hand the call over to Jean-Marc.

Thank you, Ryan. Good morning. Good afternoon, everyone and thank you for your interest in Constellium. I would like to start by thanking the Constellium team for their contributions towards making 2019 a great success. We had an excellent year, and I’m excited to discuss our results and our 2020 outlook with you. On Slide 5, you will see some of our highlights from 2019. Shipments were 1.6 million metric tons, an increase of 4% compared to 2018. Revenue increased 4% to EUR 5.9 billion. This was primarily driven by the consolidation of Bowling Green, an improved price and mix, partially offset by lower metal prices. While our revenues are affected by changes in metal prices, we operate the pass through business model to minimize metal risk. Net income of EUR 64 million decreased compared to net income of EUR 190 million in 2018. Remember, our net income in 2018 included two one-time benefits, a gain on the sale of the North Building at Sierre and a gain on an amendment on OPEB plan. Adjusted EBITDA increased 13% to EUR 562 million in 2019. This performance was in line with a 12% to 14% guidance we provided last quarter. 2019 represents our third consecutive year of double-digits adjusted EBITDA growth, and I’m proud that we have been able to sustain this strong level of growth. Our free cash flow of EUR 175 million came in at the upper end of our guidance of EUR 125 million to EUR 175 million. For those of you that have been following us for several years, you will remember, we originally set the targets for positive free cash flow in 2019, at our Analysts Day in March 2017. We clearly delivered on this objective. We have come a long way. I am confident at Constellium, we continue to generate significant and sustainable free cash flow over the years to come. As a result of the strong adjusted EBITDA and free cash flow performance in 2019, we reduced our leverage to 3.9 times. This is a notable achievement, considering the fact that 2019 included the acquisition of Bowling Green and the application of IFRS 16, which represented nearly half a turn of leverage. Further, de-leveraging is a priority for us. On Project 2019, our run rate cost savings increased to EUR 78 million, exceeding our target of EUR 75 million. Overall, I am proud of what we achieved in 2019 and I am optimistic about our prospects for 2020. Now, turning to Slide 6, let’s review the highlights from our fourth quarter performance. Shipments were 368,000 metric tons, that’s flat compared to the first quarter of 2018. Revenue decreased 2% to EUR 1.4 billion. This was primarily due to lower metal prices and lower shipments in A&T, partially offset by the consolidation of Bowling Green. Our net income of EUR 22 million increased compared to a net loss of EUR 57 million in the four quarter of last year. Adjusted EBITDA was EUR 121 million. That is a 15% increase compared to the fourth quarter of last year. PARP had a very good quarter, we studied operational performance and the benefit of favorable metal cost. A&T delivered another strong quarter, thanks to good aerospace demand and solid operational performance. In AS&I, we delivered strong supply and growth in automotive structures, that continue to experience higher costs related to our footprint expansion and some operational challenges. However, we are making visible progress in containing these costs. Free cash flow was EUR 18 million, our four consecutive quarter of free cash flow generation. With that, I will now handle the call over to Peter for further details on our financial performance.

Thank you, Jean-Marc and thank you, everyone for joining the call today. Turning now to Slide 8, you will find the change in adjusted EBITDA by segment for the fourth quarter and the full year of 2019 compared to the same periods of last year. For the fourth quarter of 2019, Constellium achieved EUR 121 million of adjusted EBITDA, an increase of EUR 17 million or 15% year-over-year. PARP adjusted EBITDA of EUR 63 million increased by EUR 8 million or 13% compared to last year. A&T adjusted EBITDA of EUR 45 million increased by EUR 7 million or 18% year-over-year. AS&I adjusted EBITDA of EUR 21 million was comparable to the fourth quarter of last year. Lastly, holdings and corporate costs improved by EUR 2 million year-over-year to EUR 8 million. For the full year of 2019, Constellium earned EUR 562 million of adjusted EBITDA, an increase of EUR 64 million or 13% year-over-year. PARP adjusted EBITDA of EUR 273 million increased by EUR 30 million or 12% compared to last year. A&T adjusted EBITDA of EUR 204 million increased by EUR 52 million or 34% year over year. AS&I adjusted EBITDA of EUR 106 million decreased by 19 million compared to last year. Holdings and corporate costs improved by EUR 1 million year-over-year to EUR 21 million. We expect H&C costs of approximately EUR 20 million for the full year of 2020. Now, turn to Slide 9 and let’s focus on the PAPR segment. Adjusted EBITDA of EUR 63 million increased 13% compared to the fourth quarter of last year. Volumes were comparable to the fourth quarter of 2018 as Packaging Roll Products shipments decreased 2% compared to a strong fourth quarter last year. Automotive Rolled Products shipments were up 14% compared to last year, as we continue to successfully execute on our automotive ramp up. Price and mix was a tailwind of EUR 3 million. Costs were a tailwind of EUR 10 million due primarily to favorable metal costs. Bowling Green generated negative EUR 4 million of adjusted EBITDA in the quarter. FX translation was a tailwind of EUR 1 million and the application of IFRS 16 was a EUR 2 million tailwind in the quarter. For the full year of 2019, PAPR performed very well, generating record annual adjusted EBITDA of EUR 273 million. Strong operational performance drove higher volume, with Automotive shipments up 19% and Packaging shipments up 3%. Favorable metal costs and solid cost control were tailwinds in 2019, while Bowling Green results of negative EUR 15 million and weaker price and mix were headwinds. For the full year of 2019, FX was a tailwind of EUR 8 million, while IFRS 16 was a tailwind of EUR 6 million. Now turn to Slide 10 and let’s focus on the A&T segment. Adjusted EBITDA of EUR 45 million increased 18% compared to the fourth quarter of last year. Volume was a headwind of EUR 6 million on lower TID shipments due to weaker end market demand, which was partially offset by strong Aerospace shipments. Price and mix improved by EUR 16 million in the fourth quarter due to a good mix in both Aerospace and TID and improved TID pricing. Costs were a headwind of EUR 4 million, primarily related to higher labor and energy costs. Lastly, FX translation and the application of IFRS 16 were each a EUR 1 million tailwind in the quarter. Now, let’s look at the full year bridge for A&T. 2019 was an exceptional year, with a record of annual adjusted EBITDA of EUR 204 million. A&T benefited from higher TID prices, strong Aerospace demand and a better mix in both Aerospace and TID. Despite solid cost control, costs increased primarily due to labor costs and higher energy costs and an unfavorable metal input mix. For the full year of 2019, FX was a tailwind of EUR 5 million, while IFRS 16 was a tailwind of EUR 2 million. Now, turn to Slide 11 and let’s focus on the AS&I segment. Adjusted EBITDA of EUR 21 million was flat compared to the fourth quarter of 2018. Volume drove a EUR 5 million improvement, as we continue to show strong top line growth in Automotive Structures. Costs increased by EUR 8 million, primarily tied to the higher costs associated with our footprint expansion, but as Jean-Marc noted, these costs represent less of a headwind than in recent quarters. Lastly, the application of IFRS 16 was a EUR 3 million tailwind. Looking now at the full year bridge for AS&I. 2019 was a challenging year as we faced elevated costs related to our footprint expansion and some operational challenges. In response to these challenges, we have purposely slowed the pace of capital deployment in this business. As a consequence, our Automotive Structures nominations were approximately EUR 100 million in 2019. For the full year of 2019, FX was a headwind of EUR 1 million, while IFRS 16 was a benefit of EUR 12 million. As we have noted before, the operational challenges we are experiencing in AS&I are largely limited to a few project platforms. Predicting the exact timing of an inflection is difficult, but the flat adjusted EBITDA we reported in the fourth quarter is a promising step towards getting this business back on track. We expect AS&I to improve in 2020. We are confident that we are on the right path and can return the profitability of this segment to its historical level. Now turn to Slide 12, and I will provide a final update on our cash improvement initiative, Project 2019. On cost savings, we achieved an additional EUR 5 million of annual run rate savings during the fourth quarter of 2019, bringing our final run rate savings to EUR 78 million. I am proud to note that we exceeded our Project 2019 target of EUR 75 million, and we are confident that there are further cost savings to realize over time. Now, let’s move to trade working capital. We are proud of our much improved trade working capital performance in 2019, where we managed to more than offset the trade working capital growth associated with our growth initiative. Over time, we continue to expect trade working capital investment related to the substantial growth in our business. We will work hard to offset some of this investment with reductions across the business and remain confident in our ability to do so. With respect to capital spending, our CapEx of EUR 271 million was slightly over our target, as we saw a few opportunities to accelerate some of our operating improvements in the fourth quarter. We remain very focused on capital discipline, and we’ll continue to selectively invest for growth. As we indicated at our Analysts Day in December of 2018, there will be a successor project to Project 2019 which we are calling Horizon ‘22. We are confident that there are still significant costs and capital improvement opportunities across the company. Horizon ’22 – the Horizon ’22 team is working on a number of initiatives to further underwrite our long-term targets. And we will periodically come back to you with upgrades on the progress of this very important initiative. Now, turn to Slide 13 and let’s discuss our free cash flow. We generated EUR 175 million of free cash flow, a significant improvement from 2018. It is a further note that we were able to achieve positive free cash flow in every quarter of 2019. Looking forward to 2020, we are reducing our CapEx to EUR 250 million, a EUR 21 million reduction from 2019. We expect cash interest of EUR 140 million to EUR 150 million and cash taxes of EUR 10 million to EUR 20 million. For the full year 2020, we expect to generate free cash flow in a range of EUR 125 million to EUR 175 million. Our top priority for free cash flow deployment continues to be deleveraging. Now turn to Slide 14 and let’s discuss the balance sheet and liquidity position. At the end of the fourth quarter, our net debt was EUR 2.2 billion and our leverage was 3.9 times. As noted, we remain committed to deleveraging. Based on our 2020 adjusted EBITDA and free cash flow guidance, we expect to further reduce leverage in 2020 by approximately half a turn. This leaves us well positioned to achieve or to reach our ‘22 target of 2.5 times leverage. As you can see in our debt summary at the bottom left-hand side of the page, we have no bond maturities until 2021. The 2021 maturity is less than 0.4 times our LTM adjusted EBITDA. Our cash plus amounts available under our committed facilities was EUR 516 million at the end of the fourth quarter. We remain very comfortable with our liquidity position. And I will now hand the call back to Jean-Marc.

Thank you, Peter. Let’s turn to Slide 16. I want to start by highlighting again, our balanced portfolio of end market exposures. Three of our four key end markets; Packaging; Automotive; and Aerospace are secular growth markets for aluminum. When we have frequently discussed the secular growth aspects of Aerospace and Automotive, I want to highlight that we believe that increasing customer preference and strong sustainability attributes make aluminum packaging a secular growth market, in addition to being recession resilient. These secular growth markets represent nearly 80% of our revenue in 2019. In each of these end markets, we generally have long-term agreements, typically five years with our customers. And as I mentioned earlier, we passed through metal prices, so we are not exposed to commodity price fluctuations. These factors lend diversification and stability to our business, which is an exciting and underappreciated aspect of our story. Now, let’s move on to the specific end market updates. I’ll start with the Packaging market. Packaging is a core market for Constellium, and represented 37% of our revenue in 2019. We are a major supplier to the can sheet market in both North America and Europe. We see strong market demand in both of these markets, growing customer preference for aluminum cans is clear and evidenced by the increasing number of new product launches in can and the increased investments in new can lines by the can-makers. Aluminum cans are infinitely recyclable, making them the most sustainable beverage packaging container. I’ll remind you that Muscle Shoals is one of the largest recyclers of aluminum cans globally, recycling over 20 billion cans per year or 1 in every 5 cans sold in North America. We believe the sustainability of produce of aluminum represent a meaningful opportunity for can sheet demand over time. In addition to the sustainability trend, demand for can sheet continues to grow based on substitution of aluminum for steel in Europe. In the US, we continue to expect the growth of autobody ship demand to tighten supply to the packaging market over the medium-term to long-term. We are optimistic about these positive trends in the packaging market. Now let’s move to Automotive. Over the long-term, Automotive remains a secular growth markets for aluminum. The light weighting of vehicles is expected to continue. The increased regulation and customer awareness will require OEMs to further lightweight vehicles to increase fuel efficiency, meet reduced emission standards, and at times, avoid spectacular fines. We expect hybrid and electric vehicles to continue to win share as a result. In order to increase vehicle range, OEMs will need to take weight out of the vehicle, making aluminum the logical material of choice. Constellium is well positioned to realize the benefits of the secular shift to aluminum in automotives and the electrification of the vehicle. In the near-term, we continue to observe pockets of weakness in the broader Automotive market. However, light trucks, SUV, luxury cars, where we are the most exposed, remain the strongest parts of the market. Despite a declining global Automotive market in 2019, we experienced solid demand growth across our Automotive portfolio and we grew our shipments by 15% year-over-year. We expect to continue this trend of outperforming the market in 2020. While we feel better about the automotive markets now than we did at the same time last year, we’ll continue to closely monitor Automotive market trends. Let’s turn now to Aerospace. Aerospace represented 15% of our total revenues in 2019. We firmly believe that the long-term fundamentals driving Aerospace demand growth remains intact, including growing passenger traffic and healthy backlogs at the major OEMs. Where the 737-MAX grounding and production hold, is an ongoing development, near-term Aerospace demand remained strong. Based on our current visibility, we expect the strength to continue through at least in the first half of 2020. On the 737-MAX specifically, I believe that Constellium is very well positioned to navigate this uncertainty. Our diversified customer and platform portfolio minimizes the impact of any one OEM or aircraft. We have a diverse set of customers across commercial, business and regional jet, space, defense, as you will remember, we have also expanded our relationship in the transportation industry and defense markets over the past few years. I again, highlight that Constellium’s diversification is a strategic advantage both in A&T and across the entire portfolio. In TID, we expect to continue to expand in each product in a diversified range of markets over the long-term. The current conditions in these markets are mixed, defense applications like armor for instance remained strong. However, this is offset by weaker than expected demand and in certain cases, excess supply in some of our industrial and transportation end markets in both North America and Europe. We expect the weakness in these markets to persist into at least the first half of 2020. And lastly, I would like to take a moment to recognize the European Commission for launching an anti-dumping investigation into aluminum extrusions from China. We applaud this action. We support free, but fair trade. Turning to Slide 17, we detail our financial guidance and outlook. On balance, I am optimistic about our prospects for 2020. We remained focused on operational execution and harvesting the benefits of our investments. Despite the uncertainty surrounding the Boeing 737-MAX, the coronavirus, we expect to deliver another strong year of adjusted EBITDA growth of 6% to 9% in 2020. This was a strong year of adjusted EBITDA growth and free cash flow generation in 2019. I believe our track record of consistent performance is a strong validation of our strategy. We are targeting EUR 125 million to EUR 175 million of free cash flow in 2020. Our ’22 targets are over EUR 700 million for adjusted EBITDA and a leverage ratio of 2.5 times. We remain committed to delivering on this target and underpinned by Horizon ’22, we look at them with increasing confidence. We remain committed to show the value creation. And with that, operator, we’ll now open the Q&A session.

[Operator Instructions] Your first question is from the line of Chris Terry with Deutsche Bank.

Hi, Jean-Marc and Peter and congrats on a good end to the year. A couple of questions for me. Just starting with the 2020 guidance, it’s quite a wide range of 6% to 9%. I just wanted if you could comment on what would need to go wrong to get to the bottom end of that, and right to get to the top end of that and just whether that’s around, whether that’s Boeing or AS&I as you worked through some of the headwinds near-term on that division? Thank you.

Yeah, good morning, Chris and thanks for your congratulations and thanks for your questions, it’s a good one. So I mean, we’re early in the year obviously, and in our process of looking at where we should land during the year and fixing our own targets, we got to recognize the uncertainties that are out there in the market. So, clearly, as you mentioned I mean, the 6% would be, you know, things go you know, as per the plan overall, right, but we have a very negative news on the 737-MAX, let’s assume they don’t build it. They don’t start rebuilding it throughout 2020 and you know the coronavirus creates a more disruption in the supply chain in automotive and some of our customers need to take a prolong outages that can upset price. So we look at it as you know, there’s some uncertainties out there that because of the 6% to be a reality and on the other end of the spectrum, I mean, you know continue to see what we were seeing in the first half of the year is pretty good, our operational execution is very strong. We have turned the corner, we believe in auto structures, we’re not saying it that much yet in Q4, but we’re cautiously optimistic about 2020. So strong operational execution, good market outlook in the first half as that continues that will carry us towards the higher end of the range. So on that end, you know, we’re trying to weigh the plusses and minuses. It’s more difficult at the beginning of the year than you see at the end of the year. So that’s why the range is a little bit one point wider than you know, we gave you last year – middle of the year.

Okay, thanks for that. And then just to finish off on the 2020 guidance, the free cash flow, the EUR 125 million to EUR 175 million. Just wondering what’s built in that in terms of working capital, I think you have headwind as it builds volumes. You had a great year last year on working capital? So just wanted some comments on that. Thanks.

Yeah. So thanks, Chris. Appreciate the question. What we’ve assumed in terms of the working capital assumption for the year is, that will be working capital will continue – will be a use of cash as we go through the year in you know, kind of the range that we talked about in the – at the Analysts Day in 2018. So we wouldn’t move off of that. We’re obviously going to work to kind of improve that. But, you know, we also have some other kind of very positive drivers. You know, as you looked at our CapEx, we brought that number down to EUR 250 million. We expect to obviously grow our adjusted EBITDA in the quarter. We’re expecting, you know, kind of a better cash tax performance in the year based on some of our tax attributes. So there’s a number of kind of other positive things that are moving with us.

Thanks, Peter. And the last one from me is just around the Packaging opportunity and just broader ESG given that it’s been such a step change probably in the last three months or so in terms of investor interest in ESG. Just wondering how you’re thinking about the opportunity to leverage off the ESG given that do you have your favorable end markets to that and how you pitch that to investors? And then also in Packaging specifically, if you could just give an update on when we might expect something on customer contracts, et cetera, I believe it’s mainly 2021, but just wanted if you could give an update? Thanks.

Sure. That’s a very broad question. I’ll try to get everything and if I forget anything, Peter will certainly chime in. So you’re absolutely right, the ESG topics and you know, environmental aspects, climate change, you know all that is really going up and we see that in our interactions with you and all our shoulders who invested as we are raising that starting in nearly a year ago, right kind of a spring of last year. And I think the first thing to say about earth is, we are blessed to be working with aluminum which is a fantastic material in terms of its attributes when it gets recycled, and it is recycled, I mean, 75% of all aluminum ever produced over more than 100 years is still in use today. That is why it’s fantastic when you compare it to some other competing materials like plastics, for instance that we have. So it’s a fantastic material in terms of recyclability, and we intend to fully play our role in, you know, continuing to help recycling, potentially even recycling most of it we’re looking at how we can improve our recycling footprint and our capacities and all that, and making sure that we follow our customers in their need for more aluminum. So that shows in our packaging, that shows also in automotive, right that’s well known, the lightweighting in automotives, you know, more and more will be needed and we like bigger cars and more stuff and gadgets and conveniences in it, so that means they’re becoming heavier, you need to make them lighter. So they become more fuel efficient, right. And you know, if you want to electrify them, same story. They need to be lighter. So all the attributes of aluminum are very good and we want to, you know, really play our role and right this way. We have, you know, the things we’re doing is we’re focused on the right segments and automotive, certainly we work with our customers and we are willing to invest provided we get, you know, appropriate returns. We were mentioning the can sheet contracts. We’re very excited at what’s happening in can sheets. The fact that the demand is growing at very substantial rate now, is important. Now, 3% to 4% or some say 5% doesn’t sound that big in itself. I actually say these are substantially pretty sustained. You think of it, you know, you’ve got five years of that compounded, that requires a lot of capacity expansion and more, you know, debottlenecking from all of us in the industry to meet those needs. So, I’m very excited of the future here. I think it will take some time to materialize, because as you mentioned, we’ve got the contracts coming up in ‘21, really ’22. So that’s when things will materialize more than, you know, 2020 for sure. And over time, as we continue to be a good supplier and we become a better supplier, we should reap the rewards of this expansion in the market.

Great, thank you. That’s all for me.

Thanks, Chris.

Thank you. Your next response is from Curt Woodworth with Credit Suisse.

Yeah, thanks. Hi, good morning Jean-Marc and Peter. Yeah I guess following-up on Chris’s question regarding, you know, can sheet and I think Jean-Marc you’re kind of statements that discontinuing shift to auto away from can you know, combined with the fact that you know, can grow is sharply accelerating kind of put you know, the substrate market and what appears to be a continual deficit condition. So, you know, can you just talk about maybe potential expansion opportunities, you see and then, you know, with respect to your existing book, how much does reprice in ’21 versus ’22. I think we had been under the assumption that a good chunk of the book would reprice in ’21?

Yeah, so on that one I don’t want to give specific numbers, but there is more repricing in ‘22 than in ‘21 and that’s all of its repricing between ‘21 and ’22, because as you know, that’s you know typically five-year contract right so both in Europe and in North America. So it’s going to be progressive, right gradually in terms of whatever happens to the pricing and volumes. In terms of, you know, the expansion capacity. So the first thing to say is, we are super capital disciplined. So as we mentioned, we’ve got for changes in Muscle Shoals and they are quite significant as we you know, since we bought the company, we put a lot of investment there. We put a lot of focus, a lot of upgrade, a lot of injection of you know, specific technical talents into Muscle Shoals and you are seeing and we are seeing and we’ll keep on seeing more capacity, more reliability and more throughput. Therefore, our Muscle Shoals back you know 2018, Peter Matt then was presenting on you know, the 75,000 tons minimum improvement in Muscle Shoals output and we still need to reiterate that and we get more and more confidence that the 75,000 tons is really a minimum, that’s going to take place in Muscle Shoals similarly in an effort that will have some you know, debottlenecking opportunities we are molding into. So with all that said, what we do constantly is, you know, look at the work and we invest a little bit more competitive maintenance dollars, improve a little bit of our operations and throughput, expand our capacity. The other thing we do is, we constantly look at ways in a strategic fashion, right not in a technical fashion, what is the best use of our capacity to want to do a little bit more can, a little bit more order, because as you know, these two product lines use essentially the same, you know, machinery and production process. So, we do that and we do that as I say, strategically looking at you know, three years, five years what do we deliver the best thing in terms of value creation first. When all that is said and done, then if we’re still in the deficit, then we got more opportunities then we will not decide to invest. So that means, we will be sure, we get appropriate returns that go for other build rate for whatever investment that we’d make, otherwise, the cash flow will go to paying down the debt rather than increasing the capacity.

Okay, that makes sense. And then I guess the follow-up with respect to the guidance. When you look at A&T for this year, you know, you talked about having very good line of sight on demand. But you had pretty significant mix and price benefits. I think you outlined EUR 65 million benefit in 2019. Can you talk about how you see price and mix continuing this year? I mean clearly TID pricing is weaker and you had very rich and there’s a mix in aero, but you know, just in general, how do you see A&T kind of EBITDA this year versus last year? Thank you.

Sure. Well, I mean, I’ll start to say that we’re very impressed and pleased and proud of our A&T team, they did a fantastic job in 2019, which doesn’t make for an easy comparable going into 2020. And as I mentioned, you know, we got pretty good visibility for the first half of the year, including, you know, the price and mix and all those factors, much less still for the second half of the year. And aerospace is just one part of the equation and we got the TID as well where, there the visibility is less, because it’s less contracted, much more diverse, and things can change quite rapidly in TID, I mean as usual where and volumes are down 10%, I think this year. I mean this past year in 2019 compared to 2018. So with all that said, I think I look at you know, the operations [indiscernible] performed well and they’ve really stepped up in terms of execution and reliability of the operation. The Aerospace will be strong, and we should have you know, good solid price and mix this year in the first half, but the second half is more open. And on TID it’s a little bit more difficult to ascertain.

The only thing I’d maybe jump in and add is, so we’ve historically said that on an EBITDA per ton basis, that’s EUR 700 million to EUR 800 million is probably a good range for 2020. And I guess as we kind of look at it right now, we’re probably more leaning toward the top end of that range in terms of where the margins per ton would come out.

Right. Thank you very much. Congrats.

Thanks.

Thank you. Your next response is from Matthew Korn of Goldman Sachs.

Hey, good morning, gentlemen. Good to see the optimism on 2020, given all the idiosyncratic events that that we’ve seen in the last few months. A couple left for me. First, on Bowling Green. Is that facility as you’d anticipated, is it running at effectively full capacity now? And what kind of remaining startup costs you think we need to burn off from the facility as the year starts? And I think, Peter you said that on the net, it contributed negative EUR 4 million last quarter and how do you expect that pace of change you know, where the rest of the year there?

So I’ll start. So we’re super, super pleased with the Bowling Green performances here. We – you know, EUR 15 million negative EBITDA for the year as we had guided to, that’s not that what makes us pretty most happy, that the performance in terms of speed, recovery, quality, customer satisfaction is really impressive, and it is beyond our expectation on all these barometers of you know, industrial KPIs and customer satisfaction. Going into 2020, Bowling Green will be positive, we will not still be evolved by how much, but it will be positive and we’re really now at the inflection point and we are very comfortable that Bowling Green will be a contributor to EBITDA for the company. So we’ll look at it in a very positive side. And at the end of the year, we’re running very close to you know, that, you know, 90,00, 100,000 tons range. Now, obviously, this will be impacted by how the auto market performs, this week is going to be a little bit lower, if it’s strong, it’s going to be a little bit higher, but we’re really in good shape now.

Yeah. Looking back, do you feel the consolidation of facility really with a major difference in how it ended up operating?

Yeah, I think it did help. You know, the team at you know, I think one boss is enough than having two bosses. I guess you could spend more time writing with the pens as opposed to and being in meetings with the principles. But, no those, I think the groundwork was done very well. The simplification of having just one owner and a very clear sight, he helped and I think over time what he doesn’t allows us to remove some costs, simplify the business, integrate it fully with much threshold and all that is going to make for a very efficient processes for us. So I’m really happy, not only of the fact that we made the acquisition, but also the timing of the acquisition. If you remember, we really you know, invert some velocities in the beginning and in the first ’17 – and 2017-2018 and we bought it just when it started to turn you know good. So it was this other partner in the best times said to be learning the good times.

And Matt, just then sorry, just responding in terms of your cadence. Remember, what we’ve always said is that, you know, kind of 2019 was a year to get the plan fully operational and then 2020 was a year to optimize the profitability. So, 2020 will be kind of a year of improvement there, it’ll be kind of gradual improvement. And as Jean-Marc said, we should be able to get the plan kind of certainly into the block. And that’ll be the goal for the year. So, you know, Q1 maybe is a little bit softer, but obviously as you get to the back end of the year, you’ll see better results so.

Got it. Thanks, Peter. Let me just then rotate from the last segment then. You know, the issue with AS&I unfortunately they’ve kept stubbornly persistent to an extent. And you regard this as being a moving target. Has it been equipment downtime, has it been yield? You know what can you share if anything more about you know, the key issues? You know what kind of remains that still needed to be done there?

Yeah, you know Matt legitimate question. It’s been a bit of a moving target in 2019. We were a little bit optimistic of our ability to turn it around too in the year. We have addressed the issues one by one. We still have a couple remaining in North America, specifically in the US. And we’re running well in Europe, we’re running well in Canada, we’re running well in Mexico. We still have a few issues to address in the US. And actually, we’ve made some progress also on these you know, that we see some flattening year-on-year. We see the first bucket becoming a much lesser than it has been in the last few quarters in terms of variance, right, the rate variants. And you’re seeing that top line developing, which is important, because once we’re able to meet the customer needs then we are delivering, then you know it’s a matter of first streamlining, because which we know how to do even though it’s picking up longer than we thought. So I’m cautiously optimistic about 2020 for the auto structures.

Yeah. And I just to jump in on this. I mean, if you think about what we’ve done there and what we’ve talked about in the last call, we brought kind of new resources to this to attack what originally was probably, you know, we probably expanded a little bit beyond our operational bandwidth at the beginning, because of all the different growth opportunities that we have. So we brought new resources to it, we’ve reorganized the business and now we’re kind of aggressively taking out costs. And so I think that’s what you’re starting to see as that kind of the expense delta is starting to shrink, as we’re getting more and more in line with where we think the business can get to. And as we said before, we remain confident that we can get the business back to the historic levels of profitability that we’ve talked about, which is, you know, kind of at 500-ish per ton.

Right. Thanks, Peter. Thanks, Jean-Marc. Good luck to you.

Thanks.

Thank you. Your next response is from Josh Sullivan of Benchmark Company.

Hi, good morning, Jean-Marc and Peter.

Good morning, Josh.

Hey, Josh.

Just as far as Horizon 2022. You know, how did that contrast with Project ‘19? Now there any fundamental differences here in philosophy or targets areas you’re going after?

Yeah. So, Peter will come to then. But I think the way we thought – we think of it as, Project 2019 was very much about a bunch of opportunities for cost reductions scattered throughout the company. There was plenty to do, plenty of opportunities. Think of Horizon ‘22 as something much more strategic, where rather than going after a 100 or 200 or 300 different micro projects, we’re going to go at the 10, 15 maybe I would say much more strategic we should add more, you know, lead time in terms of between when we write the charter for easily trying to achieve when we define what it is that you know to increase the solution and then we implement it. So it’s not going to be that kind of you know, knock down one after the other on a monthly basis, will ever state in that kind of stuff, right, it’s going to be much more strategic, much more focused. But also each of these projects will be wider in terms of scope. So that’s what we’ll do. I mean, we’ll talk more about it in the future, but maybe not as frequently as we did with a Project 2019.

Yeah, and maybe just to jump in. I mean, an example on Project 2019, you’ll remember, we have these situations where we’re able to find, you know, if we wash the sleeve in a plan that we could save 100,000 in the plant, right and then you multiply that by however many plants aren’t actually washing their sleeves, and it turns into kind of 1 million of savings. So here just to put a point on what Jean-Marc saying, we look at things – we’re going to look at things like you know, kind of metal recovery, right. So think about our business we spend over EUR 3.5 billion on metal, right. And if we can save, you know, kind of a couple percent on that, you end up with some huge numbers, right. So this is, but this is the type of thing where, you know, it does not come easily, right. These are things that are developed and practices that are developed over many years. So we’ll work on those and we’ll report on those, but we do believe that there’s opportunity there.

Got it and I appreciate that. And then just a question on AS&I. you know, I think you mentioned $100 million of nominations in 2019, you know, any indication or directionally what that might look like in 2020 on how it’s shaping up?

No, I think it’s a bit early, but it’s fair to say that, you know, we have substantially reduced the number of nominations in 2019. And that was a conscious choice we made. It’s not because there were fewer opportunities out there, it’s just that as Peter mentioned, we’re going to do you know, maybe overstretched ourselves or our capabilities given the three years of nomination as to 1 billion. So we thought it was time to pause, regroup, digest and execute on what we have. And I think in 2020, you’ll see quite a bit of that as well, right. We will continue to be present in the market and they’re very, very attractive opportunities, we’ll prosecute them, but we will be very modest in our ambition. We’ve got lots of investment that has been made into auto structures, now is the time to reap the benefits of those investments. But for the teams are fully focused on. And once we see that, then we’ll resume, you know, going after our new business. But at the moment, there’s plenty of opportunities within what we already have.

Yeah and I just want to jump in to say that, again, the thesis behind the auto structures is absolutely 100% valid. So this has been an execution challenge and as Jean-Marc said, as we get our execution under control, and we deliver what we said we are going to deliver, then you’ll start to see us kind of spread our wings a little bit more.

Okay. Thank you. Appreciate the color.

Sure.

Thank you. Your next response is from David Gagliano of BMO Capital.

Hi, thanks for taking my questions and congrats on another solid result and outlook. I just wanted to just ask a question about 2020. So a little bit of a bridge embedded in the year-over-year growth rates. If we just take the midpoint is kind of a EUR 40 million-ish year-over-year growth. It sounds like of that EUR 40 million, somewhere around EUR 15 million, maybe EUR 20 million is Bowling Green improvements – operating improvements, I think. And then there’s also some component also of AS&I. I was wondering if you could validate that EUR 15 million to EUR 20 million expected improvement at Bowling Green and also, if you could give us a kind of a similar figure of what’s embedded in the year-over-year improvements for operating improvements at AS&I?

Yeah, so David your assumptions are directionally correct. I will not comment specifically on each and every view going into 2020. But you’re right, that Bowling Green is going to be a plus and the other thing that makes sense. We do have some improvement that we expect from our auto structures. We do believe in A&T. There can be a little bit of a challenge because of, you know, the overall situation that everybody is aware of, but you know, that should be a contained. And remember the EBITDA that from the comment that Peter made around, you know, grows up to EUR 800 a ton and basically is underpinned by the fact that our improvements we view them and it’s being very sustainable, both from the commercial side and the operational side. And looking at PAPR, we expect to continue to see some improvements in PAPR, because these guys are running well, I can see them doing well. And where our operations are pretty solid and we sold investments we’ve made, making them more reliable. We don’t anticipate you know, crisis or we don’t have much contingency that we think we need. So that’s how I think about the business, right. It continues the good performance, you know, the industry segments of AS&I where we see a little bit of recovery compared to what the market conditions well here.

Okay, that’s helpful. I – so is it fair to characterize the EUR 40 million year-over-year improvement? Is it reasonable to say about EUR 30 million of that EUR 40 million is kind of operating and then the other EUR 10 million is market?

Yes, yes, it is. I mean, we are not expecting a great news from market, I think the truth is rising. We see the market themselves. Aluminum is penetrating into automotive that chose the automotive is pretty tested going into 2020, right. So I’m not expecting good news on the auto side in 2020. That is certainly not embedded in our guidance right. So and if you look at the TID markets, you know, some are good, I mean, I mentioned the defense, I didn’t mention semiconductors, because it’s not bad. Other aircraft not bad, right. So on an average to the facts, I’m not expecting good news of TID. And in aerospace we got to realize that you know, the 737-MAX and if they don’t build it, at some point, they will buy less aluminum. So other aircraft will be – will be built but you know, they’re too upset, but you know, overall when we look at aerospace range for 2020, it doesn’t look like the aircraft fields are going to be at the same level as where there were in 2019. So now with EBITDA. I think that the margins so can sheet could be positive, right. The expectation I have with the market is, that is a best for the lot of other what we did it bring you know grind, I think used the word grinding through that continually throughout 2020 that’s all that’s been focused on executing on the contracts we have, making sure we run defense well, making sure we updated just in how we manage our cost, we deal with the talking about the corporate closing down at another 1 million having through 2020. So we’re just grinding and grinding, grinding our way to of EUR 700,000 million and 2.5 leverage.

Okay, great. That’s helpful. Thanks again.

Thank you. Your next response is from Martin Englert of Jefferies.

Hi, good morning, everyone.

Hi, Martin.

Hi, Martin.

So circling back on the MAX production curtailment. Can you give a little bit more color, you know, noted the overall aero exposure, but maybe a little bit of flavor on how much is weighted towards regional defense? And then maybe where the bias is between Boeing and Airbus?

Yeah. You know, that is good question, Martin. So as we mentioned, 15% of our revenue in aerospace you know that’s to chase Boeing as a company to 6% of those sales as a company at Constellium. And the 737-MAX is a very important aircraft, right and the only one that Boeing makes right. So that’s gives you an idea of you know, the exposure we have to this program. And now you know, how it pans out during the year I mean, it is authorized to fly, when do they stop production again, I mean nobody knows. I mean, I don’t know if nobody knows, I don’t know and that And that I’m going to hesitate on it, what we said in our guidance, what is embedded in our guidance is, whether it did make it again this year or not, doesn’t change you know, our guidance so in the 6% to 9% range [technical difficulty].

Okay. But if they would not re-ramp production this year, that would be more of a bias towards getting towards the 6% EBITDA growth, correct?

Wouldn’t be helpful, for sure.

Okay, got it. If I could, one other one. Are you seeing any negative implication from the coronavirus within the supply chain from end user demand perspective? Maybe more specifically, any issues with sourcing, within packaging or the – with the automotive customers?

No. so we’re monitoring that as closely as we can. We as in sales any direct impact of it, we have got some questions from the customers about what is your exposure to the coronavirus and you know, directly we don’t see any. But indirectly, it’s impossible to tell and you know, it was telling to a customer and they needed 1,000 parts to make one of their products until they’re not coming from China and the supply chain is disrupted, well they can’t make their products. So they’re not going to hold their off of. So and that we don’t know, right I mean we haven’t seen any of that happening yet. We’re monitoring and we’ll react as appropriate.

Okay, within the packaging market in the US, I think we’re probably net short and do have to rely on some important substrates for aluminum can packaging, I believe. So maybe there’s some risk around that. Would you be able to remind us of, if you have any spot market available, volume for 2020 for packaging?

Very limited. Well, you know as we enter the year typically, we’re you know, overall as a company we’re close to 90% sold out, right, because there’s always a little bit of tolerance, right. So we got to get ready with customers who would more than, you know, the nominal contract. And then we got a little bit of spot right. That’s what makes the 10%, hope 9 to 100, so there’s not much open. I think there’s contingency to sell more we’ll work very hard and maybe we can do 100% to 103% mostly.

Okay, excellent. I appreciate all the color there and congratulations on another year of solid EBITDA growth and the free cash flow generation.

Thanks very much.

Thanks very much, Martin.

Thank you. Your next response is from Christian Georges of Societe Generale. Please go ahead.

Thank you and good morning.

Good morning, Christian.

Hi. Just a few quick ones. Just sort of from the coronavirus question. Have you had any obviously you clients maybe getting back to you asking you if you could supply some of the products that potentially would be affected in the supply chain? Has had any request for that?

No, no, we haven’t.

Okay. And the second question is on the AIRWARE in which I think two years ago when Bombardier was facing the problems, your airway in Venezuela building up, I guess that you since improved greatly. Have you seen any particular impact on increased set of AIRWARE throughout 2019 or is that something that you will expect maybe a further positive in 2020 on the bombardier contract for instance?

So on – overall our sales of AIRWARE in 2019 was very good and maybe a little bit of upside going into ‘20 but that would be marginal, a lot of their ramp up you’ve seen it already in 2018-2019.

So some of the improvement we’re seeing in the division is the normalization of your AIRWARE products which is higher value added, right?

Correct. Very good behind this.

Okay. Okay and the last question is obviously it’s on the subject you kind of talked too much about, but now as there is you know discussion is going on obviously in the US, they still have headwinds as we go to market share. And the question is simply, either something you need to be looking at closely, because something could put out which would be highly valuable for you or is it something, we should find it not trafficking you whatsoever?

Yeah, I mean we are obviously monitoring the situation when anything that happens in our space is of interest to us. But again, you know, for us to be interested in pursuing kind of an acquisition and all that kind of stuff, right would mean that this has to be something that fits within our strategy. It has – and therefore it has to be in line with deleveraging, reaching 2.5 times target for 2022 and therefore, it’s got to be of compelling value. I cannot say more, because I would be speculating at the moment space plan is nobody to improve it’s the acquisition of Aleris and we wish them the best.

At the same time, strategically maybe will it not be ideal that you say and new entrant were to come to US market and take out some of the assets you know from a micro company or is that something we should – risk in your view?

I don’t know. I mean, to be a different entity, but it would have changed the perspective land saving today you have a very similar [indiscernible] group. Or you’ve got another reason of somebody else, but I don’t think it changes anything fundamentally.

Okay. Thank you very much.

Thank you. Your next response is from Michael Steele from Bank of America.

Hey, everybody.

Hey, Mike.

Jean-Marc and Peter, how are you?

Good.

Appreciate your sort of detailed commentary on all the segments. And I think I’m just trying to process what your commentary is about 2020. And when I think about kind of from 2019 to 2020 and like an EBITDA bridge, it seems like volume might be a little bit flat, price and mix might be a little bit flat and the majority of getting from 560 to the low 600s which is the middle of your range would be kind of cost savings. Is that the right way to think about the bridge from ’19 to ’20?

You’re very good at, it is all of US, you know, triangulating towards getting that bridge for every segment that you read at the nature of barriers. Now we’re trying to work on those levers, Mike. But as we get some volumes coming, right can sheet build we are not going to ramp up the model, I mean, if you look at the year-on-your basis, right. We are not fully ramped up in auto structures, we still have lines starting. You remember we have done some press lines that all starting this year actually in [indiscernible] so all that will create some volume increase in 2020 and obviously we see a bit and also carrying on into 2021. So there’s some growth in volume. We constantly try to improve the mix, so that will also be you know a level before on pricing. Whenever we have the opportunity to reprice, we do. So you should see a little bit of that and how we see a – it should be a contributor as well.

Okay, thank you. And then my next question is on the capital structure. You know, the 6.625 of 25 just became callable. Those are your highest coupon. How do you balance, you know, the desire to kind of reduce interest costs by addressing that issue with sort of the additional, you know, moves to chip away at the front end, like you did with your 21 earlier this year?

Yeah. So, as you know, we, you know, we’ve been deleveraging as the priority and one of the things that I think is really good is that we put ourselves in a position to be kind of very opportunistic. We are definitely conscious of the fact that we’ve got the 20 – 21s that are kind of closer in maturity and we’re confident that we have free cash flow to kind of address them in the kind of near-term, but we are also confident in the fact that the markets are, you know, really strong now and there can be opportunities to kind of do some refinancing that potentially could, you know, help us dramatically and reduce interest expense and eliminate some of the near-term maturities. So, we got a lot of different options and as time pans out, we’ll see how it kind of transpires.

All right. Thanks, Peter.

Thank you. I’m showing no further questions at this time. I would like to turn the conference back over to Jean-Marc Germain, CEO of Constellium.

Thank you, operator and thank you everyone. As you can tell, we are very pleased with our 2019 performance. And we look at 2020 importantly with a lot of confidence. Thank you very much for your interest in Constellium and talk to you soon. Bye-bye.

Thank you.

Ladies and gentlemen, this concludes today’s conference. Thank you for your participation and have a wonderful day. You may all disconnect.