Constellium SE (CSTM) 2019 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Constellium fourth quarter and full year 2019 results.

(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 and improved price and mix, partially offset by lower metal prices. While our revenues are affected by changes in metal prices, we operate a 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 2 onetime benefits, a gain on the sale of the North Building at Sierre and a gain on an amendment to an OPEB plan. Adjusted EBITDA increased 13% to EUR 562 million in 2019. This performance was in line with the 12% to 14% guidance we provided last quarter. 2019 represents our third consecutive year of double-digit adjusted EBITDA growth, and I am 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 target for positive free cash flow in 2019 at our Analyst Day in March 2017. We clearly delivered on this objective. We have come a long way, and I am confident that Constellium will 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 3.9x. 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 0.5x of leverage. Further deleveraging is a top 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 fourth 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 fourth quarter of last year. Adjusted EBITDA was EUR 121 million. That is a 15% increase compared to the fourth quarter of last year.

P&ARP had a very good quarter with solid operational performance and the benefit of favorable metal costs. A&T delivered another strong quarter, thanks to good aerospace demand and solid operational performance. In AS&I, we delivered strong top line growth in automotive structures but continued 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 fourth consecutive quarter of free cash flow generation.

With that, I will now hand 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. P&ARP 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 2019, Constellium earned EUR 562 million of adjusted EBITDA, an increase of EUR 64 million or 13% year-over-year. P&ARP 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 EUR 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 P&ARP 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 rolled product shipments decreased 2% compared to strong -- compared to a strong fourth quarter last year. Automotive rolled product shipments were up 14% compared to last year, as we continued 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 2019, P&ARP performed very well, generating record annual adjusted EBITDA of EUR 273 million. Strong operational performance drove higher volumes, 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 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 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 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 continued 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 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 levels.

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 initiatives. Over time, we continued 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 Analyst 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 cost 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 of 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 3.9x. 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 0.5x. This leaves us well positioned to achieve or to reach our '22 target of 2.5x 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 0.4x 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. 3 of our 4 key end markets, packaging, automotive and aerospace, are secular growth markets for aluminum. While 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 5 years, with our customers. And as I mentioned earlier, we pass-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 cans and increased investments in new can lines by the can makers. Aluminum cans are infinitely recyclable, making them the most sustainable beverage packaging for the 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 attributes 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 U.S., we continue to expect the growth of auto body sheet demand to tighten supply to the packaging market over the medium 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 market for aluminum. The lightweighting of vehicles is expected to continue. 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 this secular shift to aluminum in automotive and the electrification of the fleet.

In the near term, we continue to observe pockets of weakness in the broader automotive market. However, light trucks, SUVs, luxury cars, where we are the most exposed, remain the strongest part 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 market now than we did at the same time last year, we will 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. While the 737 Max grounding and production hold is an ongoing development, near-term aerospace demand remains strong. Based on our current visibility, we expect the strength to continue through at least 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 jets, space, defense. As you will remember, we have also expanded our relationships 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 Constellium portfolio.

In TID, we expect to continue to expand in niche products in a diversified range of markets over the long term. The current conditions in these end markets are mixed. Defense applications like armor, for instance, remain 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.

Lastly, I would like to take a moment to recognize the European Commission for launching an antidumping 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 remain 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 follows a strong year of adjusted EBITDA growth and free cash flow generation in 2019. I believe our track record of consistent performance is 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 of adjusted EBITDA and a leverage ratio of 2.5x. We remain committed to delivering on these targets, and underpinned by Horizon '22, we look at them with increasing confidence. We remain committed to shareholder value creation.

And with that, operator, we will now open the Q&A session. Thank you.

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

Jean-Marc and Peter, congrats on a good end to the year. A couple of questions from me, just starting with the 2020 guidance. It's quite a wide range, so 6% to 9%. I just wondered 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 the AS&I as you work through some of the headwinds near term on that division.

Yes, Chris. Thanks for your congratulations and thanks for your question. It's a good one. So I mean we are 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've got to recognize the uncertainties that are out there in the market. So clearly, as you mentioned, I mean, the 6 to -- 6% would be things go as per the plan overall, right, but we have negative -- very negative news on the 737 Max. Let's assume they don't build it -- they don't start rebuilding it throughout 2020. And the coronavirus creates more disruptions in the supply chains in automotives; and some of our customers need to take prolonged outages, that kind of stuff, right? So we look at it as there are some uncertainties out there that could cause the 6% to be a reality. And on the other end of the spectrum, I mean, if we continue to see what we're seeing in the first half of the year. It's pretty good. Our operational execution is very strong. We have turned the corner, we believe, in auto structures. You're not seeing it that much yet in Q4, but we're cautiously optimistic about 2020. So strong operational execution, good market outlook in the first half. If that continues, that will carry us towards the higher end of the range. So on balance, we're trying to weigh the pluses and minuses. It's more difficult at the beginning of the year than it is at the end of the year. So that's why the range is a little bit 1 point wider than we gave it last year, middle of the year.

Okay. 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 a headwind as you build volumes. You had a great year last year on working capital. So I just wanted some comments on that.

Yes. So thanks, Chris. Appreciate the question. What we've assumed in terms of the working capital assumption for the year is it will be working capital will be a use of cash, as we go through the year, in kind of the range that we talked about in the -- at the Analyst Day in 2018. So we wouldn't move off of that. We're obviously going to work to kind of improve that, but we also have some other kind of very positive drivers. 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 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.

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 3 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 you do have 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 wondered if you could give an update.

Sure. That's a very broad question...

I'll try to get at it. And then if I forget anything, Peter will certainly chime in. So you're absolutely right. I mean, the ESG topics and environmental aspects, climate change and all that is really going up in -- and we see that in our interactions with you and all our shareholders, investors. We've really seen that starting nearly a year ago, right, kind of spring of last year. And I think the first thing to say about this, we are blessed to be working with aluminum, which is a fantastic material in terms of its attributes when it is 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 quite fantastic when you compare it to some of the competing materials like plastics, for instance, that we have. So it's fantastic material in terms of recyclability. And we intend to fully play our role in continuing to help recycling, potentially in recycling more so that 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 needs for more aluminum. So that shows in our packaging. That shows also in automotive, right? That's well known. The lightweighting in automotive, more and more, will be needed. I mean we like bigger cars with more stuff and gadgets and conveniences in it, so that means they are becoming heavier. You need to make them lighter so they become more fuel efficient, right? And if you want to electrify them, same story. They need to be lighter. So all the attributes of aluminum are really good, and we want to really play our role and ride this wave. We have -- the things we are doing is we focus on the right segments, can, automotive certainly. We work with our customers, and we are willing to invest provided we get appropriate returns. You were mentioning the can sheet contracts. We are very excited at what's happening in can sheet. The fact that demand is growing at a very substantial rate now is important. Now 3% to 4%, or some say 5%, doesn't sound that big in itself. I actually say it is very substantial if it is sustained. You think of it. You've got 5 years of that compounded. That requires a lot of capacity expansion and more debottlenecking from all of us in the industry to meet those needs. So I'm very excited at the future here. I think it will take some time to materialize because, as you mentioned, you -- we've got contracts coming up in '21, really '22. So that's when things will materialize more than 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.

Your next response is from Curt Woodworth with Crédit Suisse.

Yes. I guess, following up on Chris' question regarding can sheet and, I think, Jean-Marc, your kind of statements that this continuing shift to auto away from can, combined with the fact that can growth is sharply accelerating, kind of puts the substrate market in what appears to be a continual deficit condition. So can you just talk about maybe potential expansion opportunities you've seen. And then with respect to your existing book, how much does reprice in '21 versus '22? I think we have been under the assumption that a good chunk of the book would reprice in '21.

Yes. So on that one, I don't want to give specific numbers, but there is more repricing in '22 than in '21. And not all of it is repricing between '21 and '22 because, as you know, that's typically 5-year contracts, right, so both in Europe and North America. So it's going to be progressive, gradual in terms of whatever happens to pricing and volumes. And in terms of the expansion of capacities, the first thing to say is we are super capital disciplined. So as we mentioned, we've got opportunities in Muscle Shoals, and they are quite significant. As we -- since we bought the company, we've put a lot of investment there. We've put a lot of focus, a lot of upgrades, a lot of injection of specific technical talent into Muscle Shoals. And you are seeing and we are seeing and we keep on seeing more capacity, more reliability and more throughput there for Muscle Shoals. Back in 2018, Peter Basten was commenting on the 75,000 tonnes minimum improvement in Muscle Shoals' output. And we certainly reiterate that and get more and more confident that the 75,000 tonnes is really a minimum that's going to take place at Muscle Shoals. Similarly, with enough of that growth, you have some debottlenecking opportunities. They are more limited. So with all that said, what we do constantly is look at where can we invest a little bit more of competitive maintenance dollars, improve a little bit our operations and [through fleet] expand our capacities. The other thing we do is we constantly look at what is -- in a strategic fashion, right, not on a tactical fashion, what is the best use of our capacity. Do we want to do a little bit more can, a little bit more auto? Because as you know, these 2 product lines use essentially the same machinery and production process. So we do that. And we do that, as I say, strategically, looking at, 3, 5 years, what do we believe is the best thing in terms of value creation for us. When all that is said and done, then if we're still in a deficit and we've got more opportunities, then we will not be shy to invest, but that means we will be sure we get appropriate returns [of a variable rate] for whatever investments we would 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, a follow-up with respect to the guidance. When you look at A&T for this year, 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 have very rich mix in aero, but just in general, how do you see A&T kind of EBITDA this year versus next year?

Yes, sure. Well, I mean I will 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, we've got pretty good visibility for the first half of the year, including the price and mix and all those factors, much less so for the second half of the year. And aerospace is just one part of the equation. And we've got TID as well, where there the visibility is less because it's just contracted, much more diverse. And things can change quite rapidly in TID. I mean, as you saw, we -- in volumes we were 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 the operations will continue to perform well. I mean they've really stepped up in terms of execution and reliability of the operations. Aerospace will be strong and will -- should have 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, in that is so we've historically said that -- on an EBITDA per tonne basis, that 700 to 800 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 tonne would come out.

Your next response is from Matthew Korn of Goldman Sachs.

Good to see the optimism on 2020 given all the idiosyncratic events that we've seen over 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? What kind of remaining start-up costs do 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. How do you expect that pace to change over the rest of the year there?

So I'll start. So we're super, super pleased with the Bowling Green performance this year. It's EUR 15 million negative EBITDA for the year, as we had guided to. That's not -- what makes us the most happy is that the performance in terms of speed, recovery, quality, customer satisfaction is really impressive. And it is beyond our expectation on all these parameters of industrial KPIs and customer satisfaction. Going into 2020, Bowling Green will be positive. We will not disclose anymore 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 will look at it in a very positive side. And at the end of the year, we are running very close to that 90,000, 100,000 tonnes rate. Now obviously this will be impacted by how the auto market performs. If it's weak, it's going to be a little bit lower. If it's strong, it's going to be a little bit higher, but we are really in good shape now.

Looking back, do you feel that consolidation of that facility really was a major difference in how the -- how it ended up operating?

Yes. I think it did help. It's the team had -- having 1 boss is easier than having 2 bosses, I guess. You could spend more time running the plant, as opposed to being in meetings with the principals -- but no. Most is -- I think the groundwork was done very well. The simplification of having just one owner and a very clear strategy helped. And I think over time what it does is, well, it allows us to remove some costs, simplify the business, integrated it fully with Muscle Shoals. And all that is going to make for a very efficient process flow. So I'm really happy not only of the fact that we made the acquisition but also the timing of the acquisition. You'll remember we really incurred strong losses in the beginning and the first -- '17 and -- 2017, 2018. And we bought it just when it started to turn good. So it was good to have a partner in the bad times and to be alone in the good times.

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

Got it. Let me just rotate on the last segment then. The issues in AS&I, unfortunately, they've kept stubbornly persistent to an extent. Do you regard this as being a moving target? Has it been equipment downtime? Has it been yields? What can you share, if anything more, about the key issues? What kind of remains that still needs to be done there?

Yes. No, 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 soon in the year. We have addressed the issues one by one. We still have a couple remaining in North America, specifically in the U.S. 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 U.S. And actually, we've made some progress also on these. We see some flattening year-on-year. We -- you see the cost bucket becoming much less than it has been in the past few quarters in terms of variance, right, the red variance. And you're seeing the top line developing, which is important because, once we're able to meet customer needs and we are delivering, then it's a matter of streamlining the costs, which we know how to do even though it's taking us longer than we thought. So I'm cautiously optimistic about 2020 for auto structures.

Yes. 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 -- 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, is that kind of 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 kind of that 500-ish per tonne.

Your next response is from Josh Sullivan of Benchmark Company.

Just as far as Horizon 2022, how does it contrast with Project '19? Are there any fundamental differences here in philosophy or targets areas you're going after?

Yes. So Peter will complement, but I think the way we think of it is 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. Rather than going after 100 or 200 or 300 different micro projects, we're going to go after 10, 15 maybe which are much more strategic, which may have more lead time in terms of between when we write a charter of what it is we're trying to achieve, when we define what it is that is going to be the solution and then we implement it. So it's not going to be that kind of knock down one after the other. On a monthly basis, we'll have updates and 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 Project 2019.

Yes. And maybe just to jump in. I mean an example on Project 2019. You'll remember we have these situations where we were able to find, if we wash the sleeves in a plant, that we could save 100,000 in the plant, right. And when you multiply that by however many plants that aren't actually washing those sleeves, then it turns into kind of a million of savings. So here, just to put a point on what Jean-Marc is saying, we look at -- we're going to look at things like 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 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 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. I appreciate that. And then just a question on AS&I. I think you mentioned the 100 million of nominations in 2019. Any indication directionally what that might look like in 2020 or how it's shaping up?

No. I think it's a bit early, but it's fair to say that 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 have kind of maybe overstretched ourselves or our capabilities given 3 years of nomination at 1 billion or so. And 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. If there are very, very attractive opportunities, we'll prosecute them, but we will be very modest in our ambitions. We've got lots of investment that has been made into auto structures. Now is the time to reap the benefits of those investments. That's what the teams are fully focused on. And once we see that, then we'll resume going after new business, but at the moment there's plenty of opportunity within what we already have.

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

Your next response is from David Gagliano of BMO Capital.

Congrats on another solid results and outlook. I just wanted to just ask you a question about 2020, just a little bit of a bridge embedded in the year-over-year growth rates. If we just take the midpoint, it's 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 can validate that EUR 15 million to EUR 20 million expected improvement at Bowling Green and also if you could give us kind of a similar figure of what's embedded in the year-over-year improvements for operating improvements at AS&I.

Yes. So David, your assumptions are directionally correct. We'll not comment specifically on each and every BU going into 2020, but you're right that Bowling Green is going to be a plus and the other [things that you have] make sense. We do have some improvement that we expect from auto structures. We do believe in A&T. They will -- can be a little bit of a challenge because of the -- all the situation that everybody is aware of, but that should be contained. And remember the EBITDA per tonne comment that Peter made around closer to EUR 800 a tonne. And basically this is underpinned by the fact that, our improvements, we view them as being very sustainable both on the commercial side and the operational side. And looking at P&ARP, we expect to continue to see some improvement in P&ARP because these guys are running well. Can sheet is doing well, where our operations are pretty solid. And we -- you saw the investment we've made in making them more reliable. We don't anticipate a crisis, or we don't have much contingency that we think we need. So that's how I think about the business, right? And continued good performance in the industry segment of AS&I, where we see a little bit of recovery compared to what the market conditions were last year.

Okay, that's helpful. I -- so is it fair to characterize the EUR 40 million year-over-year improvement, how much -- 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 the market, to speak the truth, right? I mean we see the markets themselves. Aluminum is penetrating in automotive. That's good, but automotive is pretty tepid 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, some are good. I mean I mentioned defense. I didn't mention semiconductors, where it's not bad. Others are bad, right? So on average, it's a mixed bag. So I'm not expecting good news on TID. And in aerospace we've got to realize that, the 737 Max, I mean, is it on build? At some point, they will buy less aluminum. So other aircraft will be bought, will be built, but there's offsets. But overall, when we look at aerospace going into 2020, it doesn't look like the aircraft builds are going to be at the same level as what they were in 2019. So no, David, I think the demand, the -- and so -- in can sheet could be positive, right? The expectation I have vis-a-vis the market is tepid at best, but a lot of what we're delivering is us, I think I used the word, grinding through -- continually throughout 2020. That's all us being focused on executing on the contracts we have, making sure we run our plants well, making sure we are diligent in how we manage our costs and deal with -- talking about across -- corporate costs going down another EUR 1 million into 2020. So we're just grinding and grinding and grinding our way to our EUR 700 million and 2.5x leverage.

Your next response is from Martin Englert of Jefferies.

So circling back on the Max production curtailment. Can you give a little bit more color? You've 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.

Yes. No, that's good question, Martin. So as we mentioned, 15% of our revenue is in aerospace. Cut to the chase: Boeing as a company is 2% to 3% of our total sales as a company, as Constellium. And the 737 Max is a very important aircraft, but it's not the only one that Boeing makes, right? So that's -- that gives you an idea of the exposure we have to the program. And now how it pans out during the year -- I mean, is it authorized to fly? When do they start production again? I mean nobody knows. I mean, as -- I don't know if nobody knows. I don't know. I'm not -- and I'm not going to speculate on it. What we said in our guidance, what is embedded in our guidance is, whether we make it again this year or not, doesn't change. It's our guidance, grow in the 6% to 9% range of EBITDA growth.

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

That wouldn't be helpful, for sure.

Okay. Got it. If I could, one other one. Are you seeing any negative implications 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 haven't felt any direct impacts of it. We have got some questions from customers about, "What is your exposure to the coronavirus?" And directly, we don't see any, but indirectly it's impossible to tell. And if we're selling to the customer and they need 1,000 parts to make one of their products and 2 of them are coming from China and there are -- and the supply chain is disrupted, well, they can't make their products, so they are not going to hold their ramp-ups. 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 U.S., I think we're probably not short and do have to rely on some import substrates for aluminum can packaging, I believe. So maybe there are some risks around that. Would you be able to remind us of if you have any spot market available volume for 2020 for packaging?

Very limited. As we enter the year, typically we're -- overall as a company, we're close to 90% sold out, right, because there's always a little bit of tolerance, right? So we've got to be ready if customers put more than their nominal contract. And then we've got a little bit of spot, right, because that's what makes the 10% to -- from 90 to 100. So there's not much open, but if there's an opportunity to sell more, we will work very hard. And maybe we'll then do [100% to 103%], right? We will see.

Okay. Congratulations on another year of solid EBITDA growth and the free cash flow generation.

Thank you, Martin.

Thanks, Martin.

Your next response is from Christian Georges of Societe Generale.

Just 3 quick ones. Just to follow up on the coronavirus question. Have you had any of your clients maybe coming back to you, asking you if you could supply some of the products that could potentially would be affected in the supply chain? Have you had any requests for that?

No, no, we haven't.

Okay. And second question is on Airware, which I think 2 years ago, when Bombardier was facing those problems, your Airware inventories were building up. I guess this has improved greatly. Have we seen the positive impact on increased sale of Airware throughout 2019? Or is that something which you will expect maybe a further positive in 2020 on the Bombardier contract, for instance?

So on overall, our sales of Airware in 2019 were very good. There may be a little bit of upside going into '20, but that would be marginal. A lot of the ramp-up, you've seen it already in 2018, 2019.

Great. So some of the improvement we're seeing in the division is normalization of your Airware products, which is higher value added, right?

Correct, [great exposure behind that].

Okay. And the last question is -- obviously it's some subject you can't talk too much about, but there is discussions going on. Obviously, in the U.S. there are still some headwinds with regards to market share. And the question is simply is that something you need to be looking at closely. Because something could fall out which will be highly valuable for you. Or is that something which you find is not affecting you further?

Yes. I mean we are obviously monitoring the situation. I mean anything that happens in our space is of interest to us, but again, for us to be interested in pursuing kind of an acquisition or that kind of stuff, right, would mean that it has to be something that fits within our strategy. We have -- and therefore, it has to be in line with deleveraging, reaching our 2.5x 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, the base plan is Novelis will close this acquisition of Aleris, and we wish them the best.

Great. Because the -- at the same time, strategically it maybe -- will it not be ideal if a new entrant were to come to the U.S. market and take out some of the assets from either company? Or is that something which is a remote risk in your view?

I don't know. I mean it would be a different entity, but it wouldn't change the competitive landscape. And today, you have Novelis and Aleris to -- or you've got Novelis and somebody else, but I don't think it changes anything fundamentally.

Your next response is from Michael Fields (sic) [Matthew Fields] from Bank of America.

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 so majority of getting from 560 to the low 600, 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 -- between all of you, at triangulating towards and getting the bridge for every segment and every nature of variance. And no, we're trying to work on our levers, Matt, but we still have some volumes coming, right. Can sheet is good. We have not fully ramped up in auto. I mean if you look at the year-on-year basis, right? We are not fully ramped up in auto structures. We still have lines starting. You'll remember we announced some press lines that are starting this year actually in Decin, Singen, in Levice. So all that will create some volume increase in 2020, and that will give you a little bit, and also carrying on into 2021. So there is some growth in volume. We constantly try to improve the mix, so that should also be a lever we'd pull. On pricing, whenever we have the opportunity to reprice, we do. So you should see a little bit of that. And obviously, I mean, cost is -- should be a contributor as well.

Okay. And then my next question is on the capital structure. The 6 5/8s of '25 just became callable, and those are your highest coupon. How do you balance the desire to kind of reduce interest costs by addressing that issue with sort of the additional moves to chip away at the front end like you did with your '21s earlier this year?

Yes. So as you know, we've been -- deleveraging is the priority. And one of the things that I think is really good is that we've put ourselves in a position to be kind of very opportunistic. We are definitely conscious of the fact that we've got the 2021s that are kind of closer in maturity. And we're confident that we have the 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 really strong now and there can be opportunities to kind of do some refinancing that potentially could help us dramatically and reduce interest expense and eliminate some of the nearer-term maturities. So we got a lot of different options. And as time pans out, we'll see how it kind of transpires.

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 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.