Constellium SE
Q4 2017 Earnings Call Transcript

Published: 23 Feb 2018

[Operator:]

Good morning and welcome to Constellium's Fourth Quarter and Full-Year 2017 Earnings Presentation. 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 today, Thursday, February 22, 2018. I will now like to turn the call over to Ryan Wentling, Director of Investor Relations at Constellium. Ryan, please go ahead.

[Ryan Wentling:]

Thank you, Operator. I would like to welcome everyone to our fourth quarter and Full-Year 2017 earnings call. On the call today are our Chief Executive Officer, Jean-Marc Germain; and our Chief Financial Officer, Peter Matt. After the presentation, we will have a Q&A session. A copy of the slide presentation for today's call is available on our website at constellium.com and today's call is being recorded. Before we begin, I'd like to encourage everyone to visit the company's website and take a look at our recent filings. Today's call may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include statements regarding the company's anticipated financial and operating performance, future events and expectations, and may include known and unknown risks and uncertainties. For a summary of specific risk factors that could cause results to differ materially from those expressed in the forward-looking statements, please refer to the factors presented under the heading Risk Factors in our annual report on Form 20-F. All information in this presentation is as of the date of this presentation. We undertake no obligation to update or revise any forward-looking statement as a result of new information, future events or otherwise, except as required by law. In addition, today's presentation includes information regarding certain non-GAAP financial measures. Please see the reconciliation 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.

[Jean-Marc Germain:]

Thank you, Ryan. Good morning, good afternoon, everyone. Thank you for your interest in Constellium. Before we go through the highlights, I would like recognize the hard work put in by the entire Constellium team over the past year. These efforts were evident in our results. And needless to say, I am very pleased with our performance in 2017. On slide number five, you will see some of the highlights from our fourth quarter performance. Shipments were 350,000 tons, that's up 2% compared to the fourth quarter of 2016 and included a 35% increase in our automotive shipments. Our revenue increased 8% to €1.2 billion. This was primarily due to higher metal prices, which as you know we substantially passed through. A net loss of €80 million compared to a net loss €20 million in the fourth quarter of last year. We did have several onetime charges in the quarter, namely a €78 million charge from the successful refinancing we did in October-November and a €16 million charge related to US tax reform. Adjusted EBITDA was €100 million, that is up 22% compared to the fourth quarter of last year. For the Full-Year, adjusted EBITDA increased 14% to €431. As you can see, this came in slightly above our guidance from the third quarter of around 13% growth. Much of this outperformance against our initial guidance came from strong end market demand and continued gains from Project 2019. I would also like to call your attention to the de-leveraging we achieved in 2017. We reduced leverage by a full term. This would not have been possible without the refinancing in the fourth quarter. Further in February, we announced that we signed a binding agreement to sell the North Building Assets at Sierre to Novelis for €200 million. This will be another powerful de-leveraging event when the proceeds are received later this year. So turning to slide six, I would like to share with you a few additional highlights from the fourth quarter. In P&ARP as you know, we are finishing an investment program to expand our autobody sheet capacity. In the first quarter, our automotive rolled product shipments were at 52% compared to last year. Our CALP line at Neuf Brisach in France in running well and we continue to expect the ramp up of this line to continue through 2019 and reach full production in 2020. In the U.S., we continue to make progress at Muscle Shoals in Bowling Green. As we mentioned last quarter, the ramp up of Bowling Green has been challenging. For those you that have watched others startup CALP line, you know that our experience is not unusual. We expect our U.S. automotive program to ramp up through 2019 and reach full production in 2020. Moving now to A&T, the team delivered another strong quarter and record annual adjusted EBITDA. We continue to broadening our aerospace customer base and deepening and expanding our relationships with business and regional jet manufacturers. As you may remember, we announced a new multi-year agreement with Bombardier in October. I would also like to make a mention of our continued success in targeting niche markets within transportation, industry and defense. While we have made significant progress in entering this market, there is still more we can achieve. Now let's move to AS&I. AS&I reported record fourth quarter and annual adjusted EBITDA. Automotive extruded shipments were up 15% year-over-year while other extruded shipments were up 12%, both a strong market demand. Our major growth investments in automotive structures remained on track. In 2017, we secured €1.1 billion of automotive structures nominations. This is more than twice the current level of annual sales of this business and a second consecutive year of over €1 billion of nominations. This is a major achievement and we look to continue to build on this momentum in 2018. Finally on the corporate side, as I just mentioned, we successfully completed the refinancing in the fourth quarter. On Project 2019, I am pleased to announce an incremental €7 million of run rate savings achieved in Q4 moving our total to €22 million as of the end of the year. With that, I will now hand the call over to Peter for further details on our financial performance.

[Peter Matt:]

Thank you, Jean-Marc. Turning now to slide eight, you will find a change in adjusted EBITDA by segment for the fourth quarter and the Full-Year of 2017, compared to the same periods of last year. For the fourth quarter of 2017, Constellium achieved €100 million of adjusted EBITDA, an increase of €90 million or 22% year-over-year. I will walk through each of these segments at a high level here and then go into more detail in the following slides. A&T increased adjusted EBITDA by €12 million to €34 million in the quarter. AS&I adjusted EBITDA of €27 million increased €6 million year-over-year. And P&ARP adjusted EBITDA of €44 million was € 1 million higher than last year. Lastly, Holdings and Corporate was in line with last year. And we continue expect agency cost of approximately €6 million per year. At the bottom of the page, we present the Full-Year 2017. Constellium achieved €431 million of adjusted EBITDA. An increase of 14% compared to last year. Now turn to slide nine, and let's focus on the P&ARP segment. Adjusted EBITDA of €44 million was comparable to last year. Higher volumes drove a €2 million increase in adjusted EBITDA as P&ARP shipments increased 1% on higher automotive rolled product shipments. Pricing and mix was slightly headwind of €1 million and good cost performance was responsible for a €3 million improvement compared to last year. Lastly, foreign exchange and other represented a €3 million headwind during the quarter. Now turn to slide 10, and let's focus on the A&T segment. Adjusted EBITDA increased €12 million to €34 million. Volume in the quarter fell 6% resulting in a €9 million decline in adjusted EBITDA due to lower aerospace shipments that we have noted in prior quarters. Better price and mix drove a €23 million improvement in adjusted EBITDA as we benefited from new customer contracts in both aerospace and TID as well as increased shipments of Airware products and aerospace plates in the quarter. Our operational performance during the quarter was solid with a €2 million improvement related to cost. Lastly, foreign exchange and other represented a €4 million headwind during the quarter. Now turning to slide 11, let's focus on AS&I segment. Adjusted EBITDA of €27 million increased 31%, compared to the fourth quarter of 2016. Volume represented an €9 million improvement as automotive extruded product shipments were up 15%, and other extruded products shipments increased 12%, both on strong market demand. Price and mix was a €2 million headwind in the quarter, and a temporary mix shift within our industry business. Despite the significant increase in shipments, cost was only €1 million headwind compared to 2016. Turning to slide 12, I'd like to touch on the progress we've made on our cash improvement initiative Project 2019. You recall that there are three pillars to Project 2019; Cost reduction, working capital improvement, and capital discipline vis-à-vis CapEx. On cost savings, as Jean-Marc noted earlier, we have achieved an additional €7 million of annual run rate cost savings in the fourth quarter of 2017, bringing our total run rate to €22 million of savings. I'd like to thank the team for a strong push into the end of the year to achieve these savings. While we have made a lot of progress already, I'm confident that there are significant opportunities remaining. Let me give you two examples of cost reductions that we have implemented. First, in AS&I, the team has reorganized the organizational structure reducing overhead in both the manufacturing operations and at the business unit level. I'm pleased to say that AS&I has taken the Project 2019 mantra to heart and is now doing more with less. These efforts are expected to result an approximately €1.5 million run rate savings annually. Second in A&T, we have started the optimization of geometrical designs in the plate shop thus far. Beginning with the designs we run the most often, the team is identifying areas where we can make better use of the plates that we produce. We expect these efforts will deliver a €0.5 million of run rate cost savings annually. Moving to working capital, we remain confident in our ability to further improve working capital performance. While higher metal prices and operational start-ups are creating some headwinds, we succeeded in reducing trade working capital days during 2017. Well, we expect some working capital growth in 2018, as we continue the start-up of several operations. We have a number of initiatives in place to help mitigate the effect on our working capital. Our capital spending in 2017 was in line with our guidance level of €275 million; a reduction of €80 million compared to 2016. We expect to remain at €275 million of capital spending in 2018. We believe this level of spending strikes the right balance between maintaining our assets, and investing in our future. The majority of our growth capital spending of €100 million to €125 million in 2018 is going to expand our leadership position and our AS&I business, which come with firm customer commitments. I want to stress that we remained very focused on capital discipline, and at the projects we are investing in come at attractive IRRS and payback. Turning now to slide 13, I want to highlight the significant progress we have made on the balance sheet in 2017. Our debt position, at the end of the year was slightly under €1.9 billion, leverage of 4.4 times was a full term lower than at the end of 2016. Our cash plus amounts are available under our committee facilities was €531 million at the end of the fourth quarter. As you can see in our debt summary, we have no bond maturities until 2021 and we remained very comfortable with our current liquidity position and our debt profile. Turning to slide 14, free cash flow during the year was an outflow of €134 million. A €159 million improvement compared to last year. The improvement was largely driven by increased adjusted EBITDA, lower trade working capital and reduced capital expenditures. Before handing the presentation back to Jean-Marc, I want to highlight some of the cash flow expectations for 2018. We expect to be free cash flow negative in 2018. We expect cash interest of approximately €130 million, which as you remember is approximately €32 million lower as a result of the refinancing completed in the fourth quarter. Cash taxes are expected to be approximately €20 million to €25 million and we expect minimal cash impact from the U.S. tax reform as we are not a material U.S. tax payer. As I just mentioned, we expect working capital investments related to the ramp up of our growth projects and expect CapEx of €275 million. We continue to be very focused on free cash flow and on achieving our target of positive free cash flow in 2019. Finally, I'd like to touch on the impact of foreign exchange. As a result of our currency hedging program, we expect primarily a translational or non-cash impact on our results. We estimate a $0.10 weakening of the U.S. Dollar versus the Euro would create approximately a €15 million headwind to our annual adjusted EBITDA based on our 2017 results. As I noted in the segment adjusted EBITDA bridges, we saw some of this currency effect in the fourth quarter. I would also note that the same translational effect works in the opposite direction on our U.S. Dollar denominated debt. To summarize, in the case of weakening dollar, we expect a headwind to adjusted EBITDA, a tailwind to U.S. Dollar debt and a minimal change in free cash flow. I will now hand the call back over to Jean-Marc.

[Jean-Marc Germain:]

Thank you, Peter. Let me share now a few end market updates. I'll start with the automotive market, which as you know is a very important growth driver for Constellium. We will maintain our positive outlook for this market. Over the longer term, we remain confident that increase aluminum usage is a speculated trend for the automotive market driven by several factors. Aluminum's favorable strength to weight ratio in comparison here enables OEM to light weight diesel increased fuel efficiency, reduce C02 emissions and in the case of electric vehicle extend their range. In addition, aluminum also a superior energy absorption as compared to steel. This benefit is evident through the impressive level of examinations, one in our automotive structures business for price management systems and other body structures, many of which were substitutions for steel. Aluminum thermal conductivity also is a significant inherent advantage for battery boxes for electric vehicles. The last décor study support this constructive outlook. In North America, aluminum as a percentage of vehicle weight is forecasted to increase from 10% in 2015 to 13% in 2020. More importantly, however, is the growth we expect in the products that we produce. For instance, heat for closures and body in white is forecasted to increase from 37 pounds to a vehicle in 2015 to 87 pounds in 2020, like, steel products are forecasted to grow from 41 pounds to vehicle to 49 over the same period, and the study does not incorporate to full impact expected from market growth but electric vehicles which have a much higher content of aluminum rolled an exclusive products that we produce. Constellium is well-positioned to realize a benefit of the secular shift to aluminum in automotive. We will continue to closely monitor the market and we will remain prudent with our investments. As I have said many times, and Peter as well just earlier, we will not make incremental investments without firm customer commitments. Turning to the near-term trends in the U.S., the SAAR fell approximately 2% to just over 17 million vehicles sold in 2017. In Europe, auto sales increased approximately 3% compared to last year, with a higher rate during the fourth quarter. Light trucks, SUVs, luxury cars continue to be in high demand. We benefited from this demand as the platforms we are on experienced strong growth in 2017. Let's turn now to Aerospace. We continue to see sustained OEM build rates, while OEM backlogs remain near record highs. And about Packaging, it's a stable market. In the U.S. we expect the continued progression of auto body sheet demand to help tighten the market over the medium to long-term. And in Europe, we continue to see demand grow based on the substitution of aluminum for steel. Finally, we continue to execute on our strategy of expanding into niche products and markets, including transportation, industry, and defense. We see strength in many of the TID markets that we serve. And the North American transport market which was a little bit weaker earlier, is now improving. In industry markets in Europe demand for our extreme products remain very strong. Turning to slide 17, I want to talk about a very exciting transaction that we announced earlier this month. We signed a binding agreement with Novelis to sell the North Building Assets of Sierre plant in Switzerland. These assets have been leased to and operated by Novelis since its spin-off in early 2005. This transaction has no effect on our ownership of our current operations at Sierre, which includes cast houses, plates, and extrusion manufacturing assets and other assets. We also agreed to contribute the plant's shared infrastructure to a 50-50 joint venture with Novelis, and agreed to enter into long-term production and metal supply arrangements with Novelis. And this transaction is still customary closing conditions. I believe that this is a mutually beneficial outcome for both parties, and I want to stress that this transaction will have no effect on our current operations at Sierre. From a financial standpoint, the lease payments we received were not included in adjusted EBITDA, but were included in free cash flow. We will used the proceeds which we currently expect to receive in the second quarter of 2018 to further de-leverage our balance sheet, pro forma the transaction, our leverage at December 31st would be under four times. Turning to slide 18, we detail our financial guidance and outlook. We expect to deliver high single-digit adjusted EBITDA growth in 2018. In part, we remain focused on ramping up our automotive investments at Neuf-Brisach, Muscle Shoals, and Bowling Green. And as we said previously, we expect to incur incremental costs until the summer of 2018 related to our U.S. automotive program. A&T delivered a step change in adjusted EBITDA in 2017 on a number of new customer contracts in aerospace and TID, as well as strong execution. Looking forward to 2018, we would expect this pace of improvement to moderate as we are focused on incremental efficiencies in our plants, and continued development of our TID end markets. In AS&I we expect to continue our momentum in 2018. Our focus remains on delivering on the growth investments in our Automotive Structures business. And as I previously mentioned, the industry end markets in Europe remain strong, and we expect to continue to benefit from this strength. I also expect Project 2019 to build off of the gains achieved in 2017, and deliver further growth, cost savings in 2018. We have integrated this Project 2019 savings into a high single-digit guidance. We are reiterating our guidance of high single-digit to adjusted EBITDA growth annually through 2020, leading to over €500 million in 2020. We continue to target positive free cash flow in 2019, and our targeted leverage ratio is below four times adjusted EBITDA. Overall, I am very pleased with Constellium's performance in 2017, and I am also excited about our prospects for 2018. We continue to execute on our strategy, and I am confident we're on the right course. We remain focused on operational execution, harvesting the benefits of our investments, disciplined capital deployment, and shareholder value creation. With that, operator, we will now open the call for Q&A.

[Operator:]

[Operator Instructions] And our first question is from Curt Woodworth with Credit Suisse. Your line is now open. Curt Woodworth Hey, good morning, Jean-Marc, and Peter. Jean-Marc Germain Good morning, Curt. Curt Woodworth First question on A&T, so clearly you've done a good job shifting volume into TID, and you've seen a great mix shift within Aero, but your overall Aero volumes down 10% a year, down 13% in the quarter, still a pretty significant headwind. Do you see that turning around this year? And would you expect any changes to the product mix in '18 in Aero relative to '17? Jean-Marc Germain So, Curt, no -- so we have had a step change in 2017. As you know, we renewed a contract, and we focused our product mix to the higher end of the product mix. And we did incur some losses in market share in some products that we were not -- we didn't find as attractive. So that step change has happened looking -- at the same time, a lot of us have been talking about de-stocking and sudden softening in 2017 aerospace shipments. So those two factors have driven quite a bit of the downdraft in shipments in '17. Looking forward to 2018, I see pretty much a stable environment. In the volume side, it may be a little bit weaker, maybe a little bit stronger, we'll see at the end of the year basically. And in terms of our efficiencies and our margins, I think we've made great progress. As you pointed out, tremendous execution by the team in 2017. Now we got to consolidate those results. Peter Matt Yes. No, I think Jean-Marc, you've summarized it perfectly. And we'll obviously continue to grind harder and forward on improving the results, but I think the step change really was last year. Curt Woodworth Okay. And then just a follow-up on the automotive outlook, so you talked about how you have a two-year ramp to get to full production at UACJ and Neuf-Brisach. Can you comment on what your volume growth expectation is in your guidance for 2018? And I guess the growth at UACJ is below the line, but the substrate going into it is an EBITDA. So are you classifying the substrate tons going into UACJ as auto roll products in the volume data that you provide each quarter? Thank you. Jean-Marc Germain Yes, so in terms of classification, yes, it is auto body sheet product, right. In terms of the ramp volume-wise, you would expect overall stable kind of progressive pro rata increase in volume from where we are to 2020. Curt Woodworth Okay, thanks a lot guys. Jean-Marc Germain And obviously, seasonally impacted and all that stuff. And the market may be a little bit up or down, but basically it's a straight line from here to 2020. Curt Woodworth Okay, thanks.

[Operator:]

Our next question is from Novid Rassouli with Cowen. Your line is now open. Novid Rassouli Thanks. Hello Jean-Marc, Peter, and Ryan. Congratulations on another strong quarter. Just kicking off with the automotive readiness program at Muscle Shoals, just wanted to see when you are expecting that to be completed, the cost headwinds to no longer be there, and then the substrate being fed into Bowling Green from there versus Neuf-Brisach? Jean-Marc Germain Yes, thanks, Novid, and good morning. So we expect to continue to have additional costs for automotive readiness through the summer of 2018. And we are already starting to shop some substrate from Muscle Shoals to Bowling Green, but that will ramp up, again, over the course of this year. And substantially depending on customer qualifications, we believe that substrate from Neuf-Brisach will be a thing of the past by 2019. Novid Rassouli Got it. And then on automotive structure nominations, I believe you guys did €1.2 billion last year. I think we're at about €800 million as of the first-half of this year. I just wanted to see if you guys could update us with kind of where we ended up shaking out in 2017? Jean-Marc Germain Yes, so we -- you're right to point out we said €800 million in the first-half, we said €1.1 billion for the full-year, so that's €300 million in second-half. It seems like a precipitous decline. It isn't. It really is, as we've mentioned a number of times, pretty lumpy. You can have a major program win in June, and if had happened in July you would've seen the other way around. So I'm very confident with the level of our hit rate, and the pipeline we have of nominations. So very strong execution in '17, very strong execution in '16, and I look at a pipeline that is very healthy and a hit rate that continues to be high for '18. Novid Rassouli Great. And just one last one, nice uplift in kind of the Project '19's savings run rate. Looks like you guys are averaging maybe an incremental €5 million or €6 million on a quarterly basis. First, I want to see, is the shifting of the domicile to France included in the '22? And then should we continue to expect as fair this kind of cadence to continue, or your thought process on that progression as you said it was already implied in your guidance. Thank you. Peter Matt Yes, thanks Novid. Yes, so the shift in the headquarters is not included in the '22. We've not completed the execution on that, obviously. So this is kind of what's in run rate. Secondly, in terms of the pace, so we obviously went after the kind of easy-to-get things first. And so, now as we get into the initiatives that we're working out now, some of them are kind of harder to get at and they take longer. So I would expect that you're going to see kind of a bit of lumpiness in the way the cost savings come through. So I would not expect necessarily an increase in the normalized pace of cost savings coming into Project 2019. Obviously, from our vantage point we're going to push these as aggressively as we possibly can, but I wouldn't necessarily expect an uptick. Novid Rassouli Thanks.

[Operator:]

And our next question is from Piyush Sood with Morgan Stanley. Your line is now open. Piyush Sood Hi, Jean-Marc, Peter, Ryan. Congratulations on the quarter. So I'd say the first question is, I think, in the past there were some constraints around passing through premiums in the aerospace segment. So how should we think about the drag from higher premiums in the U.S.? And maybe if I can extend that, just in case premiums start picking up globally, what kind of headwinds should we look at? Peter Matt Yes, thanks for the question. It's a good question. So, as we've said in the past, we pass through metal risk, and that goes for premium as well. In the vast majority of instances we pass through the premium to our customers in the case of premium. So there are some instances where we don't pass through all of it. I think as we look at it the risk might be -- maybe it's a €1 million or €2 million per annum on Midwest type of thing. But it's not a significant number. Piyush Sood That helps. And any thoughts on the impact of Section 232 on your business just in case one of the scenarios that we heard about last week gets passed? Jean-Marc Germain Yes, so 232 is, first of all, we applaud the administration for looking into the issue and seeking a level playing field for the aluminum industry in the U.S. It is very early to say obviously which scenario is going to be pursued, if any, right. And as you pointed out, there are three options that have put on the president's desk. He may choose one of the three, none, he may come with another recommendation. We believe, as an industry, that -- and surely Constellium believes that the issue with really China. This is an industry that competes effectively, and freely, and fairly worldwide with the exception of China and maybe a few circumventing countries out there on the margins. So we support a remedy that will target China and that will protect the whole aluminum supply chain and our historical partners in Canada, Europe, and other places. We'll see what comes out of this exercise. And we are monitoring it closely, and lobbying as well for our position to be heard. Piyush Sood Sir at this point the primary aluminum that you buy in the U.S. which is probably not a significant amount is that sourced from outside of North America or is there some local supplier there? Jean-Marc Germain We buy the vast, vast, vast majority of our primary aluminum from North America. I'll remind you that a lot of what we buy is actually scrap units either through closed loop systems where we have customers or scrap we are buying on the market and it's all originating from the U.S. in that case or most of it right, 95% plus, and then we do buy some metal from Canada to a large extent. Piyush Sood Right, thank you. Jean-Marc Germain You're welcome.

[Operator:]

Our next question is from Josh Sullivan with Seaport Global. Your line is now open. Josh Sullivan Good morning. Jean-Marc Germain Hey Josh. Josh Sullivan Just on the increase in the Airware sales now can you talk about which aerospace programs drove that, was it the A350 or maybe the C Series as the trade case with Boeing was settled? Jean-Marc Germain Yeah, I'm sorry, we don't comment specifically on these, but all these planes you've mentioned and others including some space applications, defense applications are Airware users. It's quite a varied set of customers. Josh Sullivan Okay, great. And then just one on the automotive side, presumably, the supply of automotive aluminum remains tight but as the Bowling Green CALP line timeline has changed a little bit has the composition of the automotive customers for that line changed in any way? Jean-Marc Germain Not significantly, no. Let's say we are late by 1 year compared to our internal plans, so call it 20,000 tons or 30,000 tons may be missing in a given year for the market. The market is getting close to a million tons. So it's re-rounding error from a market standpoint and that really doesn't change the positions of each and every player with their customers if that makes sense. Josh Sullivan Great, thank you. Jean-Marc Germain Sure.

[Operator:]

Our next question is from Sean Wondrack with Deutsche Bank. Your line is now open. Sean Wondrack Hey guys, congratulations on a great year in '17. Jean-Marc Germain Thanks, Sean. Peter Matt Thanks. Sean Wondrack Things have really come together. Just a few questions for you, I hate to do this, but unfortunately you hit your guidance early so I got to ask you. Your net debt to EBITDA target of below 4 terms, longer term, where do you guys want to be on a leverage basis, do you think it makes sense to be a 4 terms net leverage or would you like to bring that lower? Jean-Marc Germain Sean, that's a fair question. We're very focused on deleveraging, less debt is better. We're very committed and we want to go below four. Peter, you want to add more color? Peter Matt I would completely agree. I think we've said in some of our kind of comments in the past that we'd like to be in the mid 3s, I would add that we would like to really be in the double BB type category from a rating perspective, because we think that for a company of our size that gives us very good capital access in virtually all markets. Sean Wondrack Yeah, that's very helpful, and have you spoke to the ratings agencies about what you need to do to get there, I think you're a B minus right now? Peter Matt Yeah, so we have a regular dialog with the rating agencies and we keep them up-to-date on our progress and exactly what we're doing both strategically and financially, and as you can imagine it's a process of moving. But I think what we're trying to do is like many other fronts in this company, we're trying to build the credibility with them and to just strengthen our financial position as evidenced by the ratios that we're showing and I think we're moving in the right direction there. Sean Wondrack Right. And obviously the transfer of value from debt to equity is great for your stock price. Just a couple of other questions on segment basis and AS&I you obviously have constructed those two new facilities one in White, Georgia and the other in Mexico. I've seen volumes tick up a little bit there. Is this kind of the kind of cadence for volumes that we should expect going forward or how would you characterize volumes going forward in that segment? Jean-Marc Germain Continued steady increase, you're right to point out those two facilities we've built, but there's many expansions all over the place that are taking place in Van Buren, Michigan, right, in Europe, in virtually -- I'm making a mental map of the facilities we have, virtually every plant we have is expanding in some shape or form. So this is broad based. With many customers we're seeing more and more customer diversification. So you should expect it to continue steady. Peter Matt And the other thing I'd add is that while the kind of plants you noted are on the automotive structure side, we've had very nice growth on the industry side of the business as well. So it's really very broad based. Sean Wondrack Right. I was actually going to ask about that as well. But before I do when you look at the return per metric ton that you're getting in that segment at I think was 486 a ton last quarter, 487 a ton this quarter, do you expect that to keep increasing as well as we move into 2018 and 2019? Peter Matt Yeah, so look as we've said in the past the story in AS&I is really a lot about mix improvement and specifically mix improvement across the auto structures piece of the business. So you did see as the industry shipments were as robust as they were you did see that the -- on my bridge from a price mix perspective, there was some slight deterioration on the price mix side, but that's really because of the relationship between industry shipments and automotive structure shipments. But in general as we continue to progress the strategy on automotive structures, we expect the EBITDA per ton to continue to creep up. Sean Wondrack Great, that's great. And similarly for your A&TID [Ph] segment very strong performance at I think it was 615 a ton this quarter. Would you expect the same kind of trajectory going forward there as well? Peter Matt No, I think as Jean-Marc said in the prepared remarks, we really had kind of a step change in 2017 as a result of some of the contracts and really some great cost performance by the team. So we would expect the pace of improvement to moderate from where we are and obviously one of the things that we are really proud of as a team are that A&TID has done a really nice job on the execution side and so we expect they're going to continue to grind out good cost performance and you do have the underpinning of the growth in the TID segment which should provide some leverage on costs as well. But I think it's going to be a much more moderate improvement going forward. Sean Wondrack Okay, great, I'll hop back in queue and let other people ask, thank you. Peter Matt Yep.

[Operator:]

Our next question is from Matthew Fields with Bank of America. Your line is now open. Matthew Fields Hey, everyone I wanted to start by following up on the aerospace margin questions. When you say, "We expect the pace of improvement to moderate," that means that we should continue to see at least sustained aerospace margins above where they were in 2017? Jean-Marc Germain Yeah, so I think you got to look at it from a yearly average standpoint, first of all, because as we said it can go up and down on any given quarter and from that level we want to stay at least constant maybe a little bit better, but that's -- Matthew Fields So, 558 per ton was the 2017 average, we should think about that or slightly higher in 2018, is sustainable? Jean-Marc Germain Yeah. Peter Matt Yeah. Jean-Marc Germain We think so. Yeah, we're getting the knowledge in before we want to communicate in terms of all the guidance, but there are some -- Matthew Fields Got it. Jean-Marc Germain -- out of line. Matthew Fields Okay. And then I know you've made a lot of progress on the cost side on aerospace and one of your peers guided last night towards pricing pressure in aerospace over 2018, is your reticence to be too optimistic on this segment because of that pricing pressure mixed in with your improvement on the cost side that leads to this overall slightly improving margins? Jean-Marc Germain I can't comment on my competitor and everybody's got their contracts lined up in a different fashion so I don't know exactly what's driving this. No, I think the reason for the guidance we're giving is we are in a reasonably stable environment from a contractual standpoint. There may be a bit of pricing pressure over time, fine, but there's also cost improvement and therefore maintaining margins in my view is a good outcome. Matthew Fields Okay. And then on the automotive side we obviously saw some good announcements from Novelis about two new lines, the Wrangler is going to go aluminum, I know you're not going to promise a second auto line on the call today, but can you talk about orders that you're seeing into the future, do you see the automotive space on the sheet side as still in deficit? Jean-Marc Germain I wish I could promise a second line on the call, but obviously I will not. And we're very consistent. We're saying we believe there is a need for more automotive capacity, we believe the Novelis announcement closed some of the gap, there is still more that will be needed and our conditions for being the ones to invest in that extra capacity that will be needed is we need firm customer commitment at prices that deliver strong returns in line with the other options we have to deploy this capital we want to deploy towards growth. So that's all I can say at this stage. I remain very confident that this market will need more capacity, and if it comes at terms that are financially satisfactory to us which I believe will be the case at some point, then we'll invest. Matthew Fields Okay, that's a fair answer and then lastly thanks for the pretty comprehensive free cash flow guidance in your slide that when I pick apart the numbers using a high single-digit EBITDA growth for 2018, I get to €15 million positive free cash flow before working capital. So it seems like it is that working capital investment that's driving you negative. Can you talk about what you're going to need to do over the course of 2018 from a working capital standpoint? Jean-Marc Germain And we don't want to go into specifics here, and the reason why working capital can swing $20 million, $50 million very easily depending on if the startup of a line is quicker than anticipated because the customer is pulling heavier, that can move very quickly. But think of it as you know how much more automotive sales we're going to have, because we've said this is the capacity of our plants, they're going to be full by 2020, you know the level of growth we're experiencing in AS&I and if you apply working capital returns or inventory returns to that outcome and you put it ratably over '18, '19, '20, you can get a pretty good feel of what the drag over the working capital will be. But we will not go into the specifics of sales and share it, sorry we'll let you do a bit of the work here. Peter Matt Yeah, and the only other thing I would add is that obviously to combat some of that we are working vigorously via Project 2019 to look at places where we can economize on working capital. But it's definitely a use in '18. Matthew Fields Okay, and lastly is there any progress… Jean-Marc Germain Sorry, and it will be a use in '19 and we will be free cash flow positive in '19. Matthew Fields Thank you, I was just going to get there. Is that one contract cash payment term issue, any change in that situation or are we still envisioning potential big cash use at the end of '19? Jean-Marc Germain So it is still going to be a drag in '19, that specific contractual situation that I've mentioned very early on in my tenure, back in 2016. It is still going to be an issue, but it is going to be less of an issue than what we thought it could've been. Matthew Fields Okay, that's fair. Thanks everyone for all the questions. Jean-Marc Germain Thank you.

[Operator:]

Our next question is from Karl Blunden with Goldman Sachs. Your line is now open. Karl Blunden Hey guys, congrats on the good results and then also the transaction with Novelis this year asset. I thought that was one of the first times you've seen in some time where you really demonstrated the replacement value of the asset portfolio being high. Just interested to see -- to hear your view on whether there are other opportunities like that, or if we should see that as a one-off or you really unlock some value? Jean-Marc Germain No, it's definitely a one-off. I mean, we've got a good portfolio of assets, we like what we have, and we have no plans to sell anything. Karl Blunden Got it. Thanks very much. Jean-Marc Germain Sure.

[Operator:]

And we have a follow-up question from Novid Rassouli with Cowen. Your line is now open. Novid Rassouli Thanks for taking my follow-up. Just on, again on CR, I just want to see what prompted the transaction to come about? Jean-Marc Germain Yes. So maybe -- I think I'll give you a lengthy answer to your question, if you bear with me. So if you step back and look at the history, the CR asset was owned by Alcan as a result of its acquisition of Alusuisse back in 2000, I guess. When Alcan decided to spin-off Novelis early in 2004, they had to decide which assets would stay with Alcan, which ones would stay with Novelis. And CR was one of those assets, so you got -- actually it's a very integrated plant with very different businesses and assets on that site. So decision was made to partition the site into Novelis site and what would become a Constellium site. And the legal arrangement to do that was a long-term lease at the time. So now we're 15 years nearly after the original decision, we do, I mean I think the people who divides the scheme back in 2004 knew that at some point a permanent solution would need to be found, but in the haste of spinning off Novelis, they didn't set for the permanent solution at the time. So we have found a permanent solution now with Novelis that gives certainty for both parties as opposed to the uncertainties that come with the lease, you know, at some point the lease gets renewed, doesn't get renewed, doesn't fit, that's all different set of pressures. So I think we end up with a very solid transaction from our standpoint. I think it's a win-win. I mean it achieves -- it allows Novelis to own the assets that they have been using for the past 15 years or so, and to continue their -- whatever strategies they have from these assets. And us, it doesn't impact at all our operations, and it brings financial benefit in the form of substantial payments that goes towards de-leveraging. So I think it's a win-win. Again, it's not -- it's still subject to customary closing conditions. So we're very hopeful it's going to close obviously, but we don't have the money yet. Novid Rassouli Thanks for the thorough explanation, Jean-Marc, I appreciate it. Jean-Marc Germain Sure.

[Operator:]

And you have a follow-up question from Piyush Sood with Morgan Stanley. Your line is now open. Piyush Sood Thanks for taking the follow-up. Could you talk about the weaker mix in packaging that you talked? Jean-Marc Germain The weaker mix in packaging? Sorry, can you repeat the question? Piyush Sood The weaker packaging price and mix that you talked in the quarter, but just want to understand the -- I know what's driving it and what geographies that originating from? Jean-Marc Germain Yes. I mean, it's a reasonably modest price, but we've said that we had a bit of pricing and working capital tension in packaging, and you're seeing some of that happen in the quarter, but nothing drastic. Peter Matt And it's not indicative of anything that we are looking at going forward. Piyush Sood That's it. Thank you.

[Operator:]

We have a follow-up question from Sean Wondrack with Deutsche Bank. Your line is now open. Sean Wondrack Just real quickly, just for clarification, is there any EBITDA loss associated with the asset sale, or is it just nominal? Jean-Marc Germain There is no EBITDA loss whatsoever. So we're losing the lease payments that we hadn't disclosed, nobody has disclosed, so I can say it is about €5 million, but that was in free cash flow, that was in EBITDA. Peter Matt Sean, that goes through the kind of other investing line. And so, it does not impact EBITDA. Sean Wondrack Okay, thank you very much and good luck. Peter Matt Thank you.

[Operator:]

We have a follow-up question from Karl Blunden with Goldman Sachs. Your line is now open. Karl Blunden Just on the commentary about not losing any EBITDA and the prior one about not seeing lot of asset sales in the portfolio, when you take a look at your guidance for EBITDA growth, the 500 starts looking pretty conservative. Are there any risk factors that you're still looking at before you might think about revisiting that, or am I misinterpreting how conservative that number looks at this point? Jean-Marc Germain Karl, it's fair question. We want to stick with what we have, and 2020 is still a three Full-Years away, right, '18, '19, '20. We are now -- I think we completed a lot -- we have completed a substantial part of the healing, and we got a lot of activities underway to continue to heal the balance sheet. Within the company, we're going to be looking at our strategies over the next horizon, long-term horizon, we will be working on this year, and sometime towards the end of this year, I expect that will come back with revised strategies, targets, guidance. And that's when we will be able to answer your question articulately. And again, at the same time, this could be a time that between now and then, so we want to stick with what we have declared so far. Karl Blunden It makes sense. Thanks for taking the follow-up. Peter Matt Sure.

[Operator:]

And I'm kind of showing no further questions. I would now like to turn the call back over to Jean-Marc Germain for any further remarks.

[Jean-Marc Germain:]

Thank you very much, operator. Thank you everyone again for your interest in Constellium. As you see, we are very focused on the execution of our strategy, and we look forward to reporting on Q1 some time in late April. Until then, have a good day.

[Operator:]

Ladies and gentlemen, thank you for participating in today's conference. You may now disconnect. Everyone have a great day.