Constellium SE
Q2 2015 Earnings Call Transcript

Published: 8 Aug 2015

[Operator:]

Good day, and welcome to the Constellium Q2 2015 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Paul Blalock, Head of U.S. Investor Relations. Please go ahead, sir.

[Paul Blalock:]

Thank you, Denise. Good day everyone and welcome to Constellium’s second quarter 2015 earnings call. On the call today is our Chief Executive Officer, A - Pierre Vareille; Chief Financial Officer, A - Didier Fontaine. And 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 under the meaning of the Private Securities Litigation Reform Act and such statements include statements regarding the company’s anticipated financial and operating performance, future events and expectations, 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 publicly update or revise any forward-looking statements as a result of new information, future events or otherwise, except as required by law. In addition, today’s presentation includes information regarding certain non-GAAP financial measures. Please see the reconciliations of non-GAAP financial measures included in today’s slide presentation which supplement our IFRS disclosures. I would now like to hand the call over to A - Pierre Vareille, our Chief Executive Officer.

[Pierre Vareille:]

Thank you, Paul. Thank you all for joining us today. During the second quarter Constellium shipped 386,000 metric tons, representing an increase of 38% compared to one year ago. Revenue was €1.375 billion, representing an increase of 49% over last year. Adjusted EBITDA was €93 million, including €19 million from Muscle Shoals, after adjusting for the negative impact of decrease in Midwest premiums. Overall, second quarter results achieved record adjusted EBITDA in the AS&I segment, better than anticipated results in the A&T segment, and the record shipments and adjusted EBITDA in the P&ARP segment. At Muscle Shoals, the operational integration process is going well. And we are still working some metal management issues which we expect to resolve by year-end. I will discuss this in greater detail in a few moments. Adjusted free cash flow of €72 million was robust this quarter, driven by substantial progress in registering inventory at Muscle Shoals. And we continue to have ample liquidity at €690 million. In addition, demand remains strong in all of our targeted markets. Turning now to slide number six, I would like to update you on Muscle Shoals. Shipments were 111 kt in the quarter and 231 kt for the first half of 2015. In revenue, Muscle Shoals posted €308 million for the quarter and €667 million for the first half of the year. We generated €19 million in adjusted EBITDA for the second quarter and €44 million year-to-date, excluding the impact of the unprecedented decline in Midwest premiums. As I mentioned earlier, operational integration at Muscle Shoals is progressing well, but we still have some work to do in metal management. Lastly, we are generating cash ahead of plan by reducing inventory levels, which declined over 20% during second quarter. However, the decline in premiums exposed the contractual limitations of the premium pass-through mechanism at Muscle Shoals. This impact was €19 million in second quarter and €20 million in the first half of 2015 and was excluded from our adjusted EBITDA. We are making good progress in resolving this premium pass-through issue. Also, the reduction in inventory levels, when combined with existing [indiscernible] purchase commitments, resulted in a suboptimal metal supply mix. We expect all of these issues to be fully resolved by the end of 2015. On slide number seven, shipment volumes at Muscle Shoals are on track for about 450 kt in 2015, up 12% from the 401 kt shipped in 2014. We expect the second half of 2015 to be slightly softer due to typical seasonality, as well as the benefit of additional volumes shipped in the first half due to competitor outage in January. We also expect a less favorable product mix to negatively impact second half of the year. On cost synergies, we originally communicated a target of target $25 million to $30 million over three years. And I’m pleased to report that we’re on plan as we have achieved $6 million in the first half of the year and expect to achieve $12 million for the full year. Taking all of this into account, we now expect adjusted EBITDA from Muscle Shoals to be between €60 million and €75 million in 2015. At the end of 2015, Muscle Shoals would be fully integrated and we expect substantial improvement in adjusted EBITDA from our P&ARP segment in 2015, as we continue to implement our long-term strategy. Turning now to slide number eight, total P&ARP shipments of 268,000 metric tons increased 62% compared to last year. It was mainly driven by additional volume from Muscle Shoals. In Europe, automotive rolled product shipments increased 18% in the quarter, reaching 44 kt in the first half of 2015 compared with H1 2014. In the U.S., our packaging shipment from Muscle Shoals were strong whereas in Europe we have slightly reduced shipments compared with last year. During the quarter, we announced our decision to add a second finishing line in the U.S. due to strong customer demand. Our plant expansion in Neuf-Brisach and Bowling Green are on schedule and expected to commence ramp up by mid-016. Lastly, mid and long-term market projections for the development of Body-in-White remain strong. Turning now to slide number nine, the A&T segment continues to have solid demand with the majority of our aerospace business contracting on long-term basis. Shipments were 63,000 tons, up 1% from last year. Our recovery plans are proceeding well with the new pusher furnace in Ravenswood on schedule for ramp up in 2016. For the second half of the year, business is expecting to be softer due to seasonal customer shut downs. We also see slower long-term growth in demand for AIRWARE. We did not expect this to have any impact on our expected results for AIRWARE in 2015 and 2016. Our second casthouse is quickly ramping up and it’s fully contracted, but we have decided to postpone the third casthouse originally scheduled to be fully operational in 2017. Turning to slide number 10 and the AS&I segment. The customer demand in the Automotive Structures market remains strong while the Industry markets remains competitive. During the quarter, total shipments grew 7% as compared with last year to 57,000 metric tons. And we continue to add new capacity to keep up with the growing demand for automotive solutions. The first half of 2015, automotive extruded product shipments grew 16% to 51 kt as compared with the first half of 2014. Overall, the AS&I segment had weaker performance in second quarter. The $40 million plant expansion in Van Buren, Michigan was commissioned in April. This is where we make high-strength structural parts for the bestselling Ford F-150 as well as our old OEM customers. And our plant expansion in Gottmadingen, Germany and in Changchun, China are now complete. I will now hand over the call to Didier to review our financial results.

[Didier Fontaine:]

Thank you, Pierre. And welcome, everyone. On slide 12, we thought it might be helpful for you to see our Q2 2015 segment adjusted EBITDA compared to last year. As Pierre has already mentioned it, the most notable element here is inclusion of Muscle Shoals. We drove P&ARP adjusted EBITDA higher by about €17 million. When you move to the next slide, the slide 13, you can see our segment performance as compared to the second quarter of last year. Starting with P&ARP, adjusted EBITDA increased 49% to €53 million, however, adjusted EBITDA per ton decreased by 8% to €201 per ton primarily due to Muscle Shoals. A&T adjusted EBITDA was €30 million and adjusted EBITDA per ton was €170, [ph] slightly better than the communicated plan and a reflection of a stronger product mix. In AS&I, adjusted EBITDA increased €2 million or 9% to record €22 million. Adjusted EBITDA per ton improved 2% to reach €380 per ton despite soft economic conditions in the industry. We continue to experience strong double-digit growth in automotive sector. Right now we are turning to slide 14, on the cash flow. You will see that our Q2 2015 adjusted free cash flow as is compared with last year. Cash flow from operating activities improved by €101 million as compared with last year to reach €151 million. This significant improvement was driven by strong working capital reduction. Capital expenditures increased to €79 million and we remain on target to spend close to €200 million in 2015. Therefore, the significant improvement in operating cash flow more than offset increase in capital expenditures, which led to a strong performance in adjusted free cash flow. Now we move into slide 15. For the last two years, our relentless focus on reducing net trade working capital is continuing to pay off. With the addition of Muscle Shoals, our net trade working capital moved higher and is providing significant room for future improvement. At the time of the acquisition, we said that we expected to reduce inventory in Muscle Shoals to generate more than $17 million in cash. I’m pleased to report that our efforts have already enabled us to decrease inventory by more than 20% in Q2. As you can see, we reduced DSOs by nine days this quarter for the whole company. Now, when we come to the liquidity on slide 16, you can see that net debt and leverage slightly improved due to an increase in cash and positive FX. Overall, we have €690 million of liquidity, which is in line with first quarter levels despite greater capital spending in Q2, which was consistent with our previously announced growth projects. This liquidity consists of €369 million of cash and €321 million available under our facilities. I will now turn the call back to Pierre.

[Pierre Vareille:]

Thank you, Didier. In summary, Constellium had a good quarter with shipments, revenue and adjusted EBITDA growing 38%, 49% and 16% respectively. We had record performance in AS&I, better than anticipated results in A&T, and record shipments and adjusted EBITDA P&ARP. In addition, demand remains strong in all packaging markets. Muscle Shoals will be fully integrated by the end of this year. And we expect to overcome the headwinds we are currently experiencing. In 2016, we expect substantial improvement in adjusted EBITDA for the P&ARP segment. Finally, due to our robust working capital management, our liquidity remains strong and allows us to securely execute our long-term strategy. I would now like to take the opportunity to invite you to come to Muscle Shoals on October 1st to attend a field trip to visit the plant. Our Head of Strategy will also present our automotive market perspectives and Constellium’s product offering. Additionally, our Chief Technology Officer will discuss developments to increase our Body-in-White production capacity in the U.S. and in Europe. We really look forward to seeing you in Muscle Shoals. And for more details, please visit our website. Thank you very much for listening today and for interest in Constellium. Operator, we’ll now open up the lines for questions.

[Operator:]

We will now begin the question-and-answer session. [Operator Instructions] We have a question from Matt Vittorioso from Barclays. Please go ahead.

[Matt Vittorioso:]

Just with regard to Muscle Shoals and the premium issue, are you renegotiating contracts or are these contracts coming to expiration and then you’re reinstating contracts under the sort of normal Constellium terms; how is that functioning?

[Pierre Vareille:]

Both. We are renegotiating contracts with customer to make sure that we don’t suffer the lag anymore. And we are negotiating with suppliers and anyway the contracts with our suppliers are expiring by the end of the year.

[Matt Vittorioso:]

And is the packaging market tight enough such that customers are willing to change terms of an existing contract before its expiration?

[Pierre Vareille:]

Yes, we have already achieved that we with our two largest customers.

[Matt Vittorioso:]

And then I guess I’m trying to understand how we should think about modeling in Aerospace and Transportation. I think at the outset of the year, you guys had talked about I think €70 million or so of EBITDA and EBITDA per ton approaching $300. So, in the first quarter, we had a pretty meaningful impact from currency. But if you stripped out currency, you kind of got back to that $300 a ton. In the second quarter, you again easily exceeded that profitability metric. And even if I strip out currency, you still seem to have a pretty good quarter from an EBITDA per ton perspective. Has the outlook for that segment changed at all, or how should we think about that?

[Didier Fontaine:]

The first point is which I would like to make is I’m not sure why you should strip out the effect of currency. It reflects the positive impact of the fact that the dollar has strengthened. Now, what I could say that we’re tracking well to meet or beat the figure which you just mentioned.

[Matt Vittorioso:]

Right, because the $70 million target, if I heard that correctly at the outset, you’re well on your way. Are we supposed to anticipate a significantly weaker second half, is there anything that would cause that to be that much weaker or should we just take your statement there that you’re on target to meet or easily exceed?

[Pierre Vareille:]

It’s €70 million and again, we are -- let’s say that we are pretty optimistic. Let’s put it that way.

[Matt Vittorioso:]

Last question from me just on the capital structure. Obviously Muscle Shoals is struggling a bit with managing the metal premiums, but the outlook there still seems pretty positive, certainly for 2016. How do you think about your capital structure with bonds still sitting down there at the subsidiary with fairly high coupons and a requirement to file separate financials, et cetera; I mean what are your stated plans for those bonds?

[Pierre Vareille:]

Our options are open. I think it’s much too early to see what we are going to do. The only point I would want to make is that when we look at the free cash flow, which we generated in one quarter, I think it answers a certain number of questions.

[Operator:]

Our next question is from Michael Gambardella from JP Morgan. Please go ahead.

[Michael Gambardella:]

Just a follow-up to the Muscle Shoals contract. Can you tell us how they are different than the heritage Constellium contract? And what you knew or didn’t know about those contracts when you originally had given guidance for Muscle Shoals of €140 million? And then just finally, if you could kind of get us back from €140 million to where your current guidance is for Muscle Shoals, the major components including the premiums?

[Pierre Vareille:]

If you look at the evolution of the premium since many, many years, it was very, very stable and very low. And suddenly, in a few weeks, I should say days, it dropped like a stone. And frankly, it’s something which is unprecedented. And I think it took everyone in the industry, and not only Constellium, by surprise. As far as Europe is concerned, the premium was -- it was a full price [ph] in premium, that’s always been the case. In the U.S., there is a lag of two months between the time when you buy the premium, the metal and the time when you sell it. This lag normally with the premium being low and stable; doesn’t have any effect on the EBITDA. It’s below the radar, so to say. And suddenly we have something which never happened before; premium has been really dropping like a stone. And I think that nobody was surprised to -- and everybody had those issues and I mean everybody in the industry, and it was the same for everyone. Now to be more specific, Didier?

[Didier Fontaine:]

I think when we look at our packaging business in Europe and globally the company, the company is on the pass-through -- full pass-through basis almost 70%, which was not the case at Muscle Shoals; it was totally exposed to what Pierre was saying, a buys plus premium and sells plus premium with two months of lag. So that’s what we’re renegotiating with customers, to be able to go through a pass-through.

[Michael Gambardella:]

Will you -- was Wise hedging at all before the closing?

[Pierre Vareille:]

Wise was not hedging the premium because the market is not keeping up and very, very thin. And the difference between the [indiscernible] is very strong.

[Didier Fontaine:]

Nobody was hedging the premium.

[Michael Gambardella:]

And again, in terms of your original guidance of $140 million compared to where you are now, could you kind of get us back there, what are the major moving parts of that?

[Didier Fontaine:]

So, what you have to do is to reconstruct all the metal management issues which we mentioned. And then what we’ve said is that it would be essentially higher in 2016. So, at these standards where we’d like to leave it, what we know that next year there will be more volumes than this year because most of 2016 is already contracted.

[Michael Gambardella:]

And you mentioned the extra volume in the quarter to a customer, was that -- given the premium situation, did that just enhance the loss there?

[Pierre Vareille:]

Yes, that’s correct for Q1 where we benefited from the competitor outage.

[Operator:]

And our next question comes from Matt Murphy from UBS. Please go ahead.

[Matt Murphy:]

Just wanted to clarify, so for Muscle Shoals, the 19 million adjusted EBITDA takes out the impact of premiums. So, am I reading it right that with premiums included, it would have been breakeven from an EBITDA perspective in Q2?

[Didier Fontaine:]

That’s correct.

[Matt Murphy:]

And then in the guidance, 60 million to 75 million, that’s also adjusted for premiums?

[Didier Fontaine:]

That’s correct.

[Matt Murphy:]

So, if there were no premium changes in the second half that would mean like 40 million to 55 million as unadjusted number?

[Didier Fontaine:]

I don’t follow you on that number. Can you explain your question?

[Matt Murphy:]

If you got 20 million in premiums in the first half and then I just deduct that from the adjusted EBITDA guidance, the 60 million minus 20 million is 40 million on the low end?

[Didier Fontaine:]

What we’re seeing is that we do not expect an adjustment from premium to second half but will it be, it will be excluded anyway and we’re expecting 16 million to 31 million in addition to the 19 million and the 25 million for the first half. So, 44 million for the first half and the range between 16 million and 31 million for the second half, excluding the premium impact.

[Matt Murphy:]

I’m just wondering what is going on at Muscle Shoals outside of premiums? I mean you mentioned a less favorable product mix. What is that actually and how much does that account for the drop in guidance?

[Pierre Vareille:]

We are mentioning the premium because we have adjusted EBITDA with the effect of the premium. But we did not adjust EBITDA with many other metal management issues. Let me just give you an example. We have reduced our inventory considerably as you know. As a consequence of that, our supply mix, metal mix is not favorable to us because we are obliged by the contracts which we signed for the year to buy a certain amount of slag [ph] which is expansive raw material and because reduced inventory, we couldn’t have the opportunity to buy scrap and UBCs, which would have lowered considerably because of the metal which we put in our products. So, it’s a significant effect which is due to the reduction of working capital, which we then take into consideration. And we have a certain number of other issues like that on metal management. And all of these issues are being tackled by our teams since actually a few months already. And we expect all these issues to be resolved by the end of the year.

[Didier Fontaine:]

Actually as just said, we over-contracted slabs, we over-contracted scrap and we under-contracted UBC purchases because of not only it was miss-forecast at the beginning by the company and after a very brutal and sudden drop in our inventory has just pushed that to lead to one further limit.

[Matt Murphy:]

And then I guess if you talk about this being done by the end of the year and I think you said a substantial improvement in 2016, can you be any more clear on that in terms of like your initial estimates had implied something more than $140 million, is that still possible in your view?

[Pierre Vareille:]

I think we are -- next year, I think we’re looking at one big pop with one-off integration. So one would say significant improvement is not only Muscle Shoals, but the total P&ARP as well, P&ARP segment. So, it would be part of it.

[Operator:]

And our next question comes from Brett Levy from CRT Capital. Please go ahead.

[Brett Levy:]

Adjusted for the Midwest premium issues, actually pretty good quarter, can you guys talk about working capital outlook for the second half of the year? And then obviously with sort of delaying the third casting line and that sort of thing, you said I think €400 million in CapEx in 2015. Can you talk about kind of what you see in 2016 and 2017 and what the big components of that would be given your plans? I mean I believe the entire Muscle Shoals expansion is 700 million. If it is possible to go a little further out in 2015 and then also talk about working capital for the back half of the current year?

[Pierre Vareille:]

As far as 2015 is concerned, we are really marked €400 million of CapEx as certainly communicated. And the [indiscernible] part of it. As far as 2016 and 2017 are concerned, we gave figures which we can confirm, which are €450 million in 2016 and €350 million in 2017. So, we stick by the figures and again these are max of course, because we want to be on the positive side.

[Brett Levy:]

And then on the working capital front for the back half of the year?

[Didier Fontaine:]

I think we are committed to improve, continue to work on improving the working capital. Muscle Shoals has improved dramatically its working capital by reducing it by 14 days compared to Q1 2015. I think we will continue to work. I think compared to the rest of Constellium, there’s still room to maneuver, there is probably five days to six days of DSO to begin over there.

[Pierre Vareille:]

I think that we have launched this program in Constellium three years ago; you’ve seen what we have been able to do on working capital. And we are starting the program, the same program in Muscle Shoals and yes, we have ample room to maneuver.

[Brett Levy:]

And then I think when you guys made the acquisition, you had sort of kind of a bold plan to take EBITDA from the LTM level from less than €100 million to close to €300 million I believe by 2025. As you kind of look at the track for that and what you’re hearing from the customers, the F-150 was obviously a good announcement. My sense is that most of the big announcements are 2017. But can you give a little bit of color as to what you’re hearing from your automotive customers in terms of the transformation of automotive sheet into -- from still to aluminum in any particular place or with any particular example?

[Pierre Vareille:]

There is absolutely no change to what we said in the last two years and which and all the market projections to be continue to be very strong. And we know that we will use this capacity very rich. As we explained before F-150 did indeed really have revolutionary switch from still to aluminum and that we don’t see the industry to make some kind of revolution. But we see all the OEMs including those who are making commercials about steel, being -- having an revolutionary tactic, meaning that they are all looking at looking some parts can be the roof, can be the fenders, can be the doors, can be hood, in aluminum. So, if you look at the structure of the market, F-150, big chunk, one-time, that what contracts which we get and somehow all OEMs with much more amounts. And so far, the projections are exactly where we were two years ago and frankly, if you look at the acquisition of Wise Metals, which of course as acquire Wise Metal for the 2015 figures, we always said that it was part of our strategy to tap into the huge markets of Body-in-White in U.S. And I continue to think that the switch from steel to aluminum in the U.S. market will be constrained by the capacity of the industry to meet capacity to deal with the market. The interesting point on top of it is that the same is happening now in Europe, meaning that in Europe the market, we felt the market was more mature, so we are a little more cautious. And I can tell you that the demand from the OEM in Europe is also accelerating.

[Brett Levy:]

And then last question, I see that you guys are really committed to kind of organic growth and kind of the build model. It strikes me that probably Aleris is an asset that’s up for sale at some point, just based on who owns it. They are expanding into automotive in Kentucky. Are you guys out of the M&A business for a while or are you remaining opportunistic?

[Pierre Vareille:]

First, I would not want to comment about our competitors being up for sale or not and so on. As far as consolidation in the market is concerned, there is the antitrust regulations make them make it more and more difficult as we already said. And lastly, exactly as you said, you perfectly are correct; we are more looking at organic growth. We are investing on the market, which we are very excited about. And every month we are little more excited because of the news which we get. And if you look at the profile of our CapEx, I think it will keep us happy for a few quarters.

[Operator:]

Our next question is from Josh Sullivan from Sterne CRT. Please go ahead.

[Josh Sullivan:]

Can you update us on the backlog of contracts for the second BiW finishing lines, as well as any thoughts on whether or not you will JV that facility as well?

[Pierre Vareille:]

You mean the second finishing line in the U.S.?

[Josh Sullivan:]

Yes.

[Pierre Vareille:]

Yes, we are accommodating orders regularly. And the line will be full before we can ramp up it fully completely. The question is now and as part of the $750 million which you mentioned is when we decide to launch the third line? So, it has always been to be fully ramped up by 2021. So for the time being, we are sticking with this. But of course, we have ample time to accelerate if needed.

[Josh Sullivan:]

And I think in the past you’ve given us some information just on the backlog that how much capacity was, reduced up at this point. I mean is there an increase or incremental there?

[Pierre Vareille:]

Do you mean for the Body-in-White?

[Josh Sullivan:]

Yes.

[Pierre Vareille:]

I thought that we responded to that. The first line is fully committed since a longtime, the second line, we are not announcing -- we announced the second line in April, when the first line was committed and over. And we are continuing to get orders to fill the second line. And as I said, the second line will be filled much before we stop the ramp up.

[Josh Sullivan:]

And then just secondly on the Ravenswood pusher, do you guys anticipate that the capacity is going to allow you guys to get more into the spot market than you have in the past?

[Pierre Vareille:]

Yes, that’s the goal.

[Josh Sullivan:]

Any way to quantify that or?

[Pierre Vareille:]

At this stage, it’s too early talking. We are launching marketing program to -- because we expand our capacity, the demand from the market is strong. But I must remind you that this CapEx was also to restore our own liquidity issues and concerns. So, the increase of capacity will not encompass the old capacity expansion, that’s not what we are looking for.

[Josh Sullivan:]

Okay, thank you.

[Pierre Vareille:]

By the way, I would like to add something because -- and thank you for asking the question. Something which has changed dramatically in our company is -- and which is exactly the program, which we launched a few months ago at A&T, but which has also I would say category [ph] to the other business unit. We have improved incredibly their performance and quality. And remember that when we explained the issues which we had with A&T, we said that on-time delivery and operating issues or operating extra cost, extra difficulties with customers and so on. And frankly, I’m very proud of the team because in a few months, in less than one year, we are now at the, I think, I dare say, the benchmark in the industry as far as on-time delivery and quality is concerned in the aerospace. And of course, it is very important for the market share and so on.

[Operator:]

And our next question is from Timothy Chen from National Alliance. Please go ahead, sir.

[Unidentified Analyst:]

My question has been answered already. Thank you.

[Operator:]

And we have a question from Matthew Fields from Bank of America Merrill Lynch.

[Matthew Fields:]

I just wanted to follow up on the contracts on the Muscle Shoals again. It was always sort of in my mind that the fast, the rapid drop in the premiums was a hit to results because there is a two-month lag from when you buy it to when you can ship it out. But it’s always been my understanding that once the premiums have settled, and it looks like they’ve been pretty steady the last couple months, that problem shouldn’t be there anymore. Why -- and you had a sentence in your release this morning that you said these issues are expected to extend until the end of the year. Is there something else going on there with the premiums and sort of negative FX?

[Didier Fontaine:]

Actually we were not commenting on the metal premium because you’re right, this is pretty stabilized with for time being, this is not part of a range. I think we were essentially talking about metal procurement issues. As we stated, the company has in the past over-contracted slabs, over-contracted swaps and we have a backlog for plus material in Q1 and Q2, but when that [indiscernible] for variable prices in the current market. So this is what we call unfavorable procurement issues. And this is yearly contract and this is what planned to be fixed by year-end.

[Matthew Fields:]

Are the scrap and the UBCs that you’re buying, and remind me if this is not correct, but about 70% or two-thirds of your feedstock should be recycled aluminum; is this being priced relatively the same to prime or is there a different dynamic in that market?

[Pierre Vareille:]

It’s changing all the times, to be frank. So we would not like to give any figure on this. The figure which you’re saying -- giving is probably on the low range of what we have in mind.

[Matthew Fields:]

And then just a little housekeeping. Did you send any more cash down to Wise in the second quarter on top of the $90 million or so that you sent in the first quarter?

[Didier Fontaine:]

Yes, we did send because of the Wise bonds. Any cash inflow and we are investing to the Muscle Shoals as you know to transform project that’s been there to be done not locally put up for injection.

[Matthew Fields:]

Can you give us an idea of how much you sent down in the second quarter?

[Didier Fontaine:]

20 million to 30 million.

[Matthew Fields:]

And then sort of lastly, you’re obviously contracting volumes on your Body-in-White lines and thanks for the color there. On the pricing and expected revenue that you are sort of talking about with your future auto customers, do you feel like you’re still heading the threshold for margins or return expectations on the CapEx that you’re investing?

[Pierre Vareille:]

Yes, very much so. Again, we are in an industry where there is the offer is lower than the demand.

[Matthew Fields:]

And then if numbers sort don’t get better or continue to disappoint in the future, do you see the ability to maybe divert volume to Bowling Green or build a second line in Bowling Green in an effort to spend less CapEx and protect the balance sheet or is it sort of a foregone conclusion that that second line will be at Wise?

[Pierre Vareille:]

No, we didn’t say that the second line would be Muscle Shoals, but frankly it doesn’t make any difference because it’s exactly the same in one location or user, it’s more about the customers and the optimization and so on. And of course the answer is that we have flexibility in CapEx if necessary. But frankly, as with the liquidity which we have, the way are heading about -- with our liquidity, we don’t think we need a flexibility in our CapEx now.

[Operator:]

And our next question is from David Gagliano from BMO Capital Markets.

[David Gagliano:]

I just had a couple of clarification questions. First of all, in the A&T segment, given where currencies are today, assuming that currencies don’t change, how should we be thinking now about the margins per ton for the rest of 2015 and into ‘16? I didn’t quite get the answer to the previous question.

[Didier Fontaine:]

We benefitted from a very good product mix in aerospace in the first half of the year, especially on proprietary alloys. We do not believe that this will continue in the second half. So, we are sticking to our guidance which was on EBITDA of 200 million to 250 million, we’re probably on the upper end of it today. But clearly we think that we’re running today over 250 million. We think that because it was exceptional -- I would exceptional circumstances on the product mix.

[David Gagliano:]

Okay. So, just…

[Didier Fontaine:]

We are sticking to our guidance between 200 million to 250 million.

[David Gagliano:]

On a margin per ton basis then, obviously you’re implying down second half versus first half. And then into 2016, again, if currency stays flat, should we be assuming -- how should we be thinking about margins per ton in 2016 in the A&T segment?

[Didier Fontaine:]

What we say that the margin per ton will increase because we were targeting to have an EBITDA might turn over 80 million -- sorry an EBITDA of 80 million compared to this year. So, I think the reason why we’re sticking to forecast. So, we’re 100 to 150 this year including in 2015 and clearly as we’re on the more favorable trend, and the recovery rate is bit faster, we are little bit more bullish for 2016.

[David Gagliano:]

And then my second question regarding the Muscle Shoals, original guidance obviously isn’t going to happen for 2015. But I’m wondering once you work through all of the procurement issues in 2016, are you still on pace, do you think -- I believe the original number $140 million for Wise?

[Pierre Vareille:]

I think we already answered the question a few minutes ago. So, I’ll repeat what I said. In 2016, the volumes will increase significantly compared to 2015. The vast majority of these volumes are already contracted. In ‘16, we will not give guidance for Muscle Shoals because we are reporting only one segment, which is P&ARP total as we started to do here. And we consider as we said that the integration will be fully complete by the end of the year. But yes, that will be substantially higher in Muscle Shoals and for the whole of the segment in 2016.

[Operator:]

And our next question is from [indiscernible].

[Unidentified Analyst:]

Just a question on the metal premiums for Constellium itself, because I remember you guided before the EBITDA for Constellium itself has been impacted by 23 million last year because of the incremental premium and do you expect that you could have a benefit from the decline of metal premium, starting from second quarter. Can I ask did we see that benefit or going forward, are we going to see that benefit?

[Didier Fontaine:]

So you’re right, in the 23 million last year. For the time being, this quarter, Q2 was balanced with a zero impact, essentially because we have a lag between the tons going to the market and the premium decline; for the second half, we expect between 10 million and 12 million positive and impact.

[Unidentified Analyst:]

According to the recent huge decline of aluminum price, I know you’re almost fully pass-through your cost to your customers. Can I just -- and I see the COGs of this quarter as a percentage of revenue increased year-over-year. Is that all only because of depreciation or did you see any positive impact for COGs because of the aluminum price dropping?

[Didier Fontaine:]

On COGs what you have seen is the depreciation increase and clearly the impact of the impairment we mentioned in the press release. And then probably COGs should decrease with the decrease of the LME.

[Unidentified Analyst:]

So you would actually expect to benefit from the current metal price action?

[Didier Fontaine:]

No, we are currently [indiscernible] get the LME, whether it’s going up or down [indiscernible] So on the bottom-line, in fact this is neutral to us. It will change big aggregates, it will reduce our revenue, reduce accordingly COGs. [Ph]

[Operator:]

And our next question is from Jessica Idiculla from Citi.

[Brian Yu:]

It’s actually Brian Yu from Citi. I’ve got a question. So earlier you made comments that in terms of the inputs into U.S., the slabs, scrap and then UBC. If I’m looking at the market price is correct, if I add the LME aluminum price plus the Midwest merchant premium, it equated to the U.S. scrap price fairly well. The differential started to blowout in May and June where the scrap in U.S. seems to be much more expensive, more as of last week that differential is now $0.10 per pound. Does that in any way impact your margins in the U.S. or even though there are such differences to input costs, are you able to pass all that onto your customers?

[Pierre Vareille:]

Actually we are contracted since the end of 2014 on some commitment. So, whether we need more or less scrap, is it irrelevant, [ph] we need to buy it and we need to buy it at the time it was supposedly priced, so Q1 or Q2. So today it is going down, you still have to buy at Q1 or Q2 pricing, so this is affecting our margin, clearly.

[Brian Yu:]

So in terms of the way the contracts work, you’re able to pass on the LME plus the merchant or the regional premiums with a lag, but if scrap prices in U.S. don’t come down in line that will be a margin headwind, that’s not something that you could pass on the higher scrap price.

[Pierre Vareille:]

That’s correct.

[Brian Yu:]

And what portion of the metal lag, the procurement -- how much was that in the quarter, dollar impact? Is that something that you could quantify, just related to scrap versus LME and merchant premium differentials?

[Pierre Vareille:]

I think we are looking at something around $10 million to $12 million.

[Operator:]

And our final question for today will come from Paretosh Misra from Morgan Stanley.

[Paretosh Misra:]

At Muscle Shoals, what is your current maximum capacity to make packaging material?

[Pierre Vareille:]

It’s significantly above 1 billion pounds, but of course part which is 450,000 and more than 450,000 ton. And I’m sorry I am always confused between the pound and ton. So, in metric tons, the capacity of the plant is between 450 kt and 500 kt. And as you know, part of the transform program is also to increase the capacity of this plant.

[Paretosh Misra:]

And this year you’re looking to run at about 450,000 tons, right?

[Pierre Vareille:]

You are correct, exactly.

[Paretosh Misra:]

And your packaging business in Europe, does it generate a higher EBITDA per ton than what you’re currently generating at Muscle Shoals if you exclude this short-term impact of falling premiums?

[Didier Fontaine:]

Actually the EBITDA per ton of P&ARP Europe it can be higher [ph] than the Muscle Shoals today.

[Paretosh Misra:]

I’m sorry; it’s already higher than in Europe?

[Didier Fontaine:]

No, today, because of the progress we are seeing in Muscle Shoals, the EBITDA per ton of Muscle Shoals is lower than P&ARP Europe.

[Paretosh Misra:]

And how much, is it like €100 per ton and or €50?

[Didier Fontaine:]

No, it is probably about €30 to €40 per ton below.

[Paretosh Misra:]

And the last question, you’re bringing on two new Body-in-White lines next year, and you have some incremental volume also likely from Singen. So what incremental Body-in-White volumes you expect next year because clearly there’ll be some ramp up?

[Pierre Vareille:]

The total the capacity, which we are bringing to the market is -- so we have 60,000 already in Neuf-Brisach; we are adding 20,000 tons in Singen, exactly as you said, which is currently being ramping up, and in 2016 it will be close to the maximum ramp up. As far as the second line is concerned, we don’t think it will start to -- actually the first coil we’ll be produced on 29th of April to be very precise, and we start the ramp up immediately. So in 2016, the production will be marginal. You could say that in 2017 for first line will be at half of the production and full speed in 2018.

[Operator:]

And ladies and gentlemen, this will conclude our question-and-answer session as well as our call for today. We thank you for attending today’s presentation. You may now disconnect your lines.