Presentation:.

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..

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..

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..

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..

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 Instructions] And our first question is from Curt Woodworth with Credit Suisse. Your line is now open..

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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..

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..

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