Good day, ladies and gentlemen. And welcome to Constellium first quarter 2018 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 be given at that time. [Operator Instructions]. As a reminder, this conference may be recorded.

I would now like to turn the conference over to our host for today, Ryan Wentling, Head of Investor Relations. You may begin..

Thank you, operator. I would like to welcome everyone to our first quarter 2018 earnings call. On the call today are our Chief Executive Officer, Jean-Marc Germain, and our Chief Financial Officer, Peter Matt. After the presentation, we will have a Q&A session.

A copy of the slide presentation for today's call is available on our website at constellium.com and today's call is being recorded. Before we begin, I'd like to encourage everyone to visit the company's website and take a look at our recent filings.

Today's call may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include statements regarding the company's anticipated financial and operating performance, future events and expectations and may involve known and unknown risks and uncertainties.

For a summary of specific risk factors that could cause results to differ materially from those expressed in the forward-looking statements, please refer to the factors presented under the heading Risk Factors in our annual report on Form 20-F. All information in this presentation is as of the date of the presentation.

We undertake no obligation to update or revise any forward-looking statement as a result of new information, future events or otherwise, except as required by law. In addition, today's presentation includes information regarding certain non-GAAP financial measures.

Please see the reconciliations of non-GAAP financial measures attached in today's slide presentation, which supplement our IFRS disclosures. I would now like to hand the call over to Jean-Marc..

Thanks, Ryan. Good morning, good afternoon, everyone. Thank you for your interest in Constellium. On slide five, you will see some of the highlights from our first quarter performance. Shipments were 338,000 tons. That's up 4% compared to the first quarter of 2017 and included a 24% increase in our automotive shipments.

Our revenue increased 4% to €1.4 billion. This was primarily due to higher shipments and higher metal prices which, as you know, we substantially passed through. Our net loss of €24 million compares to net income of €13 million in the first quarter of last year. Adjusted EBITDA was €117 million. That is up 26% compared to the first quarter of last year.

This is a great result. And I'm pleased that our team was able to build on the momentum from last year, while maintaining our adjusted EBITDA guidance of high single-digit growth in 2018. Net leverage fell to 4.2 times at the end of March. That is down from 5.5 times at the end of the first quarter of last year and 4.4 times at the end of 2017.

I'll remind you that pro forma for the share asset sale, our leverage is expected to fall below four times. We remain committed to further reducing our leverage. Turning to slide six, I'd like to share with you a few additional highlights from the first quarter.

In part, our automotive roll product shipments were up 39% compared to the first quarter of last year. Our CALP line at Neuf-Brisach in France is running well and we continue to expect to ramp up this line through 2019 will full production in 2020.

In the US, as you know, we are finishing an investment program to expand our automotive capacity at Muscle Shoals, Alabama and at Bowling Green, Kentucky. As we have mentioned in each of the last few quarters, the ramp up of Bowling Green has been challenging.

However, we continue to make progress and expect our US automotive program to ramp up through 2019 with full production in 2020. Moving now to A&T, the team continued the momentum built last year and delivered another strong quarter.

I would call special attention to our continued success in targeting niche markets within transportation, industry and defense. Our shipments to these end markets grew 15% in the quarter and I believe there is still more we can achieve in penetrating these attractive markets. Now, let's move to AS&I.

AS&I reported strong adjusted EBITDA in the first quarter. The automotive extrusion shipments were up 5% year-over-year, while other extruded shipments were up 11%, both on strong market demand. Our major growth investments in automotive structures remain on track.

Finally, on the corporate side, we increased our project 2019 total run rate cost savings to €25 million as of the end of the first quarter. With that, I will now hand the call over to Peter for further details on our financial performance.

Peter?.

Thank you, Jean-Marc. Turning out to slide eight. You will find the change in adjusted EBITDA by segment for the first quarter of 2018 compared to the same period of last year. For the first quarter of 2018, Constellium achieved €117 million of adjusted EBITDA, an increase of €24 million or 26% year-over-year.

P&ARP adjusted EBITDA of €51 million was €10 million higher than last year. A&T increased adjusted EBITDA by €6 million to €34 million. And AS&I adjusted EBITDA of €36 million increased by €5 million year-over-year. Lastly, holdings in corporate was €3 million lower than last year. We continue to expect H&C costs of approximately €6 million per quarter.

While not on the slide, the net loss for the quarter was €24 million compared to a net income of €13 million in the first quarter. Our net loss for the first quarter of 2018 included a €54 million unrealized loss on derivatives.

I'd note that this is largely the non-cash effect of our metal hedging program and was largely driven by changes in the LME price during the quarter. Now, turning to slide nine, let's focus on the P&ARP segment. Adjusted EBITDA of €51 million increased by €10 million compared to last year.

A 2% increase in shipments drove a €2 million increase in adjusted EBITDA as higher automotive shipments more than offset slightly lower packaging volumes. Price and mix was a tailwind of €12 million. This improvement results primarily from the benefit of the 39% year-over-year increase in automotive roll product shipments.

In addition, we benefited from favorable metal costs in the quarter. Costs increased €3 million compared to last year. Lastly, foreign exchange translation of €3 million was offset by other items, leading to a €1 million headwind during the first quarter. Now, turn to slide 10 and let's focus on the A&T segment.

Adjusted EBITDA increased €6 million to €34 million. Higher volumes drove a €6 million increase in adjusted EBITDA as 15% higher TID shipments more than offset lower aerospace shipments.

Better price and mix drove a €4 million improvement in adjusted EBITDA as we benefited from increased shipments of Airware products and a better TID mix in the quarter. Costs increased €2 million compared to last year. Lastly, foreign exchange translation represented a €2 million headwind during the quarter. Now, turning to slide 11.

Let's focus on the AS&I. Adjusted EBITDA of €36 million increased 16% compared to the first quarter of 2017. Volume drove a €4 million improvement as automotive extruded product shipments increased 5% and other extruded product shipments increased 11%.

Price and mix was a €4 million tailwind in the quarter, with the strong performance by our industry business. And cost was a €3 million headwind compared to the first quarter of 2017. Turning to slide 12, I'd like to touch on the progress we've made in our cash improvement initiative, Project 2019.

You will recall that there are three pillars to Project 2019 – cost reduction, working capital improvement and capital discipline. On cost savings, we achieved an additional €3 million of annual run rate cost savings in the quarter – in the first quarter of 2018, bringing our total run rate to €25 million of savings.

While we have made a lot of progress already, I'm confident that there are significant opportunities remaining. Let me give you an example of a cost reduction initiative we secured in the first quarter. Across Constellium, our procurement team has focused on reducing costs from our service providers.

At one of our major sites, the team focused on renegotiating a contract for dross treatment with an incumbent supplier. In short, dross is a waste byproduct of our process. We redesigned the scope of the work and put the contract out for bid.

As a result of these efforts, we were able to secure approximately €0.5 million of annual savings and improved payment terms. Moving now to working capital, as you'll notice, our working capital performance was seasonally weaker in the first quarter.

We continue to expect higher metal prices and continued startup of several operations to drive working capital growth in 2018. However, we are focused on mitigating this upward pressure and are confident in our ability to improve our working capital turns. With respect to capital spending, we expect to remain at €275 million in 2018.

We believe this level of spending strikes the right balance between maintaining our assets and investing in our future. The majority of the €100 million to €125 million of growth capital spending in 2018 is going to expand our leadership position in our AS&I business where our spending is linked to firm customer commitments.

I want to stress that we remain very focused on capital discipline and that the projects we are investing in come at attractive IRRs and paybacks. Turning to slide 13 and moving on to the balance sheet, our net debt deposition at the end of the first quarter was €1.9 billion.

Leverage continued to decline, falling to 4.2 times at the end of the quarter. This was down from 4.4 times at the end of 2017 and more than a full turn lower than the 5.5 times at the end of the first quarter of last year.

As you can see in our debt summary, we have no bond maturities until 2021 and our 2021 maturity is very manageable at only 0.7 times our LTM adjusted EBITDA. Our cash plus amounts available under our committed facilities was €551 million at the end of the first quarter.

We remain very comfortable with our current liquidity position and our debt profile. I will now hand the call back over to Peter Matt..

Thank you, Peter. Let me share a few end market updates now on page 15. So, I'll start with the automotive market, which, as you know, is a very important growth driver for Constellium and we maintain our positive outlook for this market.

Over the longer term, we remain confident that increased aluminum usage is a secular trend for the automotive market. Aluminum's favorable strength to weight ratio in comparison to steel enables OEMs to lightweight vehicles, thereby increasing fuel efficiency and reducing CO2 and other emissions.

Aluminum also a superior energy absorption as compared to steel. And as I've mentioned before, the electrification of vehicles has significant potential for aluminum. Light-weighting is absolutely critical for electric vehicles to extend their range.

Further, the metallurgical characteristics I just noted make aluminum a superior solution for battery enclosures. Constellium is well-positioned to realize the benefits of the secular shift to aluminum in automotive. We will continue to closely monitor the market and we remain prudent with our investments.

We will not make incremental investments without firm customer commitments. Turning to the near-term trends, in the first quarter of 2018, we saw slightly improved auto sales year-over-year in Europe and slightly weaker SARs in the US. But I would highlight that like trucks, SUVs and luxury cars continue to be in a high demand.

And I'll remind you that we have more exposure to these types of vehicles. Let's turn now to aerospace. In this market, we're focused on maintaining our competitive position and expanding our relationships with business and regional jets manufacturers. We continue to see sustained OEM build rates. The backlogs of the major OEMs remain near record highs.

On packaging, it's a stable market. In the US, we expect the continued growth of automotive sheet demand to help tighten the packaging markets over the medium to long-term. In Europe, demand continues to grow based on substitution of aluminum for steel.

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, including now the North American transport market. In the industry end markets in Europe, demand for our extruded products remain very strong.

Before moving on to our financial outlook and guidance, I'd like to make a few comments related to global trade. As many of you know, there is significant uncertainty in the global aluminum supply chain, largely as a result of US tariffs and the US sanctions on Rusal.

The recent volatility of LME prices and regional premiums clearly demonstrates this uncertainty in the market. I'll remind you first and foremost that we substantially pass through the metal prices.

On the US tariffs, we continue to believe that remedies should be targeted at China and must protect the relationships with our historical trade partners, including Canada and Europe, amongst others.

I applaud the administration for the recent announcements of preliminary countervailing duties against Chinese import of common alloy coil, which follow the same in foil last year. While this is not a significant market for Constellium, this is the type of targeted remedy that will help level the playing field.

Regarding the situation on Rusal, on April 6, 2018, the United States Treasury Department announced that it was implementing sanctions on various Russian individuals and companies including Rusal.

While Rusal is not a significance supplier to Constellium, it is a major supplier of alumina and aluminum products to the aluminum supply chain on a global basis. These sanctions have the potential to cause short-term supply disruptions as global supply chains are forced to realign. The situation, however, remains fluid.

Just earlier this week, the Treasury Department announced an extension of the wind down period for business affiliations with Rusal until October 23, which provides the industry participants with more time to reorganize elements of their supply chains which is a good thing.

In our case, we are closely monitoring the situation to ensure full compliance with the US sanctions and to mitigate the risks of disruptions for our business and our customers. We're also putting countermeasures into place and we currently expect to be able to meet our aluminum consumption requirements through the year.

Turning to slide 16, we detail our financial guidance and outlook. We expect to deliver high single-digit adjusted EBITDA growth in 2018. We are reiterating our guidance of high single-digit 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 beautiful 4 times adjusted EBITDA. Overall, I remain optimistic about our prospects for 2018. We continue on executing on our strategy and I am confident we are on the right course.

We remain focused on operational execution, harvesting the benefits of our investments, disciplined capital deployment and on shareholder value creation. With that, operator, we will now open the Q&A session..

Thank you. [Operator Instructions]. Our first question comes from Curt Woodworth of Credit Suisse. Your line is now open..

Good morning, Jean-Marc and Peter..

Good morning, Curt..

So, I have two questions.

The first question, I guess, with respect to P&ARP, can you comment on what the impact of scrap spreads widening was? On my numbers, the all-in Midwest price relative to UBC has expanded by about $0.15 this quarter, which I had about €20 million potential tailwind on a euro basis, but I'm not sure exactly how the conversion pass-through works? And then, if you can just comment more broadly on what your mix is between ingot casthouse raw material versus scrap..

So, on this question, as we've stated, overall for Constellium, we are kind of neutral – in terms of metal prices, you know the terms. When scrap spreads widen, that's good for some parts of our business. But in other parts of the business, obviously, melt loss component becomes more expensive.

And by and large, in normal circumstances, it is about neutral. Now, it is absolutely true, Curt, as you're pointing out, in P&ARP, we've got quite a bit of recycling. And as such, we have the benefit of scrap spreads widening in Q1 and that is definitely reflected in our numbers.

And all the more so that where we do more recycling in the US than we do in Europe. And in the US, with the situation on the trade issues, the regional premiums have gotten very large and, therefore, the spreads have widened in the US than they have in Europe.

So, all that actually makes a portion of the difference in terms of – when you look at our year-on-year EBITDA increase in P&ARP. I don't think we want to comment much more on the specifics of exactly all our mill mix, but it is not the main part of our EBITDA variance.

The main driver of our EBITDA variance is really the execution of our strategy around ramping up our automotive lines. As you know, it's a ramp up that takes three years on both sides of the ocean, right, in 2017, 2018, 2019. 2017 was a year where you start the ramp up. So, obviously, you're subscale.

You've got these big lines that are not even 30% utilized. And we're getting to a place now where the utilization is improving and we're starting to actually generate positive contribution. And that's what you're starting to see in Q1 of 2018.

And as I mentioned in my prepared remarks, I'm very pleased with the progress we've made at Neuf-Brisach, which is ahead of schedule and which is more than offsetting the delay we have in Bowling Green..

Okay. I guess, a follow-up to that point, can you comment roughly what the utilization rate is on the new line at Neuf-Brisach and some of the, I guess, teething issues on the line at UACJ. Can you comment on how execution has changed over the past quarter? Thanks a lot..

Sure. As we said, we are targeting to be at full production in 2020, which means over three years. Average utilization ought to be because it's pretty much linear, right? 25%, 50%, 35% average of the year. We're early in the second year. So, we're somewhere between 25% and 50%. And Neuf-Brisach is closer to 50% and Bowling Green is closer to 25%.

So, I think that's how I would bracket it without being too specific. And regarding, Bowling Green, as I've mentioned, we've got – our main issues are around utilization of the line and recovery. And the two are interlinked.

Obviously, as you're producing products and you've got recovery issue – I mean, you're scrapping products and the line is down while you're scrapping the products, right, so the main issue is really around our ability to ramp up all the different specs to industrial rates of production.

We know how to make them, but making them reliably on a sustained fashion is a challenge. So, the team is going down the [indiscernible] of causes for losses, for lost recovery and knocking off one issue after the other. So, we're making progress and that's why I'm still confident it will be at full speed 1st of January 2020..

Great. Thanks very much..

You're welcome..

Thank you. Our next question comes from Novid Rassouli of Cowen. Your line is now open..

Thanks. Good morning, good afternoon, Jean-Marc, Peter and Ryan. Thanks for taking my questions.

The first one, just to stick with Neuf-Brisach, I was wondering, on the ramp of FT3, would you mind just categorizing the level of cannibalization taking place there of can product as auto ramps?.

Good question. We said that as we're ramping up auto, we'll be a displacing a little bit of can. It is much less than 1 ton for 1 ton, obviously. And at the point in time, there's not much cannibalization taking place because we're not at full capacity, right? So, the cannibalization will happen slightly over time..

And for Bowling Green, no cannibalization until, I want to say, what, the second or third CALP lines?.

Yes. And quite frankly, we believe we've got lots of potential in Muscle Shoals, right, upstream and feedstock. But this is a complicated plant with lots of history. There's lot to do to improve the operations there. So, that's going to take time.

But, quite frankly, I see no cannibalization for the first CALP line and I don't think there – if and when there is a second CALP line, I don't think there will be much cannibalization either..

Got it. And then, switching gears to the FX headwind, it looks like, based on your slides, a million on P&ARP, €2 million on A&T, €3 million headwind. Based on my math and your sensitivity, I was getting like double that as the headwind, about €6 million.

So, I was just wondering if you can help me understand the sensitivity and the headwind – because it seemed like it would be the most – the biggest headwind in the first quarter and then decrease from there. So, just wanted to get a sense of the differential of what I'm missing and then how we expect this to progress for the rest of the year..

So, good question. So, what we said last time was that a €0.10 move would be a €15 million impact. If you look at the year-over-year change, you've got kind of roughly – kind of €0.16 change. So, I think if you use that math, you'll align more with what we're saying..

So, that is the math I had, Peter. So, €0.16, if you divide that by 0.1, that gets you to 1.6 times your €15 million sensitivity, gets you to 24 divided 4. That's €6 million..

So, we're basically €5 million in the quarter, right? So, I think we're kind of in the same zip code..

Okay. We can chat more about it offline. And then, the last question is just on the sale of Sierre. Just want to see if we're still on track for 2Q and what the net cash is that you'll get. Just want to see if there's any tax impacts on that €200 million. Thank you..

No, we're still expecting €200 million and we should not have any negative tax implications on that..

Great. Congrats on the strong quarter. Thanks for taking my questions..

Thanks, Novid. And again, I'll remind everyone that this foreign exchange sensitivity or impact is actually translational..

Yeah, it's non-cash..

Thank you. Our next question comes from Matthew Korn of Goldman Sachs. Your line is now open..

Hi. Good day. I'll follow with that congratulations for the good results this quarter..

Thank you, Matt..

Asking a little bit about the metal situation, could you describe a little bit more, as you alluded to in your release, the kind of contingencies that you are taking and what you can take in case this new sanction deadline on October proves to be a hard stop? As the latest news, I guess, this morning implies that the involved entities dig in and try to circumvent these policies?.

Yeah. So, we will not try to circumvent any of the US sanctions, first and foremost, right? We're very committed to being compliant with the law and the sanctions. Now, Rusal is not a big supplier to us. And they're about 2%, 3% of our metal inputs, if that. And they are providing commodity products that can be a resource.

And when we mentioned countermeasures, our contingency planning, as soon as the sanctions came out, we started resourcing and looking at other options for us to secure aluminum. So, directly, we're insulated. It's not a big deal right now.

Obviously, there's a lot of work behind the scenes to make it a very small deal for us, but we've been able to resource. Now, because of the size of Rusal and all the ramifications throughout the supply chain, they've got business in Russia and they've got business in the West, depending on alumina on bauxite from other parties.

They're shipping alumina to other parties. So, the ramifications are actually tentacular. And we've been in constant contact – daily contact with our key suppliers to really understand not only the direct impact on us, but what is the impact potentially on them, right? On our suppliers.

Because my first and foremost concern here is to ensure security of supply for myself and for my customers, and that's where we are today.

I think the fact that the sanctions have been – the implementation of the sanctions has been postponed really to the 23rd of October allowing the maintenance, the winding down of the current contracts is actually giving ample time now, which was a little bit less the case when [indiscernible] until the 5th of June, right? But now we've got ample time as an industry to reorganize our flows and make sure that nobody trips the US sanctions.

So, I feel quite confident that if there is a disruption, it will be temporary. A boat needs to sail from Australia to Europe as opposed to sailing from Jamaica to Europe, for instance, takes a little bit more time. That kind of stuff will happen.

So, there will be a lot of under-the-scenes, backstage activity to mitigate the impact, but I do not think that we're in a situation where the industry cannot face the situation..

Thanks. Given the thoughts on the situation, it's very helpful color. Just to be very clear, I'm not implying any circumvention on your side. I'm talking more about the entities actually named by the Treasury..

Yes. No, no. I want taking it like this, but I just jumped on the opportunity to again make it clear that we will comply at all times..

Loud and clear. Staying kind of in a similar vein, you mentioned the common alloy case.

Could you be clear as well? As you currently read the Section 232 tariffs and how they are expected to be enacted, given they've been somewhat unorthodox in implementation, is there any support – are there any specific market gains? Are there areas that because of the Section 232 that Constellium will win or win out because of reduced import competition?.

Yes. So, the Section 232 stems from a good analysis and understanding by the administration finally of the fact that this is not a level playing field, mainly with China. And I think it's very clear in the report that the problem actor is China and not the rest of the world.

Now, the sanctions, as they're being framed around 232 are a little bit broader than China, but they provide for quite a few exemptions. And I think the fact that Canada so far is exempted and Mexico and our trade partners in Europe, we view that as a very good thing.

So, does that – so assuming these exemptions become permanent, I think the impacts – and even if they were not permanent, right? – but the impact on Constellium is – we're kind of net neutral. Maybe there's a little bit of positivity here, a little bit of negativity there. And 232 fundamentally doesn't change the picture for us.

I mentioned, and you relayed the common alloy case. This one is much more targeted. The countervailing duties and then the anti-dumping duties are likely to be much higher than the 10%, right? And that's because they are squarely targeted at China. This is going to change the level – the competition landscape in North America.

As I said, we don't participate much in these markets. So, I would expect some of our competitors potentially to benefit more than us. And I want to also say that our business is to be focused on long-term relationships with customers where we add a lot of value added.

And we are committed to continuing to serve these customers over the long run and we're not after making a quick buck on the back of countervailing duties or anti-dumping duties that would open, for a little bit of time, a window of opportunity for us. So, we will play with that very responsibly. We'll see how it pans out.

But, again, we're very focused on maintaining the very strong relationships we have with our customers and we're here for the long run..

Got it. Thank you, gentlemen..

Thank you..

Thank you. Our next question comes from David Gagliano of BMO Capital Markets. Your line is now open..

Hi. I just want to ask probably the obvious question here. But just the basic math here just to clarify. Q1 EBITDA was up 26% year-over-year. Guidance is for high single-digit for the full year. It implies an expectation about 4% growth for the rest of 2018.

So, what are the reasons for the expected slowdown to the lower single digits in the near term?.

Yeah. David, thanks for your question. Your math is absolutely correct.

I'll remind you that Q1 of last year was a weak quarter for us, right? So, the comp, and we had – if you look at our progress last year, we are very pleased with the progress we made last year, but it's making the comps more difficult as the year progresses as the beginning of the year. That's point number one. Point number two.

We still have a lot of uncertainties out there. We're still early in the year. We've got foreign exchange that we're battling against and we'll see how the year unfolds. And last year, we did come back to you guys on a regular basis updating our view, our picture, for the full year as more information became available.

And we are committed to doing that as and when circumstances change. So, I think that's my best answer to your question, David. The comps from last year are a bit skewed and we'll keep on looking at our progress and updating you, but I'm very pleased, obviously, with our first quarter..

Okay. That's a good answer actually. Thank you very much. And then just changing gears a little bit, in the past, I've heard you mention in meetings – and actually, again, on this call, I think you mentioned the potential opportunities for Constellium specifically in the battery enclosures world, in the EV world.

In the past, I was left with the impression that you were getting close to some longer-term supply agreements, et cetera. So, I'm just wondering if you could give us an update on the progress and on framing realistic, I guess, expectations for what that potential opportunity really is for Constellium in the EV battery enclosure world..

Yeah. So, the opportunity in electric vehicle is actually broader than just the battery box. So, the battery box is a very important component, as I think in one of our discussions I told you.

The weight of the battery box in aluminum is nearly as much as the average weight of rolled and extruded products on the average car that is being sold today in the fleet. So, in other words, when you look at an electric vehicle compared to the average car in the fleet today, the aluminum content for the products we make is 4 times more.

So, that can be quite significant. We have won a couple of contracts last year. That's part of our €1 billion plus of nominations in our automotive structures and industry business that we commented upon. We've won a couple of these contracts. We think we're very well-placed. Our customers like our solutions.

And we look forward to those battery enclosures, battery boxes, to be a significant part of the over €1 billion of new business we intend to sign up for this year in 2018.

It's difficult to say I'm expecting €100 million, €200 million, €300 million, €400 million out of that because these are lumpy projects, right? You'll get nominated for one platform or you don't. They may change their mind in terms of what technical solution they want.

They may want to do the assembly themselves or they may want us to deliver the full package or only components of it. So, it is very difficult, at this stage, to say precisely what do we expect.

But I think the underlying need, which is more electric vehicles, they need to have batteries, obviously, these batteries need to be in boxes – and we've got the perfect solutions for it – is there. And how that plays out, again, difficult to say, but it's going to be a significant portion of our nominations to come this year..

Okay. Thanks very much. Helpful. Thanks..

Thanks, David..

Thank you. Our next question comes from Piyush Sood of Morgan Stanley. Your line is now open..

Hi, Jean-Marc and Peter. Congratulations on the quarter..

Thank you..

Going back to the metal situation, so apart from scrap and commodity ingots, you would also be buying slabs, billets. So, not sure how much slack is there in the global casthouse system, just in case Rusal is shut out.

So, just curious if you could give us some sense around sensitivities around shape premiums for products like slabs or billets, anything on those lines..

Yeah. So, I don't think – again, our buy from Rusal is very minimal and most of it is standard P1020-like product. And we've got long-term contracts for our slabs and billets. So, we think we're pretty good..

Sorry to press this further, but –.

No, you're fine..

Let's say – you probably have the availability for sure and I'm not doubting that. Just in case the premium starts going up, the shape premium starts going up, it will probably be passed on over to you.

So, what's the kind of sensitivity there?.

I see. So, the shape premium is typically not a pass-through, right? What is a pass-through is the regional premium. Obviously, the LME component. The regional premium are pass-throughs. The shape premium isn't. However, we've got long-term contracts.

And the long-term contracts basically fix a certain price for the shape premium, right? And, therefore, we're kind of insulated from what may happen in the market. Now, obviously, if we need to replace 5,000 tons of slabs that we would buy from Rusal – I'm just thinking those numbers are as illustrative, right? And the shape premium goes up $100.

That's $0.5 million that we would exposed to. That's the kind of thing that can happen. That's part of the temporary disruptions I'm talking about. But that's pretty much what it is. So, I really don't lose sleep over it..

Okay. That's helpful. In the adjusted EBITDA bridge slide for P&ARP, the €12 million increment of price and mix, if you could talk about the price impact in that price and mix.

Is that coming from packaging? Is that automotive or is that just a mix shift from can sheet to auto sheet?.

Yes. No, it's primarily coming from increased shipments of automotive product. And as we've said in the past, the spread on automotive products is materially higher than what we have on can sheet products..

Okay. That's clear. So, congratulations again, guys. And all the best..

Thank you..

Thank you..

Thank you. Our next question comes from Jeremy Kliewer of Deutsche Bank. Your line is now open..

Hi, good morning. I was just wondering if you can give some color on your CapEx cadence for the rest of the year. You only spent about €50 million in 1Q, yet your guidance was for €275 million.

Is it typically going to be the fourth quarter again that's going to have the large lump there?.

Yes. No, typically, there is seasonality in our CapEx spend. And part of it is the fact that we take our outages at the end of the year when our customers are down. So, that's where we spend the most money. And in the beginning of the year, you have less CapEx spend because we've got to ramp up.

There is seasonality in our business, right? So, we've got to make sure that our plants are up and running in the first quarter and the second quarter to be able to deliver in the second quarter and third quarter higher levels. So, this is the usual cadence. So, Peter was mentioning €275 million as a good number for this year.

That's a good number for this year..

Right. And then, on the growth CapEx, the €100 million to €125 million, you mentioned that AS&I is going to receive a majority of that. But, really, I thought that the only big project this year was San Luis Potosi and that was only about €20 million. So, I was going to see if you could give color as to where the extra CapEx is going in that segment..

Yes. So, we have communicated about White, Georgia and San Luis Potosi quite a bit because these are new plants, right, in a new state or a new country. But there is plenty of investment that is going on throughout the AS&I plant, right? We've invested in Dahenfeld, Germany. That's close to Stuttgart.

So, you can guess who the customer may be over there. We've invested massively in Gottmadingen. We've invested in Děčín in the Czech Republic. We've invested in Van Buren. So, right next to Detroit. And all those investments again are €5 million, €10 million at a time, allowing us to see the opportunities we are talking about.

And that's what's happening, right?! So, San Luis Potosi is one small portion of the total picture..

All right. And then, lastly, if you give us some insight onto progression of the CALP lines 2 and 3 at Bowling Green or in the US since some of your peers have announced and/or are breaking ground in the next month or so at their facilities..

Yes. So, there's no further update on the CALP 2 for us. As I mentioned, we will not make additional investments without firm customer commitments. We don't have firm customer commitments. So, we don't make additional investments. I think the announcement by Novelis, I think that's the one you're referring to in Kentucky is actually a good thing.

We know that the market will be in a deficit in 2021, roughly. And on the basis of what is already committed, when what designs have already been chosen by the OEMs, right, so there is a need in the industry for more lines. So, it's a good thing that the industry steps up and that somebody puts up new lines.

For us, then the question is, who is interested in what volume, who is successful at getting what volumes? Novelis was successful at getting volumes that are of interest to them, I'm pretty sure. And we are not yet in that place. And again, we'll make that kind of decision when we get the right pricing with the right commitments..

Right. Thank you..

Sure..

Thank you. Our next question comes from Sean Wondrack of Deutsche Bank. Your line is now open..

Hey, guy. Great quarter..

Hi, Sean. Thank you..

Really impressive growth. I'm just going to start with A and TID [ph]. Jean-Marc, you made some comments earlier that you expect to continue to see penetration in some of the A&T [ph] sectors.

What's underpinning your confidence there as we look forward?.

Well, Sean, this is a very fragmented and diverse market, right? There's plenty of applications. And I think, historically, the company was very focused on aerospace, which is a great market, but there's much more than that our assets can make, the assets that can make aerospace products, outside of aerospace.

And we established a specific sales team, a specific technical support team, a specific marketing effort. Because our plants improved greatly their performance, our ability to forecast our capacity, our availability and become reliable about delivering it improved greatly.

So, all these factors put together allowed us to target some niche markets and make the products available for these markets. And it takes some time between when you start pitching to customers and when you get the products. And then, you are also exposed to the fact that sometimes the markets are not good.

Like North American transportation was not a good market. Just a year ago, it wasn't too good. Two years ago, it wasn't too good. Now, it's getting better. So, the combination of all these factors lead us to increase our sales. And I'm very pleased with the results we're having.

But as we're doing that, we are upgrading into sub-segments that are not that obvious on the radar, right? And we're having a pretty good success in semiconductor and electronics. We're having good successes in defense.

And what I like about it is all these micro-segments have kind of different cycles to them, right? So, the more diversity you bring, the less exposed you are to one given industry cycle. And that, I think, is also a pretty significant value in terms of portfolio management..

Right.

And is it possible to kind of give a rough estimate? Like, what are your lead times like in that segment on the combined portfolio? Is it a month? Is it a quarter? Is there a way to broadly kind of define that?.

You mean in terms of a customer placing an order, when do we deliver them? Or…?.

Are you talking visibility on demand?.

No. I'm talking about lead times between when a customer places an order and the actual order is delivered..

So, it will depend on the product, but 6 to 12 weeks at the moment..

Okay, great. That's very helpful. And then, turning to AS&I quickly. The current quarterly run rate, I think shipments were up 5% to 65 kilotons in the quarter.

Is this a fair run rate moving forward in terms of volume, given your recent capacity expansions?.

Yeah. I think that's good. And again, I think I should say this every time on every call, right? Don't take two quarters and draw a line because in about any of our businesses, it's a bit lumpy, right? So, you get big nominations and then you don't get any nominations for three months and then you get big nominations.

And then, the start of production may be in one quarter or the other. But on average, if you were to look at kind of trend, that's a good trend..

Okay, great. That's helpful. And then lastly, I have to bring this up. Your guidance. On the guidance and the outlook, you're currently at €455 million of LTM EBITDA. Obviously, that's been driven by extremely good performance ahead of guidance. You're calling for €500 million of EBITDA by 2020.

Do you think maybe we're in for a guidance increase as we move forward considering you're sort of trending towards that number already this year.

Yes. I think it's a variant of the question that David asked a little bit earlier. We're trying to be as transparent as possible. And I think we demonstrated that last year. As things change and we make progress, we'll update you. At this stage, again, I don't feel like I can tell more or any different than what we've said. It's early in the year.

The 26% number sounds very good. It is very good. We're very happy with it. But the comparable last year was low and the comparable in Q4 will be more difficult for us to achieve. So, at this stage, no news. But I'm committed to sharing more news as they become available and as we have better visibility..

Right, thank you. And then, just last one, just a clarification.

As you get in the €200 million in 2Q, if I were to just pro forma that with today's metrics, would that give me pro forma net leverage of around 3.7 turns?.

Yes. Something in that range, yes..

Okay, great. Thanks a lot. And good luck moving forward..

Thank you..

And we do have a follow-up question from Novid Rassouli of Cowen. Your line is now open..

Thanks for taking my follow-up, guys. On Muscle Shoals, I think maybe it was by the end of the year we're expecting that to fully provide substrate to Bowling Green with Neuf-Brisach no longer shipping material there. I just want to see if you guys could give an update..

Yes. By and large, correct. Even though we may decide to continue to ship for some specs from Neuf-Brisach.

And it's not fully under our control because, when we change, we have to have the customers authorize and certify and give us the certification that we can use those products, right? So, that's not fully in our hands as well, but that's by and largely a target..

Got it.

And then, as a percentage of the mix of your shipment, what's the percentage of common alloy in your mix?.

Very small. Very, very small..

And are there any other products that you think duties make sense, the way that we've seen for common alloy in your portfolio?.

We believe that anything that comes out of China is heavily subsidized. And there's reports out there from experts in the industry that are – and you guys know it, right? There's an arbitrage with Shanghai and the LME, and especially when it translates into export of semi-fabricated products where they got these VAT rebates.

That is $500 a ton or thereabouts, right? But anything that comes out of China should be slapped with duties. That's my position..

And do you think that the 232 – that 10% maybe needs to be taken a little bit higher then based on that arbitrage that we were just discussing?.

I think that 232 is one step in the right direction, but it's a bit of a blunt and broad instrument. And I think targeted sanctions, like the common alloy case or the foil case or the extrusion case, are the way to go..

Got it. Thanks for taking my question, Jean-Marc..

You're welcome, Novid. Thank you..

Thank you. Our next question comes from Karl Blunden of Goldman Sachs. Your line is now open..

Hi, guys. Thanks for taking the question. Just maybe a derivative of the EBITDA question. Focused on leverage here, it looks like you're heading pretty predictably below your target. What should we think about kind of long term how you'd like to run the business? There's not a lot of prepayable debt.

Is leverage just a derivative of EBITDA over time or do you intend to take out debt as you start generating cash in the not-too-distant future here?.

Yeah. So, again, as we've said in prior calls, our objective from a capital structure perspective is to move towards BB type of rating. And we have this near-term focus of below 4 times and we've said that really where we'd like to get in the medium term is kind of closer to 3.5 times. So, our intent will be to continue to delever.

We will have the Sierre proceeds coming in soon. That's €200 million. We have not made any decisions about how to use them, but we have said that we will use them to delever. So, I think it will be a combination of actual debt reduction where we have debt maturities to pay down and EBITDA growth that will feed our delevering..

Okay. That's helpful. Thanks, guys..

Thank you. Our next question comes from Matthew Fields of Bank of America Merrill Lynch. Your line is now open..

Hey, everyone. Just to follow up on Karl's question. The only prepayable debt is about that €70 million on the pan-US ABL. And then, by my math, I think you're going to be right around that 3.5 times rate by the end of next quarter assuming the proceeds come in.

So, is that as good as we're going to get leverage-wise for a little while? Are you going to start to think about capital returns to shareholders or is it an upgrade to BB before any of that can occur?.

Look, I think the way we view this, it's one step at a time, right? So, first thing, we're really focused on getting to free cash flow positive. And I think until we get to free cash flow positive, we're going to be focused on kind of maintaining a decent level of liquidity.

And then, as we get past that milestone, then we'll start to consider other options for capital allocation..

Okay, that's fair. And then, I know you mentioned Rusal is only about 2% or 3% of your supply. And that's very helpful. How much do you buy from Glencore? And can you just describe the process of – if you're going through Glencore or other intermediaries, your sort of audit process to make sure that they're in turn not buying Rusal tons.

Yeah. So, we've gone through that and we are compliant. We know that there's been some force majeures that have been declared. None of it has been declared for us in terms of suppliers invoking force majeure with us. So, we are asking them to certify that they are not using sanctioned metal. And things are going okay..

Can you just describe that process of certification for us that aren't too familiar?.

You basically ask your supplier to certify that they are not using sanctioned metal as part of deliveries they are making to you..

And is it a pretty quick process?.

Yeah, yeah. You basically – they have to represent it in writing and we take their word for it. Not their word, their written word for it..

Okay..

And we wouldn't take delivery until we have it..

Great. Thanks very much, everyone..

Sure..

Thank you. And, ladies and gentlemen, this does conclude our question-and-answer session. I would now like to turn the call back over to Jean-Marc Germain for any further remarks..

Thank you, everyone. Thank you very much, everyone. As you see, we're very pleased with our results in Q1, very focused on the execution of our strategy and deleveraging. And we look forward to updating you on our progress in July. Thank you, everyone..

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