Constellium SE

Ladies and gentlemen, thank you for standing by, and welcome to the Constellium Fourth Quarter and Full Year 2020 Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 1 on your telephone. If you require any further assistance, please press star 0. Thank you. Now I would like to hand the conference over to our first speaker today, Mr. Ryan Wentlink. Director of Investor Relations. Sir, the floor is yours.

Thank you, Operator. I would like to welcome everyone to our fourth quarter and full year 2020 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 filing. 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 20F. All information in this presentation is as of the date of the presentation. We undertake no obligation to update or revise any forward-looking statement as a result of new information, future events, or otherwise, except as required by law. In addition, today's presentation includes information regarding certain non-GAAP financial measures. Please see the reconciliations of non-GAAP financial measures attached in today's slide presentation, which supplement our IFRS disclosures. I would now like to hand the call over to Jean-Marc.

Thank you, Ryan. Good morning, good afternoon, everyone, and thank you for your interest in Constellium. I want to start by thanking the members of the Constellium team for their contributions in 2020. I am proud to say that Constellium rose to each of the many challenges presented by the COVID-19 pandemic. I'd like to take a moment to specifically call out two examples. First, Constellium delivered extremely strong cost performance. Our cost flex of 92% was impressive again in the fourth quarter. For the full year, our cost flex was 90%. This is something we are very proud of. Second, we delivered on our commitment to free cash flow generation with 157 million euros in 2020. When combined with 2019, we have generated over 330 million euros of free cash flow. For perspective, that is about 20% of our current market cap in just two years. Now, let's discuss the highlights from our Q4 results. Shipments were 374,000 tons, that's up 2%, compared to the fourth quarter of 2019. Revenue decreased 9% to 1.2 billion euros. This was primarily due to weaker price and mix and lower aerospace shipments. Our net income of 26 million euros compares to net income of 22 million euros in the fourth quarter of 2019. As you can see in the bridge on the right side of the slide, adjusted EBITDA was 111 million euros, a decline of 10 million euros, which was driven by lower results at ANT from weak aerospace demand, partially offset by strong performance at PARP. Lastly, free cash flow was 28 million euros in the quarter. Now let's turn to slide six and discuss our full year highlights. Shipments were 1.4 million tons, a decrease of 10% compared to 2019 due to impacts from the COVID-19 pandemic across each of our businesses. Revenue decreased 17% to 4.9 billion euros, primarily due to lower shipments as a result of impacts from COVID-19 and lower mail prices. Remember, while our revenue are affected by changes in metal prices, we operate a pass-through business model, which minimizes our exposure to metal risk. Net loss of 17 million euros compares to a net income of 64 million euros in 2019. As you can see in the bridge on the right side of the slide, adjusted EBITDA was 465 million euros in 2020, a decrease of 97 million euros which was driven by weaker results at ANT and ASNI, partially offset by record results at PARP. This result is above our guidance range of 450 to 460 million euros provided during our third quarter earnings and is at the midpoint of our preannounced results from mid-February. Our free cash flow of 157 million euros came in above our guidance of 100 to 150 million euros. Our leverage at the end of 2020 was 4.3 times. Despite the COVID-19 crisis, which included the second quarter lockdowns and nearly 100 million euros less adjusted EBITDA in A&T, our leverage in 2020 peaked at 4.4 times. only half a term higher than at the end of 2019. This performance is clear validation of our business model and our strategy. Now turn to slide seven. At Constellium, the health and safety of our employees is our top priority. Our safety results are among the best in the industry, and we remain committed to continuous improvement. As shown on the top left of the slide, Constellium achieved a record low recordable case rate in 2020. While this is something to be proud of, we will continue to push for further improvement. Our commitment to safety is also reflected in our compensation structure. For our top 2,000 managers, 10% of their annual bonus is based on safety performance. As you can see on the top right, Constellium is proud to lead the way with our recently completed sustainability-linked nodes offering, our first and the first in the metals industry. Peter will provide details of the bond later in the presentation. Our ESG efforts have been recognized externally. EcoVadis gave us a platinum rating, its highest, which places Constellium in the top 1% of companies assessed. Constellium also received a AA rating from MSCI ESG, placing us in the top decile of our sector. Lastly, we continue to make progress in achieving ASI certifications at our plants with Nefrisac, Zingen, Gottmaningen, Dianfeld, now certified. Over the course of 2021, we will be developing our 2030 sustainability strategies. which will establish new sustainability targets and the steps to achieve them. Constellium has a long track record of setting targets and measuring our progress against them. This is evident in our annual sustainability reports, which we have produced each year since 2011. Another initiative we will be focused on in 2021 is a potential investment to increase our recycling capacity in Europe. which is in advanced planning stages, is expected to add a minimum of 60,000 tons of annual capacity to Constellium's current recycling footprint, which is already one of the largest in the world. In addition, we expect this investment will provide opportunities to expand our low-carbon product offerings to meet customer demand. The scope and location of the project is expected to be finalized by the end of 2021, and we will provide regular updates on these highly strategic initiatives. As you can see, we're looking at sustainability as a great opportunity for Constellium. With that, I will now hand the call over to Peter for further details on our financial performance.

Thank you, Jean-Marc, and thank you, everyone, for joining the call today. Turning now to slide nine, let's focus on the PARP segment. Adjusted EBITDA, of 82 million euros increased 31% compared to the fourth quarter of 2019. Volume was a 14 million euro tailwind, as shipments increased 7% compared to the fourth quarter of 2019. Packaging rolled product shipments increased 5%, and automotive rolled product shipments increased 12%, both on higher shipments in North America and Europe. Price and mix was a tailwind of 15 million euros from both automotive and packaging. Costs were a headwind of 7 million euros due to unfavorable metal costs, including higher alloying costs and inefficiencies related to a strike at Muscle Shoals, which affected the second half of December and was resolved on January 11th. FX translation, which is non-cash, was a headwind of 3 million euros in the quarter due to a weaker US dollar. For the full year 2020, PARP generated record adjusted EBITDA of 291 million euros. Volume was a headwind due to the impacts from COVID-19, notably in automotive and European packaging. Costs were a tailwind due to strong cost control, notably on lower maintenance, labor, and overhead costs, and improved recovery. FX translation for the year was a headwind of €3 million. Now, turn to slide 10 and let's focus on the A&T segment. Adjusted EBITDA of €13 million decreased 72% compared to the fourth quarter of 2019. Volume was a headwind of €38 million on 55% lower aerospace shipments year over year. TID showed signs of improvement in the fourth quarter with shipments increasing 15% compared to 2019. Price and mix was a headwind of 21 million euros due to a weaker mix in aerospace and the lower share of aerospace shipments relative to TID. Costs were a tailwind of 27 million euros, primarily related to lower labor, consumables, and maintenance costs. Lastly, FX translation was a 1 million euro headwind in the quarter. Now, please look at the full year bridge for A&T. 2020 was a challenging year for A&T, with adjusted EBITDA declining 98 million euros to 106 million euros. Volume was a headwind due to the impacts from COVID-19 on both aerospace and TID demand. Costs were a tailwind on strong cost control. And FX translation for the full year was a headwind of 1 million euros. Now, turn to slide 11, and let's focus on the AS&I segment. Adjusted EBITDA of 22 million euros increased 1 million euros compared to the fourth quarter of 2019. Volume and price mix were each a 1 million euro headwind. Cost was a 4 million euro tailwind on strong cost control, notably on lower labor subcontracting, consulting, and energy costs. Looking now at the full year bridge for AS&I, 2020 showed significant operational improvement compared to a challenging 2019. Volume was a headwind due to the impacts from COVID-19 on both automotive and industry shipments. Costs were a tailwind on strong cost control. And FX translation was a headwind of 1 million euros. Now, turn to slide 12, where I want to highlight our continued strong performance on costs. In the fourth quarter, we flexed our costs by 92%. Cost flex represents the change of costs over the change of revenues for the fourth quarter of 2020 as compared to the fourth quarter of 2019. Effectively, for every euro change in revenue, we were able to flex our costs by 92 cents. Looking by segment, you can see that ANT and AS&I both demonstrated strong cost control, with ANT at 76% cost flex and AS&I at 104% cost flex. For PARP, incremental margin is the relevant metric, as both revenues and adjusted EBITDA increased compared to the fourth quarter of 2019. Incremental margin represents the change in adjusted EBITDA over the change in revenue. PARP's incremental margin was 56%, an exceptional performance and solid evidence that we are retaining a healthy portion of our cost reduction. Excluding metal and depreciation, we reduced costs by approximately 75 million euros compared to the fourth quarter of 2019, notably on lower labor and energy costs. These cost savings include 3 million euros of benefit from European state employment aid related to COVID-19. For the full year of 2020, we flexed our costs by 90%. Excluding metal and depreciation, we reduced costs by approximately 260 million euros compared to 2019. This included 22 million euros of benefit from European state employment aid related to COVID-19. As you know, we're very committed to reducing costs and running a lead operation. Fixed cost reduction is a major platform of our Horizon 22 initiative, the successor to Project 2019. We maintain our 75 million euro target for Horizon 22, and we estimate that we were over halfway to our target at the end of 2020. I remain excited about the significant cost reduction opportunities that are in front of us. I'm confident that Constellium will emerge from this crisis a stronger company with better margins and an improved financial profile than when we entered it. Now, let's turn to slide 13 and discuss our free cash flow. We generated 157 million euros of free cash flow, including 28 million euros in the fourth quarter. This is our second consecutive year of free cash flow in excess of 150 million euros. Our 2020 performance was helped by strong working capital management and our proactive steps to reduce capital spending in the face of the COVID-19 pandemic. As you can see at the bottom left Constellium has also been a consistent generator of free cash flow. I want to remind you that the second quarter of 2020 would have been positive without the effect of reduced factoring in that quarter. We deployed a substantial portion of this free cash flow generation towards gross debt reduction in the first quarter of 2021. Looking forward to 2021, We expect to generate free cash flow in excess of 100 million euros. We expect capex of approximately 225 million euros and increase from 2020 due primarily to some catch-up maintenance and targeted growth projects. We expect cash interest of approximately 130 million euros, assuming current foreign exchange rates, and cash taxes of 10 to 20 million euros. To summarize, we have generated over 330 million euros of free cash flow over the past two years. Our free cash flow yield based on 2020 figures is over 9%. And we remain committed to consistent and significant free cash flow generation. Now, let's turn to slide 14 and discuss our balance sheet and liquidity position. At the end of the fourth quarter, our net debt was just under 2 billion euros, nearly 200 million euros lower than the fourth quarter of 2019. Approximately half of that change was due to FX translation. We remain committed to deleveraging. At the end of 2020, our leverage was 4.3 times less than half a turn more than at the end of 2019. This is a remarkable achievement given the challenges imposed by the COVID crisis. As you can see in our debt summary on the bottom left-hand side of the page, we have no bond maturities until 2024. The $650 million of 6.625% notes due 2025 were refinanced in February with $500 million of 3.75% notes due 2029. This refinancing is expected to save approximately 20 million euros of cash interest annually. This is a meaningful step forward towards our long-term goal of cash interest of less than 100 million euros annually. Our liquidity was strong at 981 million euros as of the end of the fourth quarter. Now, let's turn to slide 15 and discuss our landmark sustainability linked notes offering, which we completed yesterday. This bond aligns our business and financing with our sustainability commitments and values. We established two sustainability performance targets, or FPTs, as part of this offering. The first FPT is greenhouse gas intensity of 0.615 tons of CO2 equivalent per ton of sales in 2025. representing a 25 percent improvement from our 2015 baseline. In order to hit this ambitious target, we must accelerate our pace of greenhouse gas intensity improvement. We expect to achieve this target primarily through continuous improvement in our manufacturing processes and equipment. The second SPT is recycled aluminum input of 685,000 tons in 2026. representing a 10% improvement from our 2019 baseline. 2019 was chosen as the baseline as this was our highest level of recycled input. To achieve this ambitious target, we are planning to increase our recycling capacity in Europe, as Jean-Marc noted earlier. This bond creates a direct link between our sustainability targets and our funding costs. Associated with each SPT is a potential 0.125% increase in the coupon of our bond if we do not achieve the SPT by the targeted date. For more detail, see our sustainability linked financing framework and the second party opinion from Sustainalytics, both available on the investor section of our website. I will now hand the call back to Jean-Marc.

Thank you, Peter. As I noted earlier, sustainability is offering us great opportunities. It is driving megatrends across all our end markets. Namely, we are seeing increasing focus on lightweighting in transportation, the electrification of the automotive fleet, and customer preference for infinitely recyclable aluminum cans. Costellium is well positioned to be a significant beneficiary of each of these megatrends. I would also like to highlight our diverse and balanced portfolio of end market exposures. This diversification proved invaluable during the COVID-19 pandemic. So let's turn now to packaging. Packaging is a core market for Constellium and represented 40% of our revenue in 2020. Packaging, again, displayed its recession resilience during the pandemic as demand from our can customers remained strong. The growth in demand for aluminum cans is underpinned by consumer preference versus other alternatives, such as plastics. Aluminum cans are infinitely recyclable, making them the most sustainable beverage packaging container and a contributor to the development of a circular economy. To meet this growing demand, our customers have announced new can lines in both North America and Europe, which should drive can-sheet demand growth for years to come. Now, let's move to other motives. Automotive represented 27% of our revenues in 2020. Here also, Constellium is well positioned in both sheet and extrusions to realize the benefits of the secular shift to aluminum in automotive and the electrification of the automotive fleet. We expect electric vehicles to increasingly win share. Electric vehicles need to be light to meet their range objectives. which makes aluminum the logical material of choice for auto body sheet, crash management systems, and battery enclosures. We are seeing increased demand for electric vehicle platforms in our auto body sheet order books in North America and Europe, and we continue to serve many electric vehicle platforms from our automotive structures business. We also expect continued lightweighting of internal combustion engine vehicles to meet increased regulation, the societal focus on sustainability, and demand for improved safety and performance. In the near term, demand for our automotive products remains steady, and we have thus far seen a limited impact from the shortage of semiconductors. Where possible, OEMs are prioritizing the production of light trucks, SUVs, and luxury cars where consumer demand remains strongest and where we are most exposed. While there may be some effect on our automotive shipments in the coming quarters from the semiconductor shortage, we believe this is a temporary trend and is more likely to only delay demand to later quarters. Having said that, we will closely monitor automotive market trends. Let's turn now to aerospace. Aerospace represented 12% of our total revenues in 2020. We remain confident that long-term fundamentals driving aerospace demand growth remain intact, including growing passenger traffic and greater demand for new, more fuel-efficient aircraft. The near-term outlook remains uncertain in aerospace. OEMs have reduced build rates, and it is unclear how long build rates will remain at these levels. Our aerospace shipments are at levels below build rates, which suggests the supply chain is destocking. Based on our current visibility, we expect this destocking to persist at least through the first half of 2021. In other specialties, we continue to execute on our strategy of expanding in niche products in a diversified range of markets. In general, these markets are dependent upon the health of the industrial economy in Europe and North America. For TID, the defense markets remain strong. Most industrial and transportation markets in North America are improving, while these markets are stable at low levels in Europe. In European exclusions, demand is strong across most end markets with select pockets of weakness. Turning now to slide 18, I want to start by saying again how proud I am of Constellium's 2020 performance. We reacted quickly to the COVID-19 crisis by protecting our employees, reducing costs, limiting capex, increasing liquidity, and extending debt maturities. We delivered on our commitment to consistent and significant free cash flow. Our business model and strategy are now battle-tested. I firmly believe that Constellium is a stronger company coming out of the crisis than when we went into it. As I mentioned earlier, I believe there are many opportunities for Constellium to benefit from very real, sustainability-driven megatrends. These trends can provide demand growth in our end markets for years to come. I am optimistic about our prospects for 2021. There are substantial value creation opportunities within our four walls. These include the continued recovery of our end markets, further operational improvements, and cost reductions from our Horizon 2022 initiative. Each of these opportunities represents a meaningful driver of earnings and free cash flow. In the short term, We are targeting adjusted EBITDA of 110 to 115 million euros in the first quarter of 2021. Within this figure, we currently expect a headwind of approximately 10 million euros related to the strike at Muscle Shoals in January, the severe weather in the Southeast US in February, and the semiconductor shortage in automotive. We expect to generate, for the full year, free cash flow in excess of 100 million euros in 2021. As you can see, we remain committed to shareholder value creation. With that, Rachel, we will now open the Q&A session, please.

Thank you. As a reminder, to ask a question, you will need to press star 1 on your telephone, and to withdraw your question, just press the pound key. Again, if you need to ask a question, just press star and then the number 1 on your telephone keypad. Please stand by while we compile the Q&A roster. Our first question comes from the line of Mr. Kurt Woodward of Credit Suisse. Sir, the floor is yours. Mr. Kurt Woodward, your line is open.

Can you hear me?

Yes, we can. Good morning, sir.

Hi. First question just on packaging, you know, two-part question. One is can you give us an update on the debottlenecking efforts that you had ongoing at Muscle Shoals? I think it was for roughly 75 to 100 KT, and I assume a lot of that was going to trickle into packaging, and I know some of it incrementally was going to go into auto as well. And then can you also give us an update on kind of the cadence of packaging contract resets? I believe you had a small amount repriced this year, and a much larger chunk is going to reprice in 22 and 23. And if you can give any color on kind of how you see profitability changing for that part of your business going forward would be helpful.

Sure. So on the first part of your question on the debubble making, we are making very good progress. We're very pleased with it. And if you noted in our shipments in Q4, they're up 5% against the prior year. So that's evidence of, you know, our ability to find incremental opportunities. And we are well on track to achieve the 75, and I think I alluded to the fact that we're expecting even a little bit more. So we're very optimistic about our ability to de-bottleneck and sell those tons in the context of a good market in Kanshi. Regarding the contracts, well, you're right that more is repricing next year than this year. I continue to be optimistic about price development for us, and we're seeing some benefits in 21. We are expecting to see more in 22, and that will happen again as contracts mature. But remember that, you know, on average, we've got five-year contracts. 20% or 15%, 25%, that renew every year. So it's not like you've got a big bump, but you should see expanding margins. And you're seeing some better margins in POP at the moment, which is reflected in our earnings. So we expect to continue to see some progress. So CanSheet is a good market for us. It's a good market for our cans, or a good market for our customers. And it's good to see that it's making its way across the supply chain.

Okay, that's helpful. And then with respect to the recycling facility, the 60,000-ton project, and you alluded to evaluating potentially another location, I assume, to process that recyclable material. Can you just kind of give us any more color on what that project could look like and potential cutbacks associated with it?

Sure. So we are still in – not fully decided on exactly the technology, the size, and all that. So what we can say is at least 60,000 tons, and that's actually consistent with the commitment we've made in the bond. But it is likely it could be bigger. We'll have to make sure that it's a project that has very good returns for us, and that's a key criterion in deciding how to, you know, what dimension to pursue. The Other thing I can say is, even though we're in the early stage of design, it's pretty clear, you know, there's some rule of thumb in terms of how to size capex in for recycle centers. And typically, you're talking around $1,000 or euros per ton of installed capacity. So that gives you an idea. And those projects typically take... good couple of years to complete, right? When you've got detailed engineering and all that, that's costing you some money as part of it. And then it takes two, three years to build it and start it. So, the spread of CapEx is going to be very manageable for the company over the course of several years.

Okay. And then, just last question, when you look at your business, I mean, I think you have pretty good visibility across a lot of it and even with You know, within aerospace, I understand there's destocking, but, you know, Airbus has laid out some relatively specific production guidance, at least along the lines of the A320, the next couple of years. So I'm just curious, what's the hesitancy to provide a range of full-year guidance at this point, and is that something that you think you would look to do next quarter?

Yeah, so, you know, we like to be reasonably conservative, and we like to be reasonably sure, and we take decisions. know giving guidance very seriously and we want to be able to give you guidance within a reasonable reasonably precise range which we don't feel we're able to do just now however we are giving guidance on free cash flow for the full year which is a little bit easier than EBITDA because obviously you know you've got some If EBITDA is higher because you're shipping more, then you've got more working capital, it dampens a little bit the impact on free cash flow. So the visibility is improving, but we are not yet at the stage where we feel we can give you the guidance we'd like to give you, which is a reasonably tight guidance for the full year. And I'm sorry to disappoint, but we want to keep our conservative approach to life.

Yes, no, understood. Thank you very much.

You're welcome. Thanks, Kurt.

Thank you. The next question comes from the line of Josh Sullivan from Benchmark Company.

Good morning, Josh.

Sir, your line is open. Good morning.

Good morning. Yeah, just a question on the overall automotive exposure and outlook. You're curious on the automotive OEM 30-, 60-, 90-day order schedules. How are those lining up? I know you said you don't see too much impact from the semi-issue and the weather event. That's helpful. But do those 90-day order schedules, are they showing more promise?

They continue to be strong. And the trend that I highlighted in Q4, when you look at every segment, I'm talking beyond automotive, but every segment is at or above last year by quite a bit. except for aerospace, obviously. We're seeing that continued strength in the market. But I guess the year we lived through last year is making us a little bit cautious. And we're looking at it with a cautious optimism, and it's certainly in automotive. And it's driven by the fact that the market continues to be good. But remember, aluminum continues to penetrate in automotive. We see gains in share of aluminum in vehicles, and that's further amplifying the strength of the underlying market.

And then some of the auto OEMs reported so far, talking about how they're supporting the suppliers and they're going to take a hit on their own cash flow. Is that part of your confidence in that $100 million pre-cash outlook? Are the payments from the OEMs a little better than the order flow optics at this point?

No, I wish they were, but I think they're dedicating their support to other suppliers as they need it more than we do.

No visible change in that regard, Josh.

Great. Thank you for your time. Their generosity doesn't extend to us, which is a good sign, which is a good sign. Thanks.

Thank you. The next question comes from the line of Chris Ferry from Deutsche Bank. Sir, your line is open.

Thank you. Hi, Jean-Marc and Peter, and well done on the cash flow in 2020 in particular. I had a couple of questions. Hey there. Just in terms of the impact from the autos, I know you've touched on this a little bit already, but what you're saying conceptually is that over the course of 2021, you think that there's an ability to catch it up and the impact should be relatively modest even though you have included some in that $10 million for the first quarter. But you think there's nothing alarming at this stage to indicate that there could be setbacks further on and you'd probably catch it up through the year?

Yeah, I think it's fair to say that the $10 million we're highlighting as a headwind in Q1 is really a one-off. Well, Q1 is not over yet, but that said, the strike factor is, you know, it's done, it's behind us. The weather, it's done, it's behind us. The snow has melted. The roads are passable so that people can come to work and trucks can leave and deliver to customers. So that's behind us. The semiconductor shortage, I think the signs are encouraging that the worst is behind us, but we have to see. If the semiconductors don't get worse, I think there's a fair chance we can close the gap and recover what we lost in Q1.

Okay, thank you. And then just for the business overall in terms of Europe versus U.S., you touched on some of this for the specific end markets, but just wondering sort of higher level and maybe focusing several years out, Which of the markets are you more encouraged by, just from a regional point of view, where when you think about the ESG trends and some of the bigger picture trends in the industry, are you pretty comfortable being roughly 50-50 exposed to the two regions, or is there a preference to go further into one than the other?

At the macro level, America has proven through many, many cycles that it rebounds from a crisis stronger than Europe does. But that's a very high-level consideration. If I look specifically for us, can in Europe looks very good, just as in the U.S. Remember, we've got twice as much can sheet, roughly, exposure in the U.S. than we do in Europe. Automotive is strong in Europe and continues to be strong, and we're exposed to really the higher end of the market, and that's also going very well. especially in a crisis where, you know, the impact on the consumers has been differentiated and those customers that would be buying the cars on which we are tend to be more shielded from the crisis than others. So we continue to see a strength in Europe in both can sheet and auto sheet and auto structures as well. So we're quite optimistic. It feels like overall the industrial markets in Europe will take longer and will be a little bit more challenged in their recovery process than in the U.S. We're seeing TID in the U.S. be very strong, and it's still weak in Europe. And I think that trend is likely to continue because, again, Europe recovers typically less quickly from crisis than America does.

The only thing I'd add there, Chris, is that the ESG trends in Europe are stronger, so maybe that gives a little bit of a boost to Europe. And the second thing I'd add is that, you know, again, we've really benefited from the diversified platform that we have, and we don't want to give that up. So we'll maintain, you know, the balance that we have going forward.

Thank you. And just one might be for Peter, but on the working capital for the first half of the year, I mean, you've given the guidance for the key items to think about, the free cash flow, over the full year. Just wondered maybe if you can talk to sort of how you're thinking about that progression and maybe some of the working capital considerations.

Sure, sure. Happy to do it. So first, I just want to take a step back and comment on kind of I think what was really great performance over the last couple of years on trade working capital. And if you look at the numbers, we generated a lot of cash in 2019. We generated a decent amount of cash in 2020 from trade working capital. So, you know, we're coming off of the back of two strong years of performance. You know, as our business ramps and as our growth projects come in, there's definitely going to be a consumption of trade working capital. And I think you saw evidence of that in the fourth quarter where, you know, kind of if you look at the trade working capital on the cash flow statement, you'll see it's kind of a youth of about 30 million, right? You know, when we look at 2021, we expect that trade working capital is going to be a use of cash in the year. It's a little early to define what that use means because in terms of a quantum, and that's because, you know, obviously it's hard to see right now for the same reason that we're, you know, kind of not giving EBITDA guidance. It's hard to see what these ramps are going to look like. Does aerospace come back in the second half? That could be a big differentiator. So, you know, I think we can say that we believe it's going to be a use in the year, given our historic performance and what we see in front of us right now. But I think we need a little more time to quantify what that use is going to be.

Okay. Thanks, Peter. And then just one more, if I can, just on aero. I just wanted you to give us a bit more of a flavor of the kind of conversations you're having with those companies and maybe the timing of when you'll know how the back half shapes up and just remind us how far out you negotiate deliveries for your product.

Yeah. So Chris, typically we've got six months of good visibility and up to six months of good or firm visibility. So we are not yet at a point where we can say exactly how the last second half of the year will unfold. The thing that makes it difficult from our customers is because these are long supply chains, it is difficult to exactly assess what product is available at what stage in the production process between us and the final aircraft. And therefore, it's difficult for... for us to get a good feel for when this stocking is over and they really need to realign build rates with supply rates. So that's where we are. It's still, you know, obviously the uncertainty will dissipate as we get closer to July, but at the moment it's still uncertain as to what happens in the second half. Okay.

That's it for me. Thanks, guys. Thanks, Chris.

Thank you. Our next question comes from the line of Christian George from Society General. Sir, the line is open.

Thank you very much, and good afternoon. I was going to ask you a question on your auto extrusions. I see the shipments in the fourth quarter were flat compared to the third quarter. In steel casting, Europe in particular, we've seen quite a strong increase late fourth quarter because OEMs had somewhat reduced their inventories and that boosted demand from suppliers. Is that not the case for you? And looking to the next few quarters, should we expect perhaps a sharper increase in shipments in that particular activity?

Yes. We had a very strong pickup, Christian, in June, July, and I think the issue with inventories being depleted may have been different for us than for others. So that's one factor. The other factor is there's a platform in the U.S. where we are... uh quite exposed that has suffered more from a semiconductor shortage so that is also explaining a little bit why we don't see that continued growth in the fourth quarter i think this is temporary and again i mean aluminum is penetrating the cards were on typically sell well when the semiconductor issue is behind us we'll see a resumption of growth okay

And still on automotive, but on your rolled shipments, 62,000 tons, that's the best quarter you've had to date. If we project ourselves end of the year or into 2022, what do you reckon these numbers would be roughly? Are we looking at a 10,000 ton increase within 12 months, or is it perhaps too optimistic?

Well, the year is not over, and we don't like to give that level of precision in our outlook, but I would expect our role product shipment to continue to grow, maybe not at the same clip as what you're seeing right now in one quarter. Again, one quarter doesn't make a trend. And also, we're very focused on maximizing the value add and maximizing the profit, so we are not going after every ton out there. We really want to go after the most profitable products where we bring something different to the market. So I expect to see continued growth and I expect to see continued margin improvement in our segment.

Okay. Very clear. Thank you very much. One last thing. The increasing amount of recycling in your mix, you know, as per your 10% target, does this... come with potentially some lower costs of aluminum for you relative to your selling price?

Yes. I mean, good question, Christian. Absolutely. You know, we're very excited about sustainability because it's good for the planet, but also because it makes more money for us and our shareholders. That's a very important factor. So, yes, that lowers for us the cost of aluminum, and that's how we make money and we justify investing in aluminum. in more recycled capacity.

Great. Thank you very much.

Sure.

Thank you. Our next question comes from the line of Matthew Fields from Bank of America. Sir, the line is open.

Hey, everyone. I want to ask a couple things. You know, you obviously did good work cleaning up your highest coupons. with your refinancing. What's kind of the next priority for the capital structure? Is it the 2024 notes, which also have a high coupon and step down in May? Or what's the next iteration?

Yeah, good question. So, you know, we really like the position that we sit in right now because, as you know, our nearest maturity is 2024. And so we've got the luxury of kind of taking our time and finding the right opportunity to to do a financing. As you saw in our February financing, we were extremely pleased to achieve a 3.75% dollar coupon. So we're looking at the capital structure. We're looking at, you know, kind of all of the different components of the debt stack. And as we see opportunities to jump into the market and kind of get attractive financing, we'll certainly evaluate those. But we haven't made any decisions on that at this point.

Okay, fair enough. Obviously, you've got a lot of latitude if you can issue below 4%. So the next thing is basically the can space. You talked a little bit about the contract reset, but all the signs are just so bullish on that market. I think Coke and Pepsi warned about price increases around 10%. You've seen so many capacity additions by the can producers. One of them was just bought in the SPAC. I mean, all the signs are there. What Do you sort of get concerned about your capacity in the canned sheet market in North America? Is the bottlenecking you did at Muscle Shoals adequate? When do you feel the need to maybe invest in more capacity?

So, yeah, no, that's a fantastic opportunity for us, and I grow more and more optimistic every quarter that goes by. I am not concerned about our ability to increase our capacity. As I mentioned earlier, we're well on track for our 75,000 tons objective, we could be doing more. I think we'll be doing more within the framework of what we've decided to do. If we want to go further, we have some investments to make, and we'll make those investments when we get a very good return on them. And we know what they are, we know what we need to do. So it's just a matter of aligning the planets and getting us in a place where we're very excited from a value creation standpoint at the opportunities we have. And I think that time will come. It's not only dependent on us. It's going to be in lock steps with our customers. But I think this is, as you point out, a very good backdrop for us and a very good market context.

All right. Fair enough. Thanks very much and good luck this year. Thanks, Max.

Thank you. And our next question comes from the line of Sean Wondrak from Deutsche Bank. Sir, your line is open.

Hi, guys, and congrats on your inaugural sustainability link bond offering.

Thank you, Sean.

Just two quick questions, if I may. So, firstly, do you expect to continue to reap waiver savings related to European government assistance during 2021? And if so, could you please provide a rough magnitude relative to benefits received in 2020?

Yeah, good question, Sean. So obviously, if you look at the shape, so it's 22 million for the full year. The biggest portion of that happened, obviously, in the second quarter, and then it tailed off in the third quarter. And you can see in that we, you know, kind of cited the number in the fourth quarter, right? As we go into 2021, With really all operations except for aerospace running back at numbers that are – or at rates that are well in excess of where we were in 2019, you know, that number will be a much smaller number. The program still exists, obviously, across Europe. So, you know, we will get some benefit from it in the aerospace, in the A&T segment. But it'll be – you know, I'd say if you're thinking about it for a full year, it's probably – you know, less than $5 million for the full year I would think would be a decent number, probably, you know, a million or so a quarter, something like that.

Okay, so nothing material. Appreciate the clarity there. And then just following up on the capital structure, is it fair to expect that Constellian may pursue additional sustainability-length offerings moving ahead as you, you know, move to refi your cap structure, considering your heightened focus on ESG lately?

Yeah, so we had a very good experience, as you know, in the financing we just did. We like the concept of putting our money where our mouth is. So, you know, we believe our story kind of lends itself to some of the trends in sustainability that are out there. And so I think, you know, we are prepared to kind of put I guess, are cost at risk to achieve the goals that we've set for ourselves. So I think it's logical that we would, you know, that we continue to pursue that.

That's great. As always, very helpful. Thank you and good luck in 2021.

There are no further questions at this time. Turning the call over to Mr. Jean-Marc Germain, CEO of Constellium. Sir, please continue.

Well, thank you very much all for attending. And as you can see, I hope we've demonstrated that Constellium is able to generate significant free cash flow in good weather or bad weather. And we look forward to a less exciting year in 2021 with still very substantial free cash flow generation. Thank you, everyone. Goodbye.

Ladies and gentlemen, this concludes today's conference call. Thank you all for participating. You may now disconnect.