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Constellium N.V. (NYSE:CSTM)
Q2 2019 Earnings Call
Jul 24, 2019, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to the Constellium Q2 2019 Results Conference Call. [Operator Instructions]

It is now my pleasure to hand the conference over Mr. Ryan Wentling, Director, Investor Relations. You may begin.

Ryan Wentling -- Director of Investor Relations

Thank you, operator. I would like to welcome everyone to our second quarter and first half 2019 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 this presentation. We undertake no obligation to update or revise any forward-looking statements as a result of new information, future events or otherwise, except as required by law.

In addition, today's presentation includes information regarding certain non-GAAP financial measures. Please see the reconciliations of non-GAAP financial measures attached in today's slide presentation, which supplement our IFRS disclosures.

I would now like to hand the call over to Jean-Marc.

Jean-Marc Germain -- Chief Executive Officer

Thank you, Ryan. Good morning, good afternoon, everyone, and thank you for your interest in Constellium. On Slide 5, you will see some of the highlights from our second quarter performance. Shipments were 413,000 metric tons, that's up 4% compared to the second quarter of 2018. Our shipments to each of our three core markets, packaging, automotive and aerospace increased compared to the second quarter of last year.

Our revenue increased 4% to EUR1.5 billion. This was primarily due to the consolidation of Bowling Green and improved price and mix, partially offset by lower metal prices. It is important to remember that we substantially bust through metal prices. Our net income of EUR17 million declined compared to a net income of EUR55 million in the second quarter of last year.

Our Adjusted EBITDA was EUR167 million. That is a record quarter for the Company and increased 8% compared to the second quarter of last year. A&T had an exceptionally strong quarter, benefiting from a higher TID pricing, strong aerospace demand and solid operational performance. P&ARP had a good quarter with higher shipments and solid execution. AS&I continues to experience higher costs related to new product launches and the planned build out of our footprint, which we have highlighted on recent calls.

In the first half of 2019, Constellium generated EUR302 million of adjusted EBITDA, a 10% improvement compared to the first half of last year. Looking forward, based on our strong first half performance, we now expect adjusted EBITDA to grow by 13% to 15% in 2019. This compares to our previous guidance of 8% to 10% growth.

Free cash flow was a positive EUR53 million in the second quarter and a very impressive EUR126 million in the first half. I am very proud of our execution on these critical objectives. We have deployed our free -- first half free cash flow toward the gross debt reduction objectively we outlined in recent calls. You will remember that we repaid the Bowling Green leases in the first quarter, and in July, we announced the repayment of EUR100 million of our 2021 bonds.

We will continue to deploy our free cash flow to further reduce our gross debt. Looking forward, based on our very strong first half performance, we now expect to generate free cash flow of EUR125 million to EUR175 million in 2019, a significant increase from our previous free cash flow guidance of over EUR50 million.

On Project 2019, we increased our run rate cost savings to EUR68 million as of the end of the second quarter. We remain on track to reach our goal of EUR75 million of run rate cost savings at the end of the year.

Overall, I am very pleased with our second quarter and first half results. We significantly increased our full year 2019 guidance for both adjusted EBITDA and free cash flow. We remain very focused on executing on our strategy and delivering on our 2022 objectives of over EUR700 million of adjusted EBITDA, and leverage of 2.5 times.

With that, I will now hand the call over to Peter for further details of our financial performance. Peter?

Peter Matt -- Executive Vice President and Chief Financial Officer

Thank you, Jean-Marc. And thank you, everyone for joining the call today. Turning now to Slide 7, you will find the change in adjusted EBITDA by segment for the second quarter and the first half of 2019 compared to the same period of last year.

For the second quarter of 2019, Constellium achieved EUR167 million of adjusted EBITDA, an increase of 12% -- excuse me, an increase of EUR12 million, or 8% year-over-year. P&ARP adjusted EBITDA of EUR79 million increased by EUR4 million. A&T adjusted EBITDA of EUR64 million increased by EUR17 million. AS&I adjusted EBITDA of EUR30 million decreased by EUR9 million. Lastly, Holdings and Corporate was comparable to last year at EUR6 million. We continue to expect H&C cost of approximately EUR 20 million for the full year of 2019.

For the first half of 2019, Constellium earned EUR302 million of adjusted EBITDA, a EUR26 million -- an increase of EUR26 million, or 10% from the first half of 2018. P&ARP adjusted EBITDA of a EUR138 million was up 9% compared to the first half of last year. A&T adjusted EBITDA of a EUR116 million increased by 40% year-over-year. AS&I adjusted EBITDA of EUR59 million decreased by 22% year-over-year.

Now, turn to Slide 8, and let's focus on the P&ARP segment. Adjusted EBITDA of EUR79 million increased 6% compared to the second quarter of last year. Volume was a tailwind of EUR11 million as shipments increased by 7%. Packaging rolled product shipments increased by 4% on strong demand and solid operational performance. Automotive rolled products shipments were up 23%, benefiting from the consolidation of Bowling Green shipments and the continued ramp up of our automotive capacity.

Our two new comp lines in Neuf-Brisach, Franc, and in Bowling Green, Kentucky, are running well and the ramp ups are on track. We continue to ramp up these -- we will continue to ramp up these lines over the course of 2019, with full production in 2020.

Pricing mix was a headwind of EUR5 million. Costs were a headwind of EUR1 million as favorable metal costs were offset by increased maintenance and costs from the ramp up of our automotive programs. Bowling Green generated negative EUR3 million of adjusted EBITDA in the quarter, and we continued to expect the plant to generate negative EUR10 million to negative EUR15 million of adjusted EBITDA in 2019. FX translation and the application of IFRS 16 were each a EUR1 million tailwind.

Now, turn to Slide 9 and let's focus on the A&T segment. Adjusted EBITDA of EUR64 million increased 38% compared to the second quarter of last year. Higher aerospace shipments were offset by lower TID shipments in the quarter. Pricing mix improved by EUR18 million in the second quarter, primarily driven by higher TID prices with some benefit from improved aerospace mix. Costs were a headwind of EUR2 million in the quarter, largely related to the higher energy -- to higher energy prices in Europe and increased maintenance expense. Lastly, FX translation and the application of IFRS 16 were each a EUR1 million tailwind in the quarter.

Now, turn to Slide 10 and let's focus on the AS&I segment. Adjusted EBITDA of EUR30 million decreased 25% compared to the second quarter of 2018. Volume drove a EUR6 million improvement. Cost increased by EUR17 million compared to the second quarter of 2018, due to incremental costs related to the new product launches and the expansion of our footprint. We are facing some challenges on a few of our growth projects. As we have noted in earlier presentations, Automotive Structures projects can be challenging to start up.

As we said, with Bowling Green, predicting the exact timing of a successful start-up can be difficult. But we know what we need to do and we are working on it. We are confident that we are on the right path and that we have the right team in place to execute our plan. As we noted last quarter, we will slow down the growth of the business in order to get it back on track. We are targeting 2019 nominations of about half of what we have achieved in recent years. These nominations will be back half weighted as we achieved under EUR50 million of nominations in the first half of 2019. Lastly, the application of IFRS 16 was a EUR3 million tailwind.

Now, turn to Slide 11, and I will update you on the progress we have made on our cash improvement initiative, Project 2019. By now, you know that there are three pillars to Project 2019, cost reduction, working capital improvement, and capital discipline.

On cost savings, we achieved an additional EUR8 million of annual run rate cost savings during the second quarter of 2019, bringing our total run rate to EUR68 million of savings. These savings resulted from several different initiatives, including further metal optimization initiative, insourcing, some external third-party machining, and a number of additional actions by our procurement team. We remain confident in our ability to deliver on the EUR75 million of annual run rate cost savings by the end of 2019.

Now, let's move to a trade working capital. We are proud of our much improved trade or our working capital performance in the first half of 2019, where we managed to more than offset the working capital growth associated with our growth initiatives. Over time, we continue to expect trade working capital investment related to the substantial growth of our business. We will work hard to offset some of this growth with working capital reduction across the business. And we remain confident that trade working capital optimization is a meaningful cash improvement opportunity for the Company.

With respect to capital spending, we continued to expect spending in 2019 up EUR265 million. We believe this level of spending strikes the right balance between maintaining our assets and investing in the future. I want to stress that we remain very focused on capital discipline and that the projects we are investing in are linked to firm customer contracts and come with attractive IRRs and paybacks.

Now, let's turn to Slide 12 and discuss the balance sheet, our free cash flow and our liquidity position. Our net debt at the end of the second quarter was EUR2.2 billion, and our leverage was 4.1 times. We remain committed to delivering and expect leverage to drop below 3.8 times by the end of the year. As Jean-Marc noted in the beginning of the call, we generated free cash flow of EUR126 million in the first half of 2019. We are very proud of our free cash flow performance and we are looking forward to building a track record of consistent and substantial free cash flow generation.

As a reminder, our first top free cash flow included the benefit of EUR25 million from incremental factoring associated with returning our factoring balance back to historical levels.

As a consequence of our free cash flow generation and the strength of our liquidity position, we began to reduce our gross debt. As noted on our first quarter call, and as Jean-Marc noted earlier, we elected not to extend approximately EUR50 million of leased financing associated with our purchase of Bowling Green. Further, we announced the redemption of EUR100 million of our 2021 bonds in July. This is another important step toward our deleveraging goal of -- for 2022, and further demonstrates our commitment to reducing gross debt levels. As we generate additional free cash flow, we will continue to reduce our debt.

As you can see in our debt summary on the bottom left hand side of the page, we have no bond maturities until 2021, and pro forma for the EUR100 million repayment, our 2021 maturity will be less than 0.4 times our LTM adjusted EBITDA. Our cash plus amounts available under our committed facility was EUR588 million at the end of the second quarter. We remained very comfortable with our current liquidity position.

Now, I will hand the call back to Jean-Marc.

Jean-Marc Germain -- Chief Executive Officer

Thank you, Peter. So turning to slide 14, let me share a few end market updates. I'll start with the automotive markets. Automotive remains a secular growth market for aluminum. We are confident that OEMs will continue to lightweight vehicles, thereby increasing fuel efficiency and reducing CO2, and other emissions. Further, electrification of vehicles, a significant potential for aluminum. Aluminum allows for lightweight in order to increase the range of the vehicle, and is a preferred material to make strong, but light battery enclosures. Constellium is well positioned to realize the benefits of the secular shift to aluminum in automotive.

Turning to the near-term trends, the outlook for North American and European automotive sales we saw a year-over-year decline in 2019. However, sales of light trucks, SUVs and luxury cars continued to outperform the market. And I'll remind you that we have more exposure to these types of vehicles.

Our automotive shipments grew 17% in the first half of the year, despite an overall decline in automotive sales in the first half of 2019. We believe this is compelling evidence that our strategy to target the secular growth market is working. We do, however, observe pockets of weakness in auto, and we will continue to closely monitor the market. We have been and will remain prudent with our investment. As I have noted many times in the past, we will not make incremental investments without firm customer commitment and strong confidence in end market demand.

Let's turn now to Aerospace. We expect Aerospace to continue to be an attractive market driven by sustained OEM build rates and healthy backlogs at the major OEMs. We will remain focused on maintaining our leadership positions with the major OEMs, and expanding our relationships with business and regional jet manufacturers.

In recent quarters, aerospace demand has exceeded our expected long term growth CAGR of 2%. We expect this demand strengths to continue through the remainder of 2019. Now, there are a lot of questions about the Boeing 737 MAX. However, based on what we currently observe, we do not expect the issue to impact our 2019 guidance.

With respect to Packaging, the markets remained stable. In the U.S., we expect the continued growth of auto body sheet demand to help tighten the packaging market over the medium to long term.

In Europe, demand continues to grow based on substitution of aluminum for steel. Aluminum cans are an increasingly preferred and more sustainable solution compared to glass or plastic packaging. Aluminum is infinitely recyclable and retains its properties after recycling. In recent quarters, we have seen increasing evidence of beverage producers considering the switch to cans from alternative packaging forms. We are monitoring this trend carefully, and note that it merely present meaning opportunities for can sheet demand over time. Constellium is well positioned to benefit from this trend as a significant producer of can sheet in both North America and Europe. And I want to stress that we are very committed to the can sheet market and our customers can depend on us.

Finally, we continue to execute on our strategy of expanding into niche products and markets, including transportation, industry and defense. While the North American transportation market has seen some temporary weakness of late, driven by excess supply, the underlying demand of many of these markets remain strong or stable.

Turning to Slide 15, we detail our financial guidance and outlook. We expect to deliver a range of 13% to 15% adjusted EBITDA growth in 2019. We are targeting EUR125 million to EUR175 million of free cash flow in 2019. We expect leverage of below 3.8 times at the end of 2019. Our 2022 targets are over EUR700 million of adjusted EBITDA and a leverage ratio of 2.5 times.

I am very proud of our exceptional second quarter and first half performance. Thanks to the efforts of the team, we are well positioned to deliver on our long term objectives. We remain focused on operational execution, harvesting the benefits of our investments, disciplined capital deployment, debt reduction as Peter said, and shareholder value creation.

With that Brian, we will now open the Q&A session.

Questions and Answers:

Operator

Thank you, sir. [Operator Instructions] And our first question will come from the line of Martin Englert with Jefferies. Your line is now open.

Martin Englert -- Jefferies & Company -- Analyst

Hi. Good morning, everyone.

Jean-Marc Germain -- Chief Executive Officer

Good morning, Martin.

Martin Englert -- Jefferies & Company -- Analyst

Within the A&T segment, you noted EBITDA improved year-on-year from some price mix, mostly in transportation and industry. Can you discuss some of the pricing trends in a little bit more detail, and maybe how that progresses into the back half of the year here?

Jean-Marc Germain -- Chief Executive Officer

Sure, Martin. So we are very pleased with the performance in A&T, right. And as you point out, it's got to do with our performance in TID but, again, aerospace, as I mentioned in my remarks, was very strong, stronger than we anticipated. And all that creates a very good backdrop for the markets in which we operate. We've also had very good operational performance in our plants, in both Europe and the U.S. So that has allowed us to really capture a lot of our growth and selectively go up to the best markets and the best opportunities we have.

So we see -- more specifically on a question about pricing [Indecipherable] we have seen a stronger pricing environment for us, which is good. And our focus has been to make sure that this is not a flash in the pan and we have worked very hard to extend as much as possible through long term contracts in a lot of those niches -- TID niches, our relationships with our customers.

So in that process, one can say that obviously there are some concessions that we make on pricing to extend the contracts into longer term contracts, so that gives us visibility two, three years out. And it's very important for us to build all the blocks to get to our 2020 two objectives and beyond.

So that's been what's happening. So I expect the situation to continues to be a very positive for us in the second half of this year. That is underpinning our revised and increased guidance for the year. So maybe in the first half year, we didn't capture everything we could have in pricing and maybe in the second half of the year, pricing may be a little bit less good. But we have a very good position in this market overall, so I look at the second half with a lot of confidence.

Martin Englert -- Jefferies & Company -- Analyst

Okay. Thanks for all that added detail there. And if I could one other within AS&I EBITDA remains at more modest levels in the first half due to the expansion and new products. Looking into the second half, can you discuss in a little bit more in detail your expectations for earnings and volume within that segment?

Jean-Marc Germain -- Chief Executive Officer

Yes. So as Peter mentioned in the beginning, the start of all these new investments and all these new plants, and I think we've virtually doubled the square footage of our operations in -- all those structures, both in Europe and the U.S., is proving a little bit more challenging than we had anticipated, and it is coming with the additional costs. And you've noted that we're EUR17 million behind in the first half of this year compared to last year. We're working very hard to claw that back and get to a place where our performance becomes satisfactory. And again, delivers on the expected -- the expectations we have.

A lot of that cost as we mentioned is a fully planned out. We knew that this was happening. Some of that additional cost is also linked to programs from platforms, from customers that are not ramping up as fast or that are a bit delayed because these are complicated new vehicle launches they were faced with. So really the timing may fluctuate a bit, but we will end up with a very strong position within auto structures footprint that has doubled in size compared to where we were just a few years ago. And that will deliver very good prospects to customers, also very good margins for us. So our focus is really executing those launches properly, and controlling everything we can, and we'll come out of that with a strong platform going into 2020.

Martin Englert -- Jefferies & Company -- Analyst

Okay.

Peter Matt -- Executive Vice President and Chief Financial Officer

Yes. And Martin, the only thing I'd add -- sorry, the only thing I'll add is just that the kind of despite having gone through this, our perspective on the long term margin potential of the business has not materially changed. We still think it's a very attractive business.

Jean-Marc Germain -- Chief Executive Officer

Absolutely.

Martin Englert -- Jefferies & Company -- Analyst

Okay. So understand the long term view on things. But we've been running around like EUR30 million quarterly EBITDA there, and I think previously there was some expectation that this may be back half loaded with an improvement. Would it be more conservative to assume at this point that maybe kind of continues to trend around that EUR30 million EBITDA market quarterly in the back half of the year due to some of these growing pains?

Jean-Marc Germain -- Chief Executive Officer

I think that'd be extremely conservative. We are planning to deliver more than that. But it will take some time and it may not happen all at once.

Martin Englert -- Jefferies & Company -- Analyst

Okay. Thanks for the added detail, and congratulations on results there.

Jean-Marc Germain -- Chief Executive Officer

Thank you.

Operator

Thank you. And our next question will come from Curt Woodworth with Credit Suisse. Your line is open.

Curt Woodworth -- Credit Suisse -- Analyst

Thanks. Good morning, Jean-Marc, and Peter.

Jean-Marc Germain -- Chief Executive Officer

Good morning, Curt

Peter Matt -- Executive Vice President and Chief Financial Officer

Hi, Curt.

Curt Woodworth -- Credit Suisse -- Analyst

Jean-Marc, I was wondering if you could help us understand a little bit of, I guess, the optionality of your asset base within can sheet. Some of the can sheet makers have publicly stated that they think or can makers have stated that they see a shortage of can sheet capacity in the United States. It seems like you're one of the few companies that actually has capacity or capacity growth embedded in Muscle Shoals, partly from automotive readiness.

So just wondering, would you be willing to look to expand capacity there? Is there an opportunity to say partner with a can maker and potentially reprice capacity earlier? Just kind of want to better understand the opportunity set for you.

Jean-Marc Germain -- Chief Executive Officer

Yes. So we -- as we mentioned during the investor presentation in December, we do have significant capacity improvements, potential at Muscle Shoals. And I think at the time we highlighted 75,000 tons of potential increased capacity. So as Peter was mentioning in his comments, we are investing quite a bit in maintenance to make sure that our assets are actually performing better. So within the assets we have, we believe we have potential with marginal investment.

We are not yet at the stage where we look at expansion of our footprint and new meals or substantially increase the power of new stands or new motors or that kind of stuff right. But we will -- we're in close contact with our customers. Obviously, we try to meet their needs, while still meeting our needs as well. It is very important that we get compensated for the value we're bringing. And so we've got an ongoing dialogue. We feel good about the long term prospects for can sheet. And you will note that we have not made an investment decision around the second or scout line [Phonetic] either; another scout line in Bowling Green.

So we've got lots of options open to us in terms of where we decide to put our investment dollars in the future. But at the moment, we're pretty pleased with where we are. We are pleased with the our ability to grow capacity and meet our customer needs, while still meeting our profitability objectives.

Curt Woodworth -- Credit Suisse -- Analyst

Okay. That's helpful. And then just in terms of the two comp lines you're ramping now, you talked about automotive volumes being up pretty nicely year-on-year. But I noted in the bridge, pricing mix was a negative year-on-year in part. But I would have thought the opposite given the leverage at auto, but is that simply a matter of auto being loss making at this point, or can you comment on when do you think we'll be able to see a bigger inflection point from the auto ramp on EBITDA?

Peter Matt -- Executive Vice President and Chief Financial Officer

Yes. Curt, I think the negative price mix that you're seeing there is really more about mix within the mix.

Curt Woodworth -- Credit Suisse -- Analyst

Okay.

Peter Matt -- Executive Vice President and Chief Financial Officer

So you've got on the auto side, you've got inners versus outers; on the packaging side, you've got can body sheet versus can-in stock. And in both of those instances, product to carry different margins. So that can happen and actually it has been happening over the last couple of quarters. But we don't see this as a trend to be alarmed about. This is really just the timing and as we said over time, as we grow the automotive mix, you are going to start to see some price mix improvement there.

Curt Woodworth -- Credit Suisse -- Analyst

Okay, that's helpful. And then just lastly on free cash flow, I mean, pretty incredible changed the guidance, tripling of the sort of initial baseline, about 50 at least. Can you can you comment on the key moving pieces there? Was the upside sort of a function of both better operational performance and working capital? And then as you get into next year, can you talk about how you see capital spending trending and also potential other changes in working capital factoring to get just a little bit better visibility into 2020?

Peter Matt -- Executive Vice President and Chief Financial Officer

Yes. So let's start with this year and the performance we've had. So obviously, operating performance has been better. And so that's -- that underpins it from a start. And then trade working capital has been a significant improvement year for us this year, and really across receivables, inventory and payables.

And as you know, one of the things that we've been talking about for the last three years is really the opportunity that we have in trade working capital. So we've been working on a very concerted effort over this time to kind of get our business to a place where we can sustainably reduce the train -- trade working capital in the business. And I think what you're seeing this year are the fruits of many of those labors, again, across all of the fronts.

I think, we feel as though trade working capital, the reductions that we've achieved, we're confident that these are sustainable. Obviously, you're going to have times when you've got a plan outage or something like that and you've got to build inventory around that. But in terms of the base line, we feel like we've got sustainable improvement, and we feel like there's more room to go.

And, we always talk about Muscle Shoals, but I think that's a classic example of where we've been spending a lot of maintenance reliability. And as we improve the reliability of that mill, we ought to be able to unlock some inventory there. You also know that we've been very disciplined about dealing with our customers on payment terms. And obviously, as we go forward, we'll continue to work on that. So across all of our trade working capital fronts, we continue to think that there is opportunity. And it will be unlocked over time, so it's not an overnight thing.

Now, having said that, we are investing in our business, so we are going to have some natural trade working capital build. And our job as we see them is to try to offset as much, if not all of it, as we are doing this year with compensating reduction. And then maybe just kind of going into 2020, we have not put out kind of new capex guidance for the business. I think it's fair to say, you know, our objective is free cash flow generation, you know that our -- you know that we're focused on debt reduction. So we certainly don't have any significant increase in capex plan. But we will -- as we get a little bit further into the year and our plans get a little more solidified, we'll give you more guidance on that.

Jean-Marc Germain -- Chief Executive Officer

And the only thing I would add is obviously free cash flow generation can fluctuate a bit quarter-by-quarter, right, so whatever we look at is being sustainably and substantially free cash flow generated. I think it really is what it was embedded in our 2022 guidance when we showed that EBITDA will increase, but to get to our leverage target, we would pay down debt. That's what we have started to do. We're happy we're ahead of our plan and we'll try to stay ahead of our plan, obviously quarter-after-quarter, year-after-year. So we're very focused on making sure that our free cash flow generation is sustainable and significant.

Curt Woodworth -- Credit Suisse -- Analyst

That's great to hear. Thank you very much.

Operator

Thank you. And our next question will come from Sean Wondrack with Deutsche Bank. Your line is open.

Sean Wondrack -- Deutsche Bank -- Analyst

Hey, Jean-Marc, Peter, and Ryan. How are you?

Jean-Marc Germain -- Chief Executive Officer

Good morning, Sean.

Peter Matt -- Executive Vice President and Chief Financial Officer

Great.

Sean Wondrack -- Deutsche Bank -- Analyst

So nice quarter. I was taking a look at your working capital again, just a quick clarification. Was any of this improvement during the period related to moving the extrusions from Europe to North America while you're qualifying? And is that part of the program may be done, or where are we with that, please?

Jean-Marc Germain -- Chief Executive Officer

I think you would be talking about the rolled products, right, the -- not exact feedstock for automotive buddy sheets, right?

Sean Wondrack -- Deutsche Bank -- Analyst

Right.

Jean-Marc Germain -- Chief Executive Officer

So no, that does -- I mean, that will contribute a little bit, but that's not a substantial part of it.

Sean Wondrack -- Deutsche Bank -- Analyst

Okay, great. And then just in terms of M&A, be it Constellium looking at other businesses or other tuck ins, or increased interest in Constellium, have you seen anything on that front any more or less activity as of late?

Jean-Marc Germain -- Chief Executive Officer

Well, I mean, as an industry participant, we monitor the market. We look at what's going on. Our focus is free cash flow generations on we can pay down our debt. Okay, that's number one, first and foremost. So us being on the lookout for attractive acquisition or tuck-ins, whatever is very unlikely. We are looking to deploy our cash flow, so that will reduce our debt and reduce our leverage. That's the overarching goal. And in terms of interest in Constellium, nothing to discuss about here. But as we've said a number of times, I mean, if somebody comes in with a very attractive offer, we'll talk.

Peter Matt -- Executive Vice President and Chief Financial Officer

The only other thing I'd add to that is, so you're hopefully hearing loud and clear our focus on balance sheet repair. And a lot of what's driving that is that, we think we need to be from a long term perspective, in terms of M&A, we want to be in a position to be opportunistic. And oftentimes, the best opportunities occur when things are not so good. So our race to repair our balance sheet is to put us in a position so that we got maximum opportunity to do things that will create value for the shareholders.

Jean-Marc Germain -- Chief Executive Officer

Absolutely. And at the moment, we've got plenty of opportunities within our four walls. That is what we're focused on. That is how we're going to repair the balance sheet, get to a place where we're a very strong company. And then we'll see what happens.

Sean Wondrack -- Deutsche Bank -- Analyst

All right. That makes a lot of sense. I'm glad that you're thinking about that. And also we've had this wave of basically conversions away from plastic straws. I was curious, are there any opportunities for aluminum to take share from plastic in any other products that you're making?

Jean-Marc Germain -- Chief Executive Officer

Well, we did have a little experiment about making straws out of aluminum that we used in one of our [Indecipherable] the other day. We got plans that can do that, if anybody's interested. But -- no more seriously, I think, we look at it from a standpoint of -- it's really driven by society than -- and consumer preferences. Governments may way it in terms of plastic bans and those kinds of things that we've seen in some places. And in the beverage companies, right, the -- all the ones remaking the packaging choices. It is very interesting to see that.

Somehow now looking at expanding, how much the brand's availability into -- in cans, that's good for us. And in conjunction with our -- the can makers, our customers, or the beverage companies, which also our customers, we will be here to supply what they need. But it's still very early stages. I think it bodes well for the future. But switching the packaging mix is a long term endeavor, right. It's -- you've got very complex supply chains. You've got plenty of installed capacity, both in making the packaging, filling lines and all that, and the distribution channels and the space it takes in the trucks, on the shelves and the trucks it takes to bring those products to the consumers. So lots of changes. We play a role in it and our role is to be ready. And we are ready to help our customers when new projects and new opportunities arise.

Sean Wondrack -- Deutsche Bank -- Analyst

Okay. Well, thank you for answering my questions.

Operator

Thank you. [Operator Instructions] Our next questions will come from the line of Matthew Fields with Bank of America. Your line is now open.

Matthew Fields -- Bank of America Merrill Lynch -- Analyst

Hey, everyone. Just -- I'm assuming that this is the case. But just to clarify, the EUR100 million redemption of the '21, that was funded with cash on the balance sheet, not revolver borrowing, right?

Jean-Marc Germain -- Chief Executive Officer

Yes.

Matthew Fields -- Bank of America Merrill Lynch -- Analyst

Okay. Thank you. The '22 guidance of at least EUR700 million of EBITDA, does that reflect any new can sheet contracts, or is that sort of based on your existing contract mix?

Jean-Marc Germain -- Chief Executive Officer

No. So it is based on basically the current level of business we have in can sheet. I mean, we haven't given a breakdown of our shipments or our revenues by market for 2022, right. But a safe way to look at it is, along the lines we've shared, which is can sheet is essentially 0% to 1% growth, right. Aerospace is 2% growth, trend line. And automotive is growing more like 10% growth right, roughly.

So what that means is essentially we have the same volume of can sheet now and in the future, now the mix of contracts may change between now and 2022, we'll have essentially the same customers because there's a limited number of customers and suppliers, but the mix of customers, how much business we do with this customer or that customer may change.

Matthew Fields -- Bank of America Merrill Lynch -- Analyst

So you're not...

Peter Matt -- Executive Vice President and Chief Financial Officer

The only other point I'd add is, so we did not -- we have not assumed price increases.

Jean-Marc Germain -- Chief Executive Officer

That is correct.

Matthew Fields -- Bank of America Merrill Lynch -- Analyst

Yes. That's what I was getting at.

Peter Matt -- Executive Vice President and Chief Financial Officer

Yes.

Matthew Fields -- Bank of America Merrill Lynch -- Analyst

You've factored in any upside from tightness in the market or increased regulation in Europe on recycled content or something, OK.

Peter Matt -- Executive Vice President and Chief Financial Officer

We have not.

Matthew Fields -- Bank of America Merrill Lynch -- Analyst

So the other part of guidance, 2.5 times net leverage by '22 means about EUR1 billion -- EUR1.75 billion [Phonetic] of net debt, which is -- from just 700 times 2.5. So that's about EUR400 million less than today. So you did the EUR100 million redemption this year, and then if you get EUR100 million each of '20, '21, '22, you're kind of there. Is that the right way to think about it? Is are going to be more lumpy debt reductions? How do we kind of think about you're getting down to a lower net debt level?

Peter Matt -- Executive Vice President and Chief Financial Officer

Well, so as we as we said, our goal is to be sustainably and significantly positive free cash flow, right. So -- and our priority is to use our free cash flow for debt reduction. So we will be reducing debt on a -- kind of a regular basis going forward here as we generate the free cash flow. And as to -- I think hopefully we'll be able to exceed your number of -- I think you said EUR100 million and a EUR100 million, so -- and EUR100 million. So hopefully we'll be able to exceed that number.

Matthew Fields -- Bank of America Merrill Lynch -- Analyst

Okay. And then...

Jean-Marc Germain -- Chief Executive Officer

And I think exactly how it happens when Peter will be opportunistic and we'll look at the what is the best use of cash at any given point in time in terms of what do we -- what type of debt do we retire.

Peter Matt -- Executive Vice President and Chief Financial Officer

Exactly. [Phonetic] Yes.

Matthew Fields -- Bank of America Merrill Lynch -- Analyst

And then lastly, do you think it's advantageous or in some cases required for you to be investment grade to be a Tier 1 aerospace provider?

Peter Matt -- Executive Vice President and Chief Financial Officer

No, we don't. We do not feel. And we think to be honest, what we're trying to manage here is a capital structure that is efficient for all of our stakeholders. So, obviously, reducing the leverage, I think is good on that front. But one of the other things that we're also conscious of is not over capitalizing the balance sheet. So that -- hence, when we say we think a BB rating is a good place to be, I think that, we feel like at that place, we have maximum access to financial markets in virtually every environment. And if the environment is bad by virtue of the fact that we're kind of a BB credit, we'll have the flexibility to wait until the markets get better.

Matthew Fields -- Bank of America Merrill Lynch -- Analyst

Okay, great. That's it from me. Thanks and congratulations on the good results.

Jean-Marc Germain -- Chief Executive Officer

Thank you.

Peter Matt -- Executive Vice President and Chief Financial Officer

Thanks.

Operator

Thank you. And our next question will come from the line of Christian Georges with Societe Generale. Your line is now open.

Christian Georges -- Societe Generale -- Analyst

Thank you very much. And congratulations for very good quarter results. [Indecipherable] share price is reacting properly today.

Jean-Marc Germain -- Chief Executive Officer

Thank you.

Christian Georges -- Societe Generale -- Analyst

And -- so I Just want to ask a few. [Phonetic] On the automotive sector, we're seeing a lot of warning for many of the automotive suppliers this quarter. And then we've had the problems with WLTP in Europe, the emission testing and so on. And the U.S. market seems to be pretty soft as well.

So I mean is that kind of environment in automotive? And when we look at both your AS&I and your CALP performance, has they both affected by it? I mean, do we see in those results a headwind from a more difficult auto market than you'd expected?

Jean-Marc Germain -- Chief Executive Officer

Yes, Christian. I mean, you could say, I mean, as I mentioned, we're up 17% in shipments, right, compared to last year same time in a market as you pointed out, that is declining both in Europe and the U.S., and even more so in China. And some of the parts we make go to vehicles that are made in Europe and sale to China pricing. So, yes, we are -- we're not immune to what happens in the market.

But because of the platforms we are on, the contracts we have and the fact that aluminum is penetrating in automotive, we are still growing at a pretty significant clip. So that's what we're working on. So we see that weakness, obviously. If it hadn't been, the case, our shipments would have grown even more. We've got some very good plants are running very well now, I mean, both in Bowling Green and Neuf-Brisach, we're in the 80% utilization. So we still have room to grow to get to full production in 2020, and full profitability in 2021, because it needs a bit of fine tuning. So we have potential to grow. And if the markets had been a bit better, we would have shipped a bit more and made a bit more money. So that -- that's what's happening.

Christian Georges -- Societe Generale -- Analyst

Great. So in AS&I for instance, even when the automotive environment improve, that will also add to the positive impact of your new product penetration?

Jean-Marc Germain -- Chief Executive Officer

Yes, absolutely. I should have mentioned same thing in all the structures I mentioned a bit earlier that, exactly how we fare in the second half will depend on how fast some of those ramp-ups happen, and how much of a demand pickup we get. So yes, that is impacting us. If the market had been better, if our customers had been quicker to launch some of the vehicles, we'll be doing much better already today.

Christian Georges -- Societe Generale -- Analyst

Okay. And my second question is on aerospace. And obviously you've highlighted very early on that you don't see any negative impacts from the Boeing situation. I think that has worried quite analysts overall. And when you're saying you're seeing no negative impact, is that straightforward none impact? Or is it because whatever negative you get from Boeing is offset by equivalent positive in other [Indecipherable]

Jean-Marc Germain -- Chief Executive Officer

I think it's a mix of different things. So first of all, I mean, Boeing is a very important customer. The 737 MAX is a very important plane for them and therefore ease for us. And therefore we wish for this situation to be resolved as quickly as possible. But now it's one aircraft, one platform among many. And the build, we're in closer contact, obviously, with our customers [Indecipherable] build rates continuously, right. And therefore, that means we produce more, less for this plane, but more -- less or more for this other plane. And all-in-all, you get some kind of balancing act that play here. And even if the 737 MAX doesn't fly until next year, which is some are saying, we believe that the impact it has on us does exist, but is small, and certainly not of a magnitude that would cause us to revise our guidance for the end of the year.

Christian Georges -- Societe Generale -- Analyst

Great. Thank you very much. And again, well done for the quarter.

Jean-Marc Germain -- Chief Executive Officer

Thank you.

Operator

Thank you. Ladies and gentlemen, this concludes our question-answer-session for today. So now it is my pleasure to hand the conference back over to Mr. Jean-Marc Germain, Chief Executive Officer, for any closing comments or remarks.

Jean-Marc Germain -- Chief Executive Officer

Thank you. And thank you, everyone again for your interest in Constellium. We are obviously very pleased with our results in the quarter, in the first half. But more importantly, we are confident that we will accelerate in the second half. And we are also very confident in the delivering power of this Company. And we hope you are becoming very confident as well.

Thank you so much. And look forward to meeting some of you in New York or elsewhere. Have a good day.

Operator

[Operator Closing Remarks]

Duration: 50 minutes

Call participants:

Ryan Wentling -- Director of Investor Relations

Jean-Marc Germain -- Chief Executive Officer

Peter Matt -- Executive Vice President and Chief Financial Officer

Martin Englert -- Jefferies & Company -- Analyst

Curt Woodworth -- Credit Suisse -- Analyst

Sean Wondrack -- Deutsche Bank -- Analyst

Matthew Fields -- Bank of America Merrill Lynch -- Analyst

Christian Georges -- Societe Generale -- Analyst

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