Howmet Aerospace Inc. (HWM) Earnings Call Transcript & Summary

Good day, and welcome to Arconic Corporation's 2020 Investor Day. I'm Paul Luther, Vice President of Investor Relations. Before we begin, a quick update on safety instructions. So in the event of an emergency, there are 2 exits, one towards the front, leading to emergency exits A and B, and one towards the back, to emergency staircase C. The NYSE has fire safety directors on duty, who will direct us as necessary. After today's presentation, we'll be happy to take your questions. We'll have approximately 45 minutes to an hour for Q&A. I'd like to remind you that today's discussion will contain forward-looking statements relating to future events and expectations. You can find factors that could cause the company's actual results to differ materially from these projections listed in today's presentation and in our most recent SEC filings. In addition, we've included some non-GAAP financial measures in our discussion. Reconciliations to the most directly comparable GAAP financial measures and management's rationale for the use of the non-GAAP financial measures can be found in the appendix to today's presentation. And with that, I'd like to turn the meeting over to John Plant.

So my role this afternoon is very limited. It's just really to introduce Tim Myers and Erick Rasmussen (sic) [ Asmussen ] to the meeting and be around for the Q&A period to make sure there's continuity through that. And with that, Tim, if you and then Erick can come to the podium and take it away. So Tim has worked with me for the last 12 months, leading the rolled products business. So he really is an expert, and he'll be able to take you through what's been going on. And more importantly, the direction of the business for the future, and what you can expect directionally as part of that vision for that 3- to 5-year period. With that said, Tim?

Thank you, John. And welcome, everyone, to Arconic Corporation's first Investor Day. I'm very excited to be here to tell you about a very well-positioned iconic company with unparalleled capabilities in our industry. Our business happens to be benefiting from several secular favorable tailwinds. We have the continued lightweighting of the aerospace and automotive industries. We have the advancement of code in the building and construction segment, and we have the flight from plastics in the packaging industry. Inside of that, our company has very unique assets and technologies, which not only protect our current position but have us well positioned to capture share and drive top line growth. The company is operating very well, driven by improved mix, increased pricing, lower costs, improvements in our scrap utilization and driving OEE. That's transformed to -- into improved financial performance and it's gaining momentum as we get closer to the separation. Our business is a value-added conversion business. We pass through 90% of the metal price volatility to our customers, which assures that we're actually competing on our operational and technical prowess. Finally, you'll see that we're going to launch with a very attractive capital structure. And this business has good cash generation opportunities, which is going to allow us to naturally delever and take care of some legacy liabilities as we begin as a new company. So Arconic Corporation is an approximately $7 billion business, broken into 3 segments. Our largest segment is our Rolled Products division, which has a leading position globally in the aerospace market, a strong #2 position in the North American automotive market, growing positions in the industrial market, a very relevant position in the global packaging market, and then a very strong customer base, including customers like Ford, General Motors, and FCA, Airbus, Boeing and Spirit. Our smallest business is our extrusion business, which generates about 7% of our sales. They derive the majority of their revenue also from the aerospace industry, a very significant supplier to both Boeing and Airbus as well, followed by our portfolio in automotive and commercial transportation. And then the balance of the 16% of our portfolio is in our Building and Construction segment, which is comprised of 2 primary businesses, both pointed at serving the architectural systems and products business. We have our industry-leading Kawneer brand, which has been in existence and a market leader in North America for over 11 decades, which focuses on architectural systems focused on building envelopes for mid-rise, low rise and high rise buildings. When we talk about building envelopes, think nonresidential doors, windows, storefronts and the curtain wall that will go up the sides of the building. We also have an architectural products business which provides decorative aluminum sheet & decorative aluminum composite material, which is basically an aluminum sandwich, also primarily focused on the exterior of the buildings. We have a #1 position, as I indicated earlier, in the global aerospace industry. We're 100% supplier to Boeing on all of their polished wings skins as well as their polished fuselage sheet. We have a growing position with Airbus and primarily the rest of the aerospace industry as well. In our automotive business, we have a strong #2 position here in North America, which is a very attractive market. We are now up to 8 customers, 60 different platforms, business is growing well. We have a #2 position in the North American industrial market, which is a very large market and a market that we're investing in, in one of our facilities here in North America. We have a #2 position globally in the brazing market, which is the heat exchanger market, uniquely positioned with assets in North America, China and Europe. And we also have a very strong position in the global packaging market, specifically with our facilities in Russia and China and the opportunity to reenter the North American packaging market later this year when our non-compete with Alcoa expires. Our building and construction business is led by our industry-leading Kawneer brand. That business is comprised of many customers, so we basically book our revenues in that business project by project, so you're talking about a customer base of literally thousands of customers every year. When you think about us in aerospace, you need to think about large commercial aircraft specifically. Every relevant large commercial aircraft in the industry, from tip to toe you'll find Arconic products. As I said earlier, we have 100% of the wing skins and the fuselage sheet for Boeing. So you can think about us being on the outside of the plane, which has been a traditional strength of ours. Additionally, recently, we've made investments in both an aluminum lithium cast house and a Very Thick Plate Stretcher, which is allowing us to capture more share, more content, inside of the plane, inside of the structure of the plane in both our rolling and our extrusion businesses. That business is very healthy, driven by a continued increase in passenger demand and it's forecast to grow at a 5% CAGR for the next decade. So tip to tip on the airplane, you can think about us going bumper to bumper on passenger cars, light vehicles and SUVs. As I mentioned earlier, our position in this market is growing. We're now up to 60 platforms with 8 different OEM customers. The industry is forecasting continued growth in aluminum auto body sheet. If you were to look at aluminum in general, the forecasted growth of CAGR through the middle of this decade is only 3%. The reason that the growth is so much higher in body panels is many of the aluminum applications that are on a passenger car today are already mature. If you think about aluminum engine blocks or aluminum cast wheels or suspension components, those spaces are relatively saturated. So literally, all the growth that's being driven in the aluminum industry for lightweighting today is coming in auto body sheet. Primarily as automakers start by converting the hood, which is a very large panel with relatively simple engineering requirements, and then chase that around to get the rest of the body panels, whether it's the trunk or a lift gate, and then the doors. And then in the case of Ford Motor Company, on the Ford F-150 Super Duty, Lincoln Navigator and Ford Expedition, made the decision to actually go to an all-aluminum vehicle -- intensive vehicle and go after the structure underpinned by our proprietary adhesive bonding technology, our A951 technology, which you would find exclusively on all those vehicles, whether that material is being provided by us or being licensed by one of our competitors. One of our next largest market is the industrial market, a very buoyant market. In the first quarter of 2018, the Department of Commerce and the International Trade Commission levied a antidumping countervailing duty case against Chinese common alloy suppliers. It essentially restricted the movement of about $1.5 billion of product that was coming into the country. That opened up a significant opportunity for us, because at the same time that the trade case was developing we were in the process of thinking about moving some of our capacity out of packaging. So we quickly moved some of our capacity in our Tennessee facility, into the industrial market, initially selling semi-fabricated products to another mill supplier. In the meantime, we've been investing in creating the capability in that same facility, so that we've upgraded our cold mill and added finishing capacity so that we can connect directly to that market. That investment is almost complete, and we'll be ramping it up in the second half of this year. We're also seeing what could be a generational shift in preferences in the packaging industry, really driven by consumer preference as they continue to show concerns for microplastics polluting the environment as well as getting into our food chain. So we're starting to see some of the beverage companies such as Coca-Cola and Pepsi, make the decision and make announcements recently that they're going to be offering water in aluminum cans instead of plastic bottles. We're seeing venues around the country where they've decided to entirely ban plastic packaging products inside of their venues, such as the San Francisco Airport and a number of sports and concert environments around the country, deciding that they'll only offer their beverages in aluminum or glass containers. That situation is even more pronounced in areas of Europe, and you can see examples in the U.K., for instance, where they're starting to ban entirely certain grades and forms of plastic as a product family. So this is creating quite an opportunity for the can makers. You're starting to see a lot of specialty beverages being launched and being launched exclusively in aluminum cans. It's improving the profitability of the can making industry, if you look at the players there, so their profits are up. They're starting to expand capacity. We're seeing new can lines go into the market. This North American market, after being over a decade with literally no growth, is starting to project at a 3% to 5% growth rate for the next decade. In fact, if you read some of the reports in the fourth quarter, it's been reported that the beverage can -- the aluminum beverage can industry expanded by 4% to 5% in the fourth quarter of 2019. At the same time, because of the growth that the industry has seen in both the automotive market and the resurgence of the industrial market, many of the mills here in North America have moved some of their capacity into those end markets. And it looks like it's going to create a very interesting opportunity for the industry, and Arconic included, to consider expanding back into that space. In the building and construction industry, again, as I said earlier, what we focus on are low rise, mid-rise and high rise buildings, that part of our business is also seeing some favorable tailwinds, and there are really two. First of all, global population continues to grow. It's currently projected that the global population is going to exceed 8 billion by 2030. That's simply put, gross demand for our building and construction business. So as population grows, we're going to see more needs for office space, retail space, multifamily housing, hospitals and universities, which are all target applications for our Kawneer business. The other thing that you see happening is increased urbanization, and it's continuing to accelerate. What happens when you put more people into a dense space is it creates unique engineering challenges. Unique engineering challenges, for instance, in being able to manage acoustics better because people are closer together, to be able to provide more thermally efficient buildings, driving towards LEED certification and 0 energy buildings. Because they're building in more dense spaces, the cost of construction are going up. So having the capability to design modules to lower the cost to make these constructions work is more important. Climate change is driving more volatile weather patterns around the world. So you're seeing the needs and the requirements for things like hurricane resisting -- resistant buildings emerging. When you put more people together, needs for personal security also become more accentuated. So things like blast and bullet-resistant storefronts become something that the industry is interested in. So all of those unique engineering challenges drive the opportunity for us to differentiate and to drive better pricing in that industry. And our Kawneer business is known for its engineering and development prowess, very good opportunity for us moving forward. The investment community is showing a increasing concern and interest in ESG, as they should, because in many ways our planet is feeling pressure. It's great to be working in an industry in selling products that actually is part of the solution. So I'll start by reminding you that by lightweighting cars and airplanes, we're helping lessen the carbon footprint, lowering greenhouse gases and lowering fuel consumption for the industry we serve. The building and construction segment, by designing more thermally efficient buildings, more energy-efficient products, is allowing us to get, again, to 0 energy buildings and trying to be carbon neutral in that part of our business, being part of the solution. The opportunity to provide aluminum into the packaging industry, which is an infinitely recyclable material, instead of some of the struggles that we're seeing with the plastic industry, is a benefit that we can provide to society. 75% of all the aluminum that's been pulled out of the ground over the last 125 years is still in use today, which is a very impressive statistic. Of course, inside of that, the rolling business is an energy-intensive business. So we're very sensitive to our environmental footprint. In 2005, we announced that we were going to target reducing our energy consumption by 30% by 2030. Through 2018, which is the last year that our sustainability report was published, we were already at 22%. So we have our target well in hand. Additionally, we've been pursuing certification around our sustainability. So late last year, we decided to get involved in the Aluminum Stewardship Initiative. I'm happy to say that last month, we had our first two locations receive ASI certification from third-party independent auditors. And we're in the process of rolling through our other major locations. We're starting now to break down the requirements for the ESG certification, which requires reporting of some different elements. It's actually information that primarily we already track, but we haven't had -- taken the time to disclose it or look at the historical, so we'll be on our journey to pursue ESG and continue on our journey to be a fully sustainable company. Getting inside of our assets a little bit, we currently have 24 manufacturing locations spread across 8 countries, a little over 15,000 employees. We would also buttress that with 22 service centers, which are in our building and construction business. So when you think about serving major metropolitan markets, we need to have sites there that allow us to service the job site, have our products close at hand. So our footprint is well positioned to help us serve our customers where they need us most. You can see from the pie chart at the bottom that we have a healthy component of our revenue stream from the North American market, followed by Europe, Russia and China. So let's talk a little bit about some of the unique assets. We'll start with Davenport, which I would say is our most iconic facility. And this is a facility that has supplied 100% of the Boeing wing skins for decades because of its unique capabilities. But when I think about Davenport, what I think about is big, as in go big or go home. So we'll start with the size and the scale of the facility itself. It's 400 acres under roof. So the average golf course -- 18-hole golf course is 150 acres. So think about us putting 36 holes under roof here, and we've still got 100 acres in the middle that we could build a park. Inside of that, we've got some of the biggest, baddest assets in our industry. We'll start with our 220-inch mill, which has and continues to be the widest mill for plate manufacturer in the aerospace industry. We've since coupled that with a Very Thick Plate Stretcher, which is a stretcher that has the most tension capability in the world, which now allows us to be the thickest and widest. And then when we take the downstream assets that we have in our Davenport facility, also produced the longest plate in the industry, which allows us to access applications in the industry, particularly in aerospace, and in other parts of the plate industry that our competitors simply can't reach. Davenport also happens to be home to our first big expansion into the automotive industry. So they have our first continuous heat treat line, along with our A951 pretreatment center. So a very significant supplier to Ford and the rest of the automotive industry. If we think about Davenport being big, think about Lancaster being broad. So Lancaster has some of the most unique and broadest capabilities to service the commercial transportation and industrial industry in North America. So we primarily make sheet, cast continuous plate there, but we also have unique extruding capabilities there. We have paint line there, we make circles, we make tread plate. Over 400 customers are drawing product from this facility, 7,000 unique applications on an annual basis, which is pretty much unparalleled in the industry. Then we'll move to Tennessee, which is a facility that we have under transition and a big part of our growth story moving forward. So Tennessee has traditionally been, until about 2015, exclusively a packaging plant. So they -- pretty much a one-product facility, high volume, not a lot of flexibility. In 2015, we decided to put our second automotive expansion in North America into Tennessee. So we took part of that packaging capacity, and we moved it into the downstream, higher revenue, higher margin automotive segment. At the end of 2018, our tolling agreement in the packaging industry was coming to a close. We saw the opportunity, as I mentioned earlier, to move some of that capacity into the industrial segment. So now we have automotive industrial. And we're in the process of upgrading the cold mill and putting some additional finishing capacity in place that will allow us to service that market directly between now and the end of 2020. And finally, our other large mill is our mill in Samara, Russia, which has the distinction of being the only domestic packaging supplier in the Russian market. So a very strong position in the Russian market and also very well positioned to service Europe, which is a fast-growing market in the packaging arena. We are now through our third consecutive year of setting record production numbers out of Samara as we creep our capacity to meet all that growth. And finally, I started at the beginning by talking about some of our unique assets. I think the 220-inch mill and the Very Thick Plate Stretcher we covered before, the A951 bonding technology which underpins the Ford F-150, the Super Duty, the Navigator and the Expedition. The ability to take some of those assets and make products in terms of scale and size that no one else in the industry can make. Additionally, we continue to invest in our technology. We are the leading developer of aluminum alloys in the industry in the world. We have 900 active or pending patents, so that we continue to invest in the applications and the new materials that we need to stay relevant and on our front foot in these industries moving forward. We're also coming through the tail end of what has been a very significant investment period for our company. So over the last 7 years, we've invested a total of $2.2 billion into these assets. $1.5 billion of that was pointed specifically at growth in higher-margin end markets. So the $600 million in Davenport and Tennessee has been completed, and we're still ramping up and driving productivity in those assets to get everything out of them that we can. The aerospace investments, the Very Thick Plate Stretcher, a complementary horizontal heat treat furnace, which expands our capacity to take advantage of that stretcher, and the aluminum lithium cast house, are also all complete. And the remaining investment that we had there of significance is the Tennessee industrial transition that I talked about earlier, $100 million investment. It is more than 50% complete. And it will be substantively complete from a spending point of view just prior or just after separation. So we have the significant capital investment era behind us. We're now, last year and this year and probably moving forward some period of time, targeting investment of around 3% of revenue, which will allow us to now get the benefit from these investments and start bringing some of that cash back into the business to help fund our next cycle of growth. When we look at our positions in the market versus our peers, one of the things that we benefit from is the breadth of the markets that we serve, and as you can see from the pie chart down in the left, the fact that we don't have a lot of concentration in one specific industry. So we have the ability to move between aerospace, packaging, automotive, brazing, industrial, and provide extrusions, which, as you can see, is not a benefit that our competitors have. What that does, of course, is it allows us to move our capacity into the markets that we see as having the best growth characteristics or the higher-margin opportunities, because to a large extent we're selling very similar products to multiple customers in multiple industries. In order to be able to enable that, you have to have access, right? So we have very sticky relationships with our customers. If you look at our top 20 customers, you would find that they have an average tenure with us of over 25 years. They also happen to be in industries that have very unique technical requirements, very specific specifications and oftentimes very long qualification cycles. So there's a lot of co-investment that goes on there. That's why our continued work in the technology arena is so important, and it also helps us feel quite comfortable that once we capture an application, it's going to be with us for quite some time. Two of those companies are publicly traded peers. I also feel very good about our position as an offering in this space. As you can see, Kaiser, a very well-run company, strong margins, but at the end of the day, they're 1/5 the size that we are. And they don't have the same exposure to the fast-growing automotive body sheet market that we do. So I think we have plenty of optionality there. Constellium is very similar in size and scale to us, right? But they have a very different customer mix and as you'll see when Erick gets up to talk, there's also quite a difference in our capital structures. As I talked about earlier, we really focus on making sure that we are competing on our operational and technical prowess. To make sure that we enable that, we're passing through not only the price of the -- the raw material price of aluminum, but the regional premium is part of the pass-through that we give to our customers. So 90% of all of the aluminum price volatility that's in the market is passed through in our commercial contracts, which makes it very clear that we're operating on the value-added component that we provide as we convert that raw material into an end product for their application. So I want to talk a little bit about our operating model and our operating cadence. And inside of that, I think I'll use some examples from 2019 to highlight the point. From a commercial point of view, what we've been very focused on is enhancing our mix. Enhancing our mix not only by moving towards new markets, but in some cases, moving out of markets that had lower margins, particularly if we have assets that can serve the same customer sets. I talked about the example earlier about moving some capacity out of packaging into the higher-margin industrial segment. In our building and construction business last year, we made the decision to move out of some unprofitable window lines that we had in one of our facilities and convert that capacity into more profitable curtain wall business. Similarly, in that business, we made the decision to move some of our capacity in Europe from an aluminum composite material product line into a single sheet product line, which allowed us to significantly increase our capacity and drive more margins over the same assets. So we had a very significant benefit in mix. We also had a few assets that we sold, getting ready for the separation, that weren't contributing the same kinds of margins that we had in the rest of the business. The next thing that we focused on is making sure that we're extracting as much price as we can out of these markets. Last year, we benefited from about $70 million in pricing actions year-on-year, primarily with pricing that we benefited from in the industrial, aerospace and brazing markets. On the cost side, we started by really focusing on our indirect cost structure, both labor and on the materials that we buy. Through 2019, we captured a year-on-year benefit of $100 million, and we exited the year at a run rate of $140 million, so we have a little tailwind coming into 2020. We also focused very heavily on our metal loop. So one of the things that I learned when I came into GRP, I had been running our wheel business for a long time, which is a pretty automated business, fairly capital-intense. So my expectation when I came into the rolling business is, if I took these big assets and got their operational efficiencies up, just made more product across the same asset, the world would be kind of my oyster. The first quarter I was in the business, I was given a rather unpleasant surprise. So when we came through the first quarter, I came to the realization that our rolling business at that time was actually a net seller of scrap. And I was actually told by our trading desk at the time that we were one of the largest net sellers of scrap in North America. If your business model, simply put, is you take material, you melt it, you cast it into a solid and you roll it out, you're losing sight of your metal loop. It's probably a big error. So we really focused on that through 2018. By the end of 2018, we had gotten to a neutral position, where we were basically in balance between the scrap we produced and the scrap we bought. As we came into 2019, we became a net buyer of scrap. And we continued on that journey through the year. We drove our scrap utilization up by 240 basis points and it dropped $30 million of savings to the bottom line. And we see the opportunity to continue doing that into 2020 and probably beyond. The last thing that we focused on is if we got the cast house operating properly, we've got it in balance, we're consuming as much scrap as we can to drive our margins, we certainly want to look at any bottleneck operations beyond the cast house to see if we have the opportunity to get more product through them and connect them to an end customer. So we were very focused on several of our assets in the rolling mills in North America last year, and we've identified and validated that we can probably unleash another 600 million pounds of capacity in the North American market over the next 24 months. We're very focused on our capital model. As I said earlier, we were coming to the tail end of a big investment period. But our capital policy isn't just about spending less. It's about spending more wisely. We have a very tight capital procedure and set of policies. We review our capital projects with all 3 businesses every month. Not only the projects that they come to with approval, whether they're in budget or out of budget. But any projects of relevance that have been completed within the last 24 months, to see if they were delivered on budget and delivered the returns that they were supposed to. So a very disciplined process that we have. As a Group President, everything under $500 million was reviewed by me for the time that I've been in that position. And moving forward as new Arconic, that's the limit that will stay in place for everything that I review as the CEO. As you can see from above, we were able to take a significant decrease in our capital spending last year, and we're forecasting another modest decline this year, a 45% reduction off of our historical rate. So when you find a way to do all the right things with driving mix, getting some price, taking your costs down, you drop $120 million plus of operating income benefit into the business, and then you find a way to spend $120 million less, good things happen. And as you can see, our cash generation for the operating part of the business, so operating income less the CapEx, improved by over $240 million year-on-year on a 60% improvement, which is providing us what we need to reinvest in this business as well as give us some opportunity to address some of the legacy liabilities that we'll have as a new company moving forward. So with that, I'm going to turn it over to Erick to talk a little bit about our recent financial performance.

Good afternoon, everybody. As you look to 2019 versus 2018, you'll see it was a transformative year. Revenues that were down [ were ] organically up. The operating margins were up $144 million or 30% to $625 million. Margins were also up 210 basis points to 8.8%. That was, as Tim mentioned, through product mix, price, cost disciplines, utilization and scrap utilization, going through the gambit of how do you improve profitability in your portfolio mix. Looking at the capital expenditures, they were down year-on-year, but as Tim mentioned, the company has been through an investment cycle over the last 7 years, spending $2.2 billion, which is substantively complete but for the Tennessee, and you'll see that's in our capital budget. So as it looks to the capital as a percentage of revenue declined from 4% to 3%, and you'll see in our guidance, we're expecting that 3% or less going forward. Looking at the quarterly flow of profitability or the segment operating income, you'll see an improved Q2, Q3, Q4 through the year. Again, driven by the discipline of product mix, price, cost, utilization and scrap utilization. And if you look at the Q4 run rate on -- and compare it to the average for the year, you'll see that we have a tailwind coming into 2020 because a lot of the hard efforts and hard work are going to benefit us on a go-forward basis. Looking at our capital structure, Slide 27 on the top right. After payment of a dividend to Howmet Aerospace, we will have $400 million of cash. At the separation, we'll have $1 billion unused revolver, we'll have 2 tranches of long-term debt, $600 million due in 2027, $600 million due in 2028. An important point to the left, is there is no acceleration of pension funding related to the separation. Also, as I said on the prior slides, the capital program is substantively done other than Tennessee, and you'll see that in our capital forecast. The company is positioning and targeting to and expects to look at paying a dividend up to $50 million in the first year and up to $100 million in the years after. And looking at the bottom right, you'll see our net debt-to-EBITDA of 1.1x. That puts us favorably positioned as it relates to the legacy liabilities that I'll talk to on the next slide. So as we look to our 2020 guidance, our CapEx, as I mentioned, it includes Tennessee, $150 million to $190 million. Our pension expense, about $100 million for the year, but cash contributions $330 million to $370 million. So you can run the math, we're going to be delevering that pension and OPEB liability. Environmental spend, we're going to have about $75 million to $85 million of environmental spend in our plan. These are items that are reserved, they're disclosed in our balance sheet. The largest item of expense is -- or of cash cost is going to be Grasse River. And this will be one that will phase out and reduce, and again, delever the legacy as we move through 2020 and beyond. Cash book rate, 23% to 25%. Cash rate, around 10%. And depreciation and amortization, $235 million to $275 million on an annual basis. As we move to guidance, revenue $6.9 billion to $7.1 billion, essentially flat to 2019. The earnings per share, excluding special items, $2.72 to $3.12 for the full year. If you take the center of the guidance and you run the prior slide, and you get to sort of a proxy of EBITDA, you will see we -- versus the LTM of 9 months that we disclosed in our Form 10 of 755, we're about 8% up. If you look to free cash flow conversion, this is after the pension, the OPEB, the capital, the environmental. We're still going to generate significant cash flow, that's the $125 million to $175 million. So from a free cash flow conversion, still well positioned at 45%. We've also given guidance on a 3-quarter basis. At a 4:1 separation, you can imagine it's one that we're going to have to look at it both ways. And the reason for it, on the center right of that page, you'll see the adjusted free cash flow for the 3 quarters. The reason why it is higher than the full year guidance, so there's seasonality of working capital, and there's also timing of cash cost to accruals like incentives that are paid out in the first quarter. So that's why we emphasize the sort of the full year versus the 3-quarter guidance. As I close out this slide, if we go to the top, just working left to right, our focus is maintain a strong balance sheet. We have a very strong balance sheet coming out of separation. CapEx as a percentage of revenue, you'll see it's less than 3%. We're targeting a dividend payment up to $50 million and up to $100 million in the years after, and our focus is to manage and reduce the legacy liabilities you see in our cash funding plan. With that, I'll pull it over to Tim to close.

Thank you, Erick. So we've been busy making sure we have the right management team to start the new company. Started by bringing Erick and Diana Toman in from outside of the company, because they both have experience in the public environment that I don't have. So welcome to Erick, he has just a few weeks with us. The rest of the team that you'll see on these 2 pages were part of my team coming in, part of the group of people that drove the margin expansion and the momentum that I talked about earlier. I'm not going to read through all their titles or their background, you've got the books. What I will say is this team has nearly 2 centuries' worth of experience with this company and in this industry, and you've got several individuals that show up on these slides that have 3 decades or more of experience, including me. This team knows this industry, they know the company, they know me, they know our operating system, and they know how to get things done. So I'd like to close where I started. First, this company is well positioned in attractive markets, driven by what could be massive secular trends, lightweighting in aerospace and automotive, the flight from plastics in the packaging industry, and the continued advancement of building codes, all play to our strengths. We have a #1 position in the global aerospace market, a market that's projected to have a 5% CAGR for the next decade. We have a strong #2 position in the automotive market, a market that has a 9% CAGR being projected for the next decade. We have a strong #2 position in the North American industrial market, a very large market and a market that we've invested in creating more capacity to serve. We have a strong position in the global packaging market, and we have the opportunity, if the conditions are right, to re-enter the North American packaging market in October when our noncompete expires. And we have a leading position in the North American architectural systems market, a business where we've significantly expanded our margins and have the opportunity to grow above GDP. As I said earlier, we have unique assets and technologies, think about the Very Thick Plate Stretcher, the aluminum lithium cast house, the A951 technology, the investments that we've made in automotive in both Davenport and Tennessee, which have allowed us to capture 60 different platforms with 8 OEMS. And I'm pleased to announce today that we also have a new contract with General Motors on their large SUVs, where we have a significant position on the Tahoe, Suburban, Yukon and Cadillac Escalade, which we'll be ramping up in the second half of this year. We also have the broadest array of products in the industrial market in North America -- and again, we're well positioned to grow that with the investment we're making in Tennessee. We drive a value-added conversion business, we pass through 90% of the metal volatility to our customers to assure that we're competing based on our operational and technical prowess, and we're performing well operationally, improving our mix, driving price, lowering our indirect costs, improving our OEE and improving our revert utilization, all of which has been contributing to increased margins. The business is performing well as we head to separation. We have a great capital structure, and we're generating cash. So we're well positioned to capitalize on these opportunities as we grow the top and bottom line moving forward, to fund this business and to put some of our legacy liabilities behind us. With that, I'd like to open it up to your questions.

So that includes -- that concludes the presentation. We'd like to open the floor to questions. As a reminder, this is webcast. So please state your name and affiliation before proceeding, and please wait for the mics. We have mic runners in the room. And so with that, we'll open the floor. Matt?

Matthew Korn, Goldman Sachs. So you've got a good selection of strong assets. You've got favorable end markets and a fairly -- what seems to be a fairly concentrated set of competitors. Coming off a year in which pricing [ was ] very favorable for you, can you talk about the set up that you've got across these end markets to what might be a tailwind? What's the opportunity set for you to continue to push for additional pricing, additional expansion of these conversion fees?

So I think there's 2 components. We captured a lot of price in 2019. It was a very strong year for us from that perspective. So we're definitely focused on maintaining those prices and then being a little more opportunistic on places where we see opportunities. For competitive reasons, I don't want to point to specific market segments that we might be thinking of. But we also continue to see a lot of opportunity to drive mix, right? And so again, I'll go back to the Tennessee opportunity as an example. We did have the opportunity last year to move from packaging into selling what I'll call a semi-fabricated product into that market. As we bring on the new asset through the second half of this year we're going to be able to then connect directly to end customers, which will improve our margins because we'll be moving kind of up the food chain in that market. We also secured the General Motors contract that I referred to earlier. So the automotive space is still one of our more attractive sectors for margins. And not only do -- are we able to take some of that volume into the automotive investments that we made in the past, the heat-treated products that we're making in Tennessee and Davenport, but we're also going to be able to take some of that volume across the new investment we have in Tennessee.

And specifically in the packaging space, are you having any kind of conversations now where people are coming to you and saying, look, you see the same charts that we do in terms of what the net short position may be, you know that you're not in it now, and you can't get into it for a little while. But man, it would be great if you would come back and here's how we could facilitate you coming back [ in some fashion ].

So I mean, we're certainly aware of the trends in the packaging industry. We're a big supplier in the industry today. So we're talking to the big customers, Bowlen, Can Pac and some of the others are already in our customer base. And we're open to an active dialogue about what that looks like moving forward.

John Hopkins, Chartwell Investment Partners. In -- specifically into that packaging, is that going to be a more attractive margin business going forward than what it had been historically, as you're having those discussions?

So the short answer is it would have to be. We have options -- as you see, we have tailwinds in a lot of our end markets. And so we have the opportunity, particularly in Tennessee, where we see the opportunity to creep that asset quite a bit to either take more of that capacity into the industrial market, into the automotive market or potentially consider moving some of that capacity into the packaging market. But it's all going to come down to the return profile. And then if there are any capital needs associated with making those choices.

Josh Sullivan, Benchmark. Within the automotive market, you've just signed this contract with GM. How has pricing looked from when you guys originally came to the market in 2014-ish? Has it gotten tighter? Or we're getting into a more mature market here? Just what does it look like?

I think what you would see, particularly if you were looking at it from our vantage point, is if you went back to when we started to sink this capital, we were highly concentrated with one customer, right? And so when you have one customer and you're on 3 or 4 platforms, you may not have as much optionality on pricing as you do when you have 60 platforms to choose from across 8 different customers, and many of them needing a lot of assistance with development on how to stamp, how to bend, how to join. So being a technology leader in this space, that's highly valued. And we've been able to maintain our margins.

Anyone else? Martin?

Martin Englert, Jefferies. For the 600 million, was it, excess pounds of latent capacity, where do you think that would be allocated to? I understand you have some optionality across your assets, but when you think like, plate products versus sheet, and then the end markets, can you provide a rough breakdown there?

So when you think about the assets that I have in North America -- and that capacity is really coming out of all 3 mills. And when you think about 600 million pounds, it's really the capacity of an entire mill coming out of the three we own. We do have lots of optionality in terms of whether we take that into the industrial space, the packaging space, and then to a lesser degree, on the automotive space because there are some unique assets in that part of our business that we would connect it to. Unless we wanted to make more capital investment. But the idea here is to liberate that capacity with minimal capital investment and taking the full advantage of our fixed cost structure.

Anyone else? Tom?