Business Context and Reporting Period
Company: Constellium SE (formerly Constellium N.V.)
Filing Type: Form 20-F Annual Report
Reporting Period: Fiscal year ended December 31, 2013
Accounting Basis: International Financial Reporting Standards (IFRS)
Business Overview: Constellium is a global leader in the design and manufacture of specialty rolled and extruded aluminum products, primarily serving the aerospace, packaging, and automotive end-markets. The company operates 23 production facilities across the United States, Europe, and China. In 2013, the company completed its Initial Public Offering (IPO) in May and subsequent secondary offerings.
Key Financial Metrics (Year Ended Dec 31, 2013)
| Metric | 2013 (€ millions) | 2012 (€ millions) |
|---|---|---|
| Revenue | 3,495 | 3,610 |
| Gross Profit | 471 | 474 |
| Operating Profit | 209 | 263 |
| Net Income (Continuing Ops) | 96 | 149 |
| Net Income (Total) | 100 | 141 |
| Adjusted EBITDA | 280 | 223 |
| Management Adjusted EBITDA | 229 | 199 |
| Capital Expenditures | 144 | 126 |
| Net Trade Working Capital | 222 | 289 |
| Shipment Volumes (kt) | 1,025 | 1,033 |
Liquidity: As of December 31, 2013, total liquidity was €392 million, comprised of €233 million in cash and cash equivalents, €29 million in undrawn credit facilities, and €130 million available under factoring arrangements.
Debt: The company refinanced its debt in March 2013, entering a seven-year term loan of $360 million and €75 million (approx. €336 million aggregate). The company maintains a consolidated secured net leverage ratio covenant of no more than 3.00 to 1.00.
Material Changes vs. Prior Period
- Revenue Decline: Revenue decreased by 3% (€115 million) to €3,495 million, driven primarily by declining London Metal Exchange (LME) aluminum prices and a marginal 1% decline in shipment volumes. Revenue per ton decreased by 2% to €3,410.
- Profitability: Net income from continuing operations decreased by 36% to €96 million. This was impacted by €24 million in IPO-related expenses and a €49 million decrease in unrealized gains on derivatives compared to 2012. However, Adjusted EBITDA increased by 26% to €280 million, reflecting improved operational efficiency and cost reduction initiatives.
- Segment Performance:
- Aerospace & Transportation: Revenue increased 1% to €1,197 million with a 9% volume increase, though revenue per ton dropped due to mix and LME prices.
- Packaging & Automotive Rolled Products: Revenue decreased 5% to €1,472 million due to lower LME prices and a 2% volume decline.
- Automotive Structures & Industry: Revenue decreased 7% to €805 million, impacted by the disposal of two soft alloy plants in France. Excluding these disposals, volumes were stable.
- Restructuring: Restructuring costs decreased significantly by 68% to €8 million from €25 million in 2012 as initiatives neared completion.
Guidance, Outlook, and Risks
Outlook and Strategy: Management expects to expand its leading position in high value-added products. Key strategic initiatives include a planned €200 million investment in European Body-in-White business (2014-2016) and a proposed joint venture in the United States with UACJ Corporation to serve the North American market. The company anticipates capital expenditures of approximately €531 million for 2014 and 2015 combined, financed internally.
Key Risks:
- Cyclicality: Susceptibility to cyclical fluctuations in the metals industry and end-markets (aerospace, automotive, construction).
- Commodity Prices: Exposure to aluminum price volatility, though hedging strategies are employed to mitigate net income impact.
- Customer Concentration: The top 10 customers accounted for approximately 45% of consolidated revenues in 2013.
- Supplier Dependence: Top 10 suppliers accounted for approximately 50% of total purchases.
- European Economic Conditions: Significant operations in Europe expose the company to regional economic disruptions and currency fluctuations (Euro vs. USD).
- Regulatory & Environmental: Compliance with carbon emission regulations (EU ETS) and chemical regulations (REACH) could increase costs.
Investor Verification Checklist
- Debt Covenants: Verify continued compliance with the 3.00:1.00 consolidated secured net leverage ratio covenant under the Term Loan Agreement.
- Derivative Valuation: Review the impact of unrealized gains/losses on derivatives (€8 million loss in 2013 vs. €62 million gain in 2012) on reported net income versus Adjusted EBITDA.
- Joint Venture Execution: Monitor the finalization and execution of the proposed U.S. Body-in-White joint venture with UACJ Corporation.
- Capital Expenditure Funding: Confirm the ability to fund the projected €531 million in capital expenditures for 2014-2015 from internal cash flows.
- Pension Obligations: Assess the €507 million aggregate plan deficit in pension and post-retirement benefits and potential future cash contribution requirements.
- Customer Concentration: Evaluate the financial health of the top 10 customers representing 45% of revenue.