CONSTELLIUM SE annual report, Q4 FY2019

Business context and reporting period

Constellium SE’s FY2019 Form 20-F covers the year ended December 31, 2019; it is an annual filing, not a standalone Q4 report. The filing does not provide a clear set of separate fourth-quarter results. The company makes rolled and extruded aluminium products for packaging, aerospace, automotive and other markets. Its statements are audited and prepared under IFRS.

Financial and operating highlights

MetricFY2019FY2018
Revenue€5.907bn€5.686bn
Gross profit / margin€602m / 10%€538m / 9%
Income from operations€255m€404m
Net income€64m€190m
Adjusted EBITDA€562m / 10% of revenue€498m / 9%
Shipments1.589m metric tons1.534m metric tons
Cash flow from operating activities€447m€66m
Capital expenditure€271m€277m

Revenue grew 4%, reflecting 4% higher shipments, improved pricing and mix, partly offset by lower metal prices. Operating cash flow rose substantially, mainly from a €378m improvement in working-capital cash flows; operating cash flow before working-capital changes was described as stable. Operating cash flow less capital expenditure was approximately €176m, a simple calculation rather than a company-reported free-cash-flow measure.

At year-end, cash and cash equivalents were €184m and total liquidity was €516m, including undrawn facilities and factoring availability. Borrowings were €2.361bn, including lease liabilities; cash less borrowings implies approximate net debt of €2.177bn. Total equity was negative €85m. Contractual obligations included €2.166bn of borrowings and €601m of interest payments.

Material changes versus the prior comparable period

  • Net income fell by €126m despite higher revenue and Adjusted EBITDA. FY2018 included a €190m net gain from the Sierre asset transaction; FY2019 instead recorded €19m of net other losses, including derivative effects.
  • Adjusted EBITDA increased 13% to €562m. Aerospace & Transportation rose to €204m from €152m, and Packaging & Automotive Rolled Products rose to €273m from €243m. Automotive Structures & Industry declined to €106m from €125m, reflecting higher costs and operational challenges on newer automotive programs.
  • Finance costs increased to €175m from €149m, partly reflecting IFRS 16 lease accounting and currency effects. Depreciation and amortization increased to €256m from €197m.
  • Constellium acquired the remaining 49% of Bowling Green in January 2019 and began consolidating it. Bowling Green contributed €333m of revenue and a €48m net loss in 2019.
  • IFRS 16 adoption added €102m of lease liabilities and right-of-use assets at January 1, 2019. Management said its Adjusted EBITDA impact was €22m.

Outlook, risks, contingencies and unusual items

  • Management expected operating cash flows, cash on hand and financing availability to meet requirements for the foreseeable future, subject to trading, raw-material costs and financial-market conditions. The filing provides no specific earnings guidance.
  • Planned capital expenditure was approximately €1.3bn in aggregate for 2020–2024, expected to be financed with cash and external sources. The company emphasized harvesting returns from recent investments, ramping up Bowling Green and controlling costs.
  • Key risks include cyclical demand, customer and supplier concentration, metal and energy cost volatility, the ability to pass costs through, execution and ramp-up risks, substantial indebtedness, refinancing and covenant exposure, pension obligations, and currency and hedging volatility. The filing also identified the emerging COVID-19 outbreak as a potential risk to economies, markets and operations.
  • The group reported €670m of pension and other post-employment benefit obligations net of plan assets, up from €610m; 2019 contributions were €50m. Close-down and environmental remediation provisions were €90m, included in total provisions of €122m.
  • A customer arbitration alleges defective products and significant damages. The company disputes the claim and concluded a loss was not probable. A Ravenswood retiree medical-plan dispute remained pending; an arbitrator ruled against the company in 2019, and the company sought to vacate that decision.
  • There were no margin calls at December 31, 2019. The company reported compliance with debt covenants. Management concluded going-concern accounting remained appropriate despite negative equity; auditors gave unqualified opinions on the financial statements and internal control.

Important facts for investors to verify

  • Review the quality and sustainability of the €447m operating cash flow, particularly the large working-capital contribution, alongside the €271m capital expenditure.
  • Assess debt maturities, interest costs, available borrowing capacity and covenant headroom; verify how lease liabilities affect leverage comparisons.
  • Track Bowling Green’s production ramp-up and losses, and whether Automotive Structures & Industry can address its cost and execution issues.
  • Separate recurring operating performance from the prior-year Sierre gain, derivative mark-to-market movements and IFRS 16 effects; Adjusted EBITDA is a non-IFRS measure.
  • Monitor pension funding assumptions, the Ravenswood benefit disputes, environmental obligations and the customer arbitration.