Constellium N.V. — FY2018 Form 20-F
Reporting period: Fiscal year ended December 31, 2018. This is an annual report, not a standalone fourth-quarter filing; separate Q4 results are not clearly provided in the filing text. Financial statements are audited and prepared under IFRS. The company manufactures rolled and extruded aluminium products for packaging, aerospace, automotive, transportation and industrial markets.
Financial performance and position
| Metric | FY2018 | FY2017 |
|---|---|---|
| Revenue | €5,686 million | €5,237 million |
| Gross profit / margin | €538 million / 9% | €555 million / 11% |
| Operating income | €404 million | €338 million |
| Net income (loss) | €190 million | (€31) million |
| Adjusted EBITDA | €498 million | €448 million |
| Operating cash flow | €66 million | €160 million |
| Capital expenditures | €277 million | €276 million |
| Cash and cash equivalents at year-end | €164 million | €269 million |
| Total borrowings at year-end | €2,151 million | €2,127 million |
| Equity at year-end | (€114) million | (€319) million |
- Shipments rose 3% to 1.534 million metric tons; revenue per ton increased 5% to €3,707, driven mainly by higher aluminium prices and regional premiums.
- Gross profit declined despite higher revenue, with gross margin falling to 9% from 11%; raw-material costs increased €364 million year over year.
- Adjusted EBITDA increased 11%. Segment EBITDA was €243 million in Packaging & Automotive Rolled Products, €152 million in Aerospace & Transportation, and €125 million in Automotive Structures & Industry.
- Operating cash flow fell by €94 million, principally because working capital consumed €239 million. Cash flow from operations less capital expenditures was negative €211 million.
- Reported total liquidity was €669 million: €164 million cash and €505 million of available facilities and factoring capacity. The company reported compliance with debt covenants.
- Net trade working capital increased to €456 million from €232 million. Pension and other post-employment benefit liabilities were €610 million, down from €664 million.
Material changes and unusual items
- Net income improved from a €31 million loss to €190 million profit, but results included a €190 million net gain from the Sierre North Building asset sale and related transaction, and a €36 million gain from a U.S. retiree-benefit plan amendment.
- The Sierre transaction generated €200 million cash consideration. It was a major contributor to the improvement in investing cash flows; it should not be treated as recurring operating performance.
- Other gains, net were €154 million versus €70 million in 2017. FY2018 included €84 million of unrealized derivative losses, largely on metal derivatives.
- Finance costs declined to €149 million from €260 million, reflecting lower interest costs after 2017 refinancing and the absence of 2017 debt-settlement losses.
- Working-capital pressure was pronounced: trade receivables rose to €481 million from €306 million, while inventories were €660 million and trade payables €685 million.
- In January 2019, Constellium bought UACJ’s remaining 49% stake in the Bowling Green joint venture for $100 million and assumed 49% of approximately $80 million of its third-party debt. It expects to consolidate the business from 2019.
Outlook, risks and contingencies
- No specific earnings or revenue guidance is stated. The company expected aggregate capital expenditures of approximately €1.4 billion over 2019–2023, financed with cash and external funding.
- Management’s strategy emphasizes higher-value products, ramping up automotive body sheet capacity, productivity and cost control, working-capital management, and deleveraging. The company said cash flows, cash on hand and available financing should meet foreseeable funding needs, while warning that outcomes depend on operating performance and market conditions.
- Key risks include substantial indebtedness, negative shareholders’ equity, capital-intensive investment needs, customer concentration (top ten customers approximately 49% of 2018 revenue), and dependence on a limited group of metal suppliers (top ten approximately 55% of raw-material and consumable expense).
- Automotive body sheet qualification and ramp-up, especially at Bowling Green, remain execution risks. The Bowling Green venture reported a €64 million net loss in 2018; after acquiring control, Constellium will bear full operating responsibility.
- Other material exposures include aluminium and scrap-price spreads, currency and derivative volatility, energy costs, cyclical end markets, labour disruptions, environmental obligations and pension funding. Environmental and close-down provisions were €83 million.
- A customer arbitration alleges defective products and significant damages. The company disputes the claim and says a loss is not probable; asbestos-related provisions were €4 million. A court injunction temporarily prevented implementation of the U.S. retiree medical-plan changes underlying the €36 million gain, pending arbitration; management expected to prevail.
- The planned transfer of the corporate seat from the Netherlands to France remained subject to shareholder approval, with completion then expected in 2019. The company also disclosed that it did not recognize deferred tax assets for €1.257 billion of unused tax losses and deductible temporary differences.
Important facts for investors to verify
- How much of FY2018 profit and operating income came from the Sierre disposal and pension-plan amendment, and what is the recurring earnings base?
- Whether the €456 million working-capital balance can be converted into cash and operating cash flow recovers after the €239 million working-capital outflow.
- Bowling Green’s post-acquisition costs, financing, qualification progress, ramp-up milestones and path to profitability.
- Debt maturities, borrowing costs, availability and conditions attached to factoring and revolving facilities; the filing reports €2.151 billion of borrowings and €669 million of liquidity.
- Progress and returns on the planned €1.4 billion of 2019–2023 capital spending, particularly automotive body sheet projects.
- Outcomes of the customer arbitration, retiree-plan proceedings, environmental remediation and other contingencies.