424B4 1 d634179d424b4.htm 424(B)(4) 424(b)(4)
Table of Contents

 

 

Filed Pursuant to 424(b)(4)
Registration No. 333-192680

PROSPECTUS

8,345,713 Class A Ordinary Shares

 

LOGO

Constellium N.V.

(Incorporated in the Netherlands)

$19.80 per share

 

 

Rio Tinto International Holdings Limited (“Rio Tinto”), as selling shareholder, is offering 8,345,713 of our Class A ordinary shares, nominal value €0.02 per share. Throughout this prospectus, we refer to our Class A ordinary shares, nominal value €0.02 per share, as “ordinary shares.” The underwriters may also purchase up to 1,251,847 Class A ordinary shares from Rio Tinto at the public offering price, less the underwriting discount, within 30 days. We will not receive any of the proceeds from the sale of the shares being sold by the selling shareholder in this offering.

Our ordinary shares are listed on the New York Stock Exchange and Euronext Paris under the symbol “CSTM.” The last reported closing price of our ordinary shares on the New York Stock Exchange on December 11, 2013 was $21.07 per share.

Neither the U.S. Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

 

Investing in our ordinary shares involves risks. See “Risk Factors” beginning on page 26 of this prospectus.

 

 

 

     Per
Ordinary
Share
     Total  

Public offering price

   $ 19.80         $ 165,245,117.40   

Underwriting discount and commissions(1)

   $ 0.693       $ 5,783,579.11   

Proceeds to selling shareholder before expenses

   $ 19.107       $ 159,461,538.29   

 

  (1) We refer you to “Underwriting” beginning on page 186 of this prospectus for additional information regarding underwriting compensation.

Our ordinary shares will be ready for delivery on or about December 16, 2013.

 

 

Goldman, Sachs & Co.

The date of this prospectus is December 11, 2013.


Table of Contents

TABLE OF CONTENTS

 

     Page  

SUMMARY

     1   

THE OFFERING

     20   

RISK FACTORS

     26   

IMPORTANT INFORMATION AND CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

     47   

USE OF PROCEEDS

     48   

DIVIDEND POLICY

     49   

PRICE RANGE OF ORDINARY SHARES

     50   

CAPITALIZATION

     51   

OUR HISTORY AND CORPORATE STRUCTURE

     52   

SELECTED FINANCIAL INFORMATION

     55   

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     57   

BUSINESS

     94   

MANAGEMENT

     127   

PRINCIPAL AND SELLING SHAREHOLDERS

     142   

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

     144   

DESCRIPTION OF CERTAIN INDEBTEDNESS

     149   

DESCRIPTION OF CAPITAL STOCK

     153   

ORDINARY SHARES ELIGIBLE FOR FUTURE SALE

     175   

MATERIAL TAX CONSEQUENCES

     177   

UNDERWRITING

     186   

LEGAL MATTERS

     193   

EXPERTS—SUCCESSOR

     193   

EXPERTS—PREDECESSOR

     193   

ENFORCEMENTS OF JUDGMENTS

     194   

WHERE YOU CAN FIND ADDITIONAL INFORMATION

     194   

INDEX TO FINANCIAL STATEMENTS

     F-1   

 

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We, the selling shareholder and the underwriter have not authorized anyone to provide any information other than that contained in this prospectus or in any free writing prospectus prepared by or on behalf of us or to which we may have referred you. We, the selling shareholder and the underwriter do not take any responsibility for, and cannot provide any assurance as to the reliability of, any other information that others may give you. We, the selling shareholder and the underwriter have not authorized any other person to provide you with different or additional information, and none of us are making an offer to sell the ordinary shares in any jurisdiction where the offer or sale is not permitted. This offering is being made in the United States and elsewhere solely on the basis of the information contained in this prospectus. You should assume that the information appearing in this prospectus is accurate only as of the date on the front cover of this prospectus, regardless of the time of delivery of the prospectus or any sale of the ordinary shares. Our business, financial condition, results of operations and prospects may have changed since the date on the front cover of this prospectus.

For investors outside of the United States, neither we, the selling shareholder nor the underwriter have done anything that would permit the offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. You are required to inform yourselves about and to observe any restrictions relating to this offering and the distribution of this prospectus outside of the United States.

 

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MARKET AND INDUSTRY DATA

This prospectus includes estimates of market share and industry data and forecasts that we have obtained from industry publications, surveys and forecasts, as well as from internal company sources. Industry publications, surveys and forecasts generally state that the information contained therein has been obtained from sources believed to be reliable. However, we, the selling shareholder and the underwriter have not independently verified any of the data from third-party sources, nor have we, the selling shareholder or the underwriter ascertained the underlying economic assumptions relied upon therein. In addition, this prospectus includes market share and industry data that we have prepared primarily based on our knowledge of the industry in which we operate. Statements as to our market position relative to our competitors are based on volume (by tons) for the year ended December 31, 2012, and unless otherwise noted, internal analysis and estimates may not have been verified by independent sources. Our estimates, in particular as they relate to market share and our general expectations, involve risks and uncertainties and are subject to change based on various factors, including those discussed in the section entitled “Risk Factors.”

All information regarding our market and industry is based on the latest data currently available to us, which in some cases may be several years old. In addition, some of the data and forecasts that we have obtained from industry publications and surveys and/or internal company sources are provided in foreign currencies.

BASIS OF PREPARATION

Unless the context indicates otherwise, when we refer to “we,” “our,” “us,” “Constellium” and “the Company” in this prospectus, we are referring to Constellium N.V. and its subsidiaries.

On January 4, 2011, Omega Holdco B.V., which later changed its name to Constellium Holdco B.V., and then again to Constellium N.V. (the “Successor”), acquired the Alcan Engineered Aluminum Products business unit (the “AEP Business” or the “Predecessor”) from affiliates of Rio Tinto (the “Acquisition”). The Predecessor’s financial information has been derived from the audited combined financial statements as of and for the year ended December 31, 2010 included elsewhere in this prospectus. The Predecessor’s financial information has been prepared on a carve-out basis from the accounting records of Rio Tinto to present the assets, liabilities, revenues and expenses of the combined AEP Business up to the date of the divestment. For more information regarding arrangements between Constellium and Rio Tinto regarding preparation of the financial statements, see “Certain Relationships and Related Party Transactions—Agreement Relating to 2009 and 2010 Financial Statements.”

The financial information of Constellium N.V. and its subsidiaries after the Acquisition has been derived from the audited consolidated financial statements as of and for the years ended December 31, 2011 and 2012 and from the unaudited condensed interim consolidated financial statements as of September 30, 2013 and for the nine months ended September 30, 2012 and 2013 included elsewhere in this prospectus.

For comparison purposes, our results of operations for the years ended December 31, 2011 and 2012 and the nine months ended September 30, 2012 and 2013 are presented alongside the results of operations of the Predecessor for the year ended December 31, 2010. However, it should be noted that the comparability of our Successor periods to the Predecessor periods are impacted by the application of purchase accounting and the fact that the Predecessor accounts were prepared on a carve-out basis. The financial position, results of operations and cash flows of the Predecessor do not necessarily reflect what our financial position or results of operations would have been if we had been operated as a standalone entity during the periods covered by the audited combined financial statements and are not indicative of our future results of operations and financial position.

As of December 30, 2011, we disposed of a number of entities in one of our operating segments, the specialty chemicals and raw materials supply chain services division, Alcan International Network (“AIN”). These operations have been classified as discontinued operations in the audited financial statements for the year

 

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ended December 31, 2011 and 2012 and the unaudited condensed interim consolidated financial statements for the nine months ended September 30, 2012 and 2013 and also represented as discontinued operations in the audited combined financial statements for the year ended December 31, 2010. The assets and liabilities of AIN have not been presented as held for sale in the combined financial statements as of and for the year ended December 31, 2010 as AIN did not meet the criteria for such classification as of December 31, 2010.

TRADEMARKS

We have proprietary rights to trademarks used in this prospectus which are important to our business, many of which are registered under applicable intellectual property laws. Solely for convenience, trademarks and trade names referred to in this prospectus may appear without the “®” or “” symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent possible under applicable law, our rights or the rights of the applicable licensor to these trademarks and trade names. We do not intend our use or display of other companies’ trade names, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of us by, any other companies. Each trademark, trade name or service mark of any other company appearing in this prospectus is the property of its respective holder.

 

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SUMMARY

The following summary highlights certain information contained elsewhere in this prospectus and is qualified in its entirety by the more detailed information and consolidated financial statements included elsewhere in this prospectus. Because this is a summary, it may not contain all of the information that is important to you in making a decision to invest in our ordinary shares. Before making an investment decision, you should carefully read the entire prospectus, including the “Risk Factors” and “Important Information and Cautionary Statement Regarding Forward-Looking Statements” sections, our audited combined and consolidated financial statements and the notes to those statements.

Unless the context indicates otherwise, when we refer to “we,” “our,” “us,” “successor” and “the Company” for purposes of this prospectus, we are referring to Constellium N.V. and its consolidated subsidiaries.

On January 4, 2011, Omega Holdco B.V., which later changed its name to Constellium Holdco B.V., and then again to Constellium N.V., acquired the Alcan Engineered Aluminum Products business unit (the “AEP Business” or the “Predecessor”) from affiliates of Rio Tinto (the “Acquisition”). For comparison purposes, our results of operations for the years ended December 31, 2011 and 2012 and for the nine months ended September 30, 2012 and 2013 are presented alongside the results of operations of the Predecessor for the year ended December 31, 2010. However, our Successor and Predecessor periods are not directly comparable due to the impact of the application of purchase accounting and the preparation of the Predecessor accounts on a carve-out basis. The financial position, results of operations and cash flows of the Predecessor do not necessarily reflect what our financial position or results of operations would have been if we had been operated as a standalone entity during the periods covered by the Predecessor financial statements and are not indicative of our future results of operations and financial position.

Management Adjusted EBITDA and Adjusted EBITDA are defined and discussed in footnotes (2) and (3) to the “Summary Consolidated Historical Financial Data.” Management Adjusted EBITDA is defined and discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Performance Indicators.” Adjusted EBITDA is defined and discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Covenant Compliance and Financial Ratios.”

The Company

Overview

We are a global leader in the design and manufacture of a broad range of innovative specialty rolled and extruded aluminum products, serving primarily the aerospace, packaging and automotive end-markets. We have a strategic footprint of manufacturing facilities located in the United States, Europe and China. Our business model is to add value by converting aluminum into semi-fabricated products. We believe we are the supplier of choice to numerous blue-chip customers for many value-added products with performance-critical applications. Our product portfolio commands higher margins as compared to less differentiated, more commoditized fabricated aluminum products, such as common alloy coils, paintstock, foilstock and soft alloys for construction and distribution.

We operate 23 production facilities, 10 administrative and commercial sites and one research and development (“R&D”) center and have approximately 8,400 employees. We believe our portfolio of flexible and integrated facilities is among the most technologically advanced in the industry. It is our view that our established presence in the United States and Europe and our growing presence in China strategically position us to service our global customer base. For example, based on information available to us as a market participant, we believe we are one of only two suppliers of aluminum products to the aerospace market with facilities in both

 

 

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the United States and Europe. We believe this gives us a key competitive advantage in servicing the needs of our aerospace customers, including Airbus S.A.S. and The Boeing Company. We believe our well-invested facilities combined with more than 50 years of manufacturing experience, quality and innovation and pre-eminent R&D capabilities have put us in a leadership position in our core markets.

We seek to sell to end-markets that have attractive characteristics for aluminum, including (i) higher margin products, (ii) stability through economic cycles and (iii) favorable growth fundamentals, such as customer order backlogs in aerospace and substitution trends in automotive and European can sheet. We are the leading global supplier of aerospace plates, the leading European supplier of can body stock and a leading global supplier of automotive structures. Our unique platform has enabled us to develop a stable and diversified customer base and to enjoy long-standing relationships with our largest customers. Our relationships with our top 20 customers average over 25 years, with more than 32% of half-year 2013 volumes governed by contracts valid until 2015 or later. Our customer base includes market leading firms in aerospace, packaging, and automotive including Airbus, Boeing, Rexam PLC, Ball Corporation, Crown Holdings, Inc., and several premium automotive original equipment manufacturers, or OEMs, including BMW AG, Mercedes-Benz and Volkswagen AG. We believe that we are a “mission critical” supplier to many of our customers due to our technological and R&D capabilities as well as the lengthy and complex qualification process required for many of our products. Our core products require close collaboration and, in many instances, joint development with our customers.

For the years ended December 31, 2012, 2011 and 2010, we shipped approximately 1,033 kt, 1,058 kt and 972 kt of finished products, generated revenues of €3,610 million, €3,556 million and €2,957 million, generated profits of €134 million and incurred losses of €174 million and €207 million for the periods, respectively, and generated Adjusted EBITDA of €228 million, €160 million and €48 million, respectively. For the nine months ended September 30, 2013 and 2012, we shipped 791 kt and 798 kt of finished products, generated revenues of €2,689 million and €2,796 million, generated profits of €67 million and €85 million and generated Adjusted EBITDA of €221 million and €181 million, respectively. The financial performance for the year ended December 31, 2012 represented a 2% decrease in shipments, a 2% increase in revenues and a 43% increase in Adjusted EBITDA from the prior year. The financial performance for the nine months ended September 30, 2013 represented a 1% decrease in shipments, a 4% decrease in revenues and a 22% increase in Adjusted EBITDA in comparison to the nine months ended September 30, 2012. Please see the reconciliation of Adjusted EBITDA in “Management’s Discussion and Analysis—Management Adjusted EBITDA Reconciliation” and footnote (3) to “Summary Consolidated Historical Financial Data.”

Our Operating Segments

Our business is organized into three operating segments: (i) Aerospace & Transportation, (ii) Packaging & Automotive Rolled Products, and (iii) Automotive Structures & Industry.

 

 

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The following charts present our revenues by operating segment and geography for the six months ended June 30, 2013:

 

LOGO

 

1 

Revenue by geographic zone is based on the destination of the shipment.

Aerospace & Transportation Operating Segment (“A&T”)

Our Aerospace & Transportation operating segment has market leadership positions in technologically advanced aluminum and specialty materials products with wide applications across the global aerospace, defense, transportation, and industrial sectors. We offer a wide range of products including plate, sheet, extrusions and precision casting products which allows us to offer tailored solutions to our customers. We seek to differentiate our products and act as a key partner to our customers through our broad product range, advanced R&D capabilities, extensive recycling capabilities and portfolio of plants with an extensive range of capabilities across North America and Europe. In order to reinforce the competitiveness of our metal solutions, we design our processes and alloys with a view to optimizing our customers’ operations and costs. This includes offering services such as customizing alloys to our customers’ processing requirements, processing short lead time orders and providing vendor managed inventories or tolling arrangements. The Aerospace & Transportation operating segment accounted for 33% of our revenues and 45% of Management Adjusted EBITDA for the year ended December 31, 2012 and 34% of our revenues and 43% of Management Adjusted EBITDA for the nine months ended September 30, 2013.

Eight of our manufacturing facilities produce products that are sold via our Aerospace & Transportation operating segment. Our aerospace plate manufacturing facilities in Ravenswood (West Virginia, United States), Issoire (France) and Sierre (Switzerland) offer the full spectrum of plate required by the aerospace industries (alloys, temper, dimensions, pre-machined) and have unique capabilities such as producing some wide and very high gauge plates required for some aerospace programs (civil and commercial). Sierre is in the process of becoming a new qualified aerospace heat treat plate mill. A step in this process was successfully achieved with the agreement in February 2013 by one of the largest commercial aircraft manufacturers to authorize Sierre to become a rolling and heat treat subcontractor of Issoire. We expect Sierre to become a fully qualified source for aerospace plate in 2015.

Downstream aluminum products for the aerospace market require relatively high levels of R&D investment and advanced technological capabilities, and therefore tend to command higher margins compared to more

 

 

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commoditized products. We work in close collaboration with our customers to develop highly engineered solutions to fulfill their specific requirements. For example, we developed AIRWARE®, a lightweight specialty aluminum-lithium alloy, for our aerospace customers to address demand for lighter and more environmentally sound aircraft; it combines optimized density, corrosion resistance and strength in order to achieve up to 25% weight reduction compared to other aluminum products and significantly higher corrosion and fatigue resistance than equivalent composite products. In addition, unlike composite products, any scrap produced in the AIRWARE® manufacturing process can be fully recycled, which reduces production costs. Since the opening of our AIRWARE® casthouse in Issoire, we are the first company to commercialize and produce AIRWARE® on an industrial scale, and the material is currently being used on a number of major aircraft models, including the newest Airbus A350 XWB aircraft, the fuselage of Bombardier’s single-aisle twinjet C-Series short-haul planes, the Airbus A380 and the Boeing 787 Dreamliner. Our customer base includes Airbus, Boeing, Embraer, Dassault, Bombardier and Lockheed Martin.

Aerospace products are typically subject to long qualification, development and supply lead times and the majority of our contracts with our largest aerospace customers have a term of five years or longer, which provides excellent volume and profitability visibility. In addition, demand for our aerospace products typically correlates directly with aircraft backlogs and build rates. As of August 2013, the backlog reported by Airbus and Boeing for commercial aircraft reached 9,935 units on a combined basis, representing approximately eight years of production at current build rates.

The following table summarizes our volume, revenues, Management Adjusted EBITDA and Adjusted EBITDA for our Aerospace & Transportation operating segment for the periods presented:

 

(€ in millions, unless otherwise noted)

  Predecessor
for the year ended
December 31,
        Successor
for the
year ended
December 31,
    Successor
for the nine  months
ended

September 30,
 
      2010                  2011             2012             2012             2013      

Aerospace & Transportation:

             

Segment Revenues

    810            1,016        1,182        916        904   

Segment Shipments (kt)

    195            216        223.7        171        183   

Segment Revenues (€/ton)

    4,154            4,704        5,284        5,357        4,953   

Segment Management Adjusted EBITDA(1)

    35            26        92        65        80   

Segment Management Adjusted EBITDA (€/ton)

    179            120        411        380        438   

Segment Management Adjusted EBITDA margin (%)(2)

    4         3     8     7     9

Segment Adjusted EBITDA(3)

    36            41        105        78        91   

 

(1) Management Adjusted EBITDA is not a measure defined under IFRS. Please see the reconciliation in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Performance Indicators” and also in footnote (2) to “Summary Consolidated Historical Financial Data.”
(2) Management Adjusted EBITDA margin (%) is not a measure defined under IFRS. Management Adjusted EBITDA margin (%) is defined as Management Adjusted EBITDA as a percentage of Segment Revenue.
(3) Adjusted EBITDA is not a measure defined under IFRS. Adjusted EBITDA is defined and discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Management Adjusted EBITDA Reconciliation.” Please see the reconciliation in that section and in footnote (3) to “Summary Consolidated Historical Financial Data.”

Packaging & Automotive Rolled Products Operating Segment (“P&ARP”)

In our Packaging & Automotive Rolled Products operating segment, we produce and develop customized aluminum sheet and coil solutions. Approximately 79% of operating segment volume for the year ended December 31, 2012 was in packaging applications, which primarily include beverage and food can stock, as well

 

 

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as closure stock and foil stock. The remaining 21% of operating segment volume for that period was in automotive and customized solutions, which include technologically advanced products for the automotive and industrial sectors. Our Packaging & Automotive Rolled Products operating segment accounted for 43% of revenues and 39% of Management Adjusted EBITDA for the year ended December 31, 2012 and 43% of our revenues and 34% of Management Adjusted EBITDA for the nine months ended September 30, 2013.

We are the leading European supplier of can body stock and the leading worldwide supplier of closure stock. We are also a major European player in automotive rolled products for Auto Body Sheet (the structural framework of a car) and heat exchangers. We have a diverse customer base, consisting of many of the world’s largest beverage and food can manufacturers, specialty packaging producers, leading automotive firms and global industrial companies. Our customer base includes Rexam PLC, Audi AG, Daimler AG, Peugeot S.A., Ball Corporation, Can-Pack S.A., Crown Holdings, Inc., Alanod GmbH & Co. KG, Ardagh Group S.A., Amcor Ltd. and ThyssenKrupp AG.

We have two integrated rolling operations located in Europe’s industrial heartland. Neuf-Brisach, our facility on the border of France and Germany, is, in our view, a uniquely integrated aluminum rolling and finishing facility. Singen, located in Germany, is specialized in high-margin niche applications and has an integrated hot/cold rolling line and high-grade cold mills with special surfaces capabilities that facilitate unique metallurgy and lower production costs. We believe Singen has enhanced our reputation in many product areas, most notably in the area of functional high-gloss surfaces for the automotive, lighting, solar and cosmetic industries, other decorative applications, closure stock, paintstock and foilstock.

Our Packaging & Automotive Rolled Products operating segment has historically been relatively resilient during periods of economic downturn and has had relatively limited exposure to economic cycles and periods of financial instability. According to CRU, during the 2008-2009 economic crisis, can stock volumes decreased by 10% in 2009 versus 2007 levels as compared to a 24% decline for flat rolled aluminum products volumes in aggregate during the same period. This demonstrates that demand for beverage cans tends to be less correlated with general economic cycles. In addition, we believe European can body stock has an attractive long-term growth outlook due to the following trends: (i) end-market growth in beer, soft drinks and energy drinks, (ii) increasing use of cans versus glass in the beer market, (iii) increasing use of aluminum in can body stock in the European market, at the expense of steel, and (iv) increasing consumption in eastern Europe linked to purchasing power growth.

The following table summarizes our volume, revenues, Management Adjusted EBITDA and Adjusted EBITDA for our Packaging & Automotive Rolled Products operating segment for the periods presented:

 

(€ in millions, unless otherwise noted)   Predecessor
for the year ended
December 31,
        Successor
for the year
ended
December 31,
    Successor
for the  nine
months
ended
September 30,
 
              2010                           2011             2012             2012             2013      

Packaging & Automotive Rolled Products:

             

Segment Revenues

    1,373            1,625        1,554        1,205        1,159   

Segment Shipments (kt)

    588            621        606        468        464   

Segment Revenues (€/ton)

    2,335            2,617        2,566        2,575        2,501   

Segment Management Adjusted EBITDA(1)

    74            63        80        64        64   

Segment Management Adjusted EBITDA (€/ton)

    126            101        132        137        138   

Segment Management Adjusted EBITDA margin(%)(2)

    5         4     5     5     6

Segment Adjusted EBITDA(3)

    46            95        92        74        85   

 

 

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(1) Management Adjusted EBITDA is not a measure defined under IFRS. Please see the reconciliation in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Performance Indicators” and also in footnote (2) to “Summary Consolidated Historical Financial Data.”
(2) Management Adjusted EBITDA margin (%) is not a measure defined under IFRS. Management Adjusted EBITDA margin (%) is defined as Management Adjusted EBITDA as a percentage of Segment Revenue.
(3) Adjusted EBITDA is not a measure defined under IFRS. Adjusted EBITDA is defined and discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Management Adjusted EBITDA Reconciliation.” Please see the reconciliation in that section and in footnote (3) to “Summary Consolidated Historical Financial Data.”

Automotive Structures & Industry Operating Segment (“AS&I”)

Our Automotive Structures & Industry operating segment produces (i) technologically advanced structures for the automotive industry including crash management systems, side impact beams and cockpit carriers and (ii) soft and hard alloy extrusions and large profiles for automotive, rail, road, energy, building and industrial applications. We complement our products with a comprehensive offering of downstream technology and services, which include pre-machining, surface treatment, R&D and technical support services. Our Automotive Structures & Industry operating segment accounted for 24% of revenues and 20% of Management Adjusted EBITDA for the year ended December 31, 2012 and 23% of our revenues and 21% of Management Adjusted EBITDA for the nine months ended September 30, 2013. Adjusting for the disposal of our plants in Ham and Saint-Florentin, AS&I revenues increased by 4%.

We believe that we are the second largest provider of automotive structures in the world and the leading supplier of hard alloys and large profiles for industrial and other transportation markets in Europe. We manufacture automotive structures products for some of the largest European and North American car manufacturers supplying a global market, including Daimler AG, BMW AG, Audi AG, Chrysler Group LLC and Ford Motor Co. We also have a strong presence in soft alloys in France and Germany, with customized solutions for a diversity of end-markets.

Fifteen of our manufacturing facilities, located in Germany, the United States, the Czech Republic, Slovakia, France, Switzerland and China, produce products sold in our Automotive Structures & Industry operating segment. We believe our local presence, downstream services and industry leading cycle times help to ensure that we respond to our customer demands in a timely and consistent fashion. Our two integrated remelt and casting centers in Switzerland and the Czech Republic both provide security of metal supply and contribute to our recycling efforts.

The following table summarizes our volume, revenues, Management Adjusted EBITDA and Segment Adjusted EBITDA for our Automotive Structures & Industry operating segment for the periods presented:

 

(€ in millions, unless otherwise noted)    Predecessor
for the year
ended
December 31,
         Successor
for the year
ended
December 31,
    Successor
for the nine months
ended
September 30,
 
   2010           2011     2012       2012         2013    

Automotive Structures & Industry:

               

Segment Revenues

     754             910        861        663        612   

Segment Shipments (kt)

     212             219        206        159        146   

Segment Revenues (€/ton)

     3,557             4,155        4,180        4,170        4,206   

Segment Management Adjusted EBITDA(1)

     -4             20        40        32        40   

Segment Management Adjusted EBITDA (€/ton)

     -19             91        194        201        275   

Segment Management Adjusted EBITDA margin (%)(2)

     -1          2     5     5     7

Segment Adjusted EBITDA(3)

     -11             37        46        39        46   

 

 

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(1) Management Adjusted EBITDA is not a measure defined under IFRS. Please see the reconciliation in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Performance Indicators” and also in footnote (2) to “Summary Consolidated Historical Financial Data.”
(2) Management Adjusted EBITDA margin (%) is not a measure defined under IFRS. Management Adjusted EBITDA margin (%) is defined as Management Adjusted EBITDA as a percentage of Segment Revenue.
(3) Adjusted EBITDA is not a measure defined under IFRS. Adjusted EBITDA is defined and discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Management Adjusted EBITDA Reconciliation.” Please see the reconciliation in that section and in footnote (3) to “Summary Consolidated Historical Financial Data.”

Holdings and Corporate

Our Holdings and Corporate segment includes the net cost of our head offices in Schiphol-Rijk, the Netherlands, our treasury center in Zurich and our corporate support services functions in Paris. Our Holdings and Corporate segment accounted for 0% of revenues, (4%) of Management Adjusted EBITDA and (7%) of Adjusted EBITDA for the year ended December 31, 2012 and 1% of revenues, 2% of Management Adjusted EBITDA and 0% of Adjusted EBITDA for the nine months ended September 30, 2013. Our Management Adjusted EBITDA and Adjusted EBITDA is defined and discussed in “Management’s Discussion and Analysis of Financial Condition and Results of operations—Key Performance Indicators—Management Adjusted EBITDA” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Management Adjusted EBITDA Reconciliation,” respectively.

Voreppe Research & Development Center

Voreppe is our dedicated R&D center in Grenoble, France and, as of September 2013, employs approximately 90 scientists and 92 technicians. Voreppe uses its full-scale facilities, which include a pilot casthouse that enables process and alloy development on an industrial scale, and external links with several universities and other research facilities to develop new solutions and meet customers’ needs. Our scientists and technicians are active in the development of aluminum product metallurgy and casting, rolling and extrusion technologies. Voreppe’s proven track record includes development of an intellectual property portfolio with approximately 875 active patents organized into over 148 patent families.

We believe that a major factor in our R&D success has been the close interaction with key customers in our most technically demanding markets at the early stages of the development and innovation process. This collaborative effort with long-term customers has led to the in-house development of advanced alloys and solutions that have applications for products sold to multiple end-markets. This collaboration often takes the form of formal partnership or co-development arrangements or the formation of joint teams with our customers.

An example of such a development is our Surfalex® alloy, which was developed for the demanding specifications of the auto body market. We believe the alloy’s superior surface appearance combined with high mechanical resistance level and optimized formability make it an alloy of choice for this sector. This alloy is already used at premium OEM’s like Audi, Porsche and Daimler.

Our Industry

The specialty metals industry is comprised of producers of a variety of high performance metals and semi-fabricated products manufactured from those metals, which include stainless steel and titanium in addition to aluminum. We also compete with producers of other materials that can be used in our target end-markets, such as composites in aerospace or copper in certain automotive applications, as well as traditional carbon steel in automotive and packaging. Aluminum is lightweight, has a high strength-to-weight ratio and is resistant to

 

 

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corrosion. It compares favorably to several alternative materials, such as steel, in these respects. Aluminum is also unique in the respect that it can also be recycled repeatedly without any material decline in performance or quality. The recycling of aluminum delivers energy and capital investment savings relative to the cost of producing both primary aluminum and many other competing materials. Due to these qualities, the penetration of aluminum into a wide variety of applications continues to increase. We believe that long-term growth in aluminum consumption generally, and demand for those products we produce specifically, will be supported by factors that include growing populations, continued urbanization in emerging markets and increasing focus globally on sustainability and environmental issues. Aluminum is increasingly seen as the material of choice in a number of applications, including aerospace, packaging and automotive.

The following charts illustrate expected global demand for aluminum extruded and rolled products. The expected growth through 2017 for the extruded products market and the flat rolled products market is 6.2% and 5.4%, respectively.

Projected Aluminum Demand 2012-2017 (in thousand metric tons)

 

LOGO

The global aluminum industry consists of (i) mining companies that produce bauxite, the ore from which aluminum is ultimately derived, (ii) primary aluminum producers that refine bauxite into alumina and smelt alumina into aluminum, (iii) aluminum semi-fabricated products manufacturers, including aluminum casters, recyclers, extruders and flat rolled products producers (such as Constellium) and (iv) integrated companies that are present across multiple stages of the aluminum production chain.

The price of aluminum, quoted on the London Metal Exchange (which we refer to in this prospectus as “LME”), is subject to global supply and demand dynamics and moves independently of the costs of many of its inputs. Producers of primary aluminum have limited ability to manage the volatility of aluminum prices and can experience a high degree of volatility in their cash flows and profitability. We do not smelt aluminum, nor do we participate in other upstream activities such as mining or refining bauxite. We recycle aluminum, both for our own use and as a service to our customers.

Rolled and extruded aluminum product prices are generally based on price of metal plus a conversion fee (i.e., the cost incurred to convert the aluminum into its semi-finished product). The price of aluminum is not a significant driver of our financial performance, in contrast to the more direct relationship of the price of

 

 

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aluminum to the financial performance of primary aluminum producers. Instead, the financial performance of producers of rolled and extruded aluminum products, such as Constellium, is driven by the dynamics in the end-markets that they serve, their relative positioning in those markets and the efficiency of their industrial operations.

Our Competitive Strengths

We believe that the following competitive strengths differentiate our business and will allow us to maintain and build upon our strong industry position:

Leading positions in each of our attractive and complementary end-markets

In our core industries—aerospace, packaging and automotive—we have market leading positions and established relationships with many of the main manufacturers. Within these attractive and diverse end-markets, we are particularly focused on product lines that require expertise, advanced R&D, and technology capabilities to produce. The drivers of demand in our core industries are varied and largely unrelated to one another.

We are the largest supplier globally of aerospace plates. We believe that our ability to fulfill the technical, R&D and quality requirements needed to supply the aerospace market gives us a significant competitive advantage. In addition, based on our knowledge as a market participant, we are one of only two suppliers of aerospace plate to have qualified facilities on two continents, which enables us to more effectively supply both Airbus and Boeing. We have sought to develop our strategic platform by making significant investments to increase our capacity and improve our capabilities and to develop our proprietary AIRWARE® material solution. We believe we are well-positioned to benefit from strong demand in the aerospace sector, as demonstrated by the currently high backlogs for Boeing and Airbus that are driven by increased global demand for air travel, especially in Asia.

We are the largest supplier of European can body stock by volume with approximately 36% of the market and, in our view, we have benefited from our strong relationships with the leading European can manufacturers, our recycling capabilities and our fully integrated Neuf-Brisach facility, which has full production capabilities ranging from recycling and casting to rolling and finishing. As the leader in the European market, we believe that we are well-positioned to benefit from the ongoing trend of steel being replaced by aluminum as the material of choice for can sheet. Packaging provides a stable cash flow stream through the economic cycle that can be used to invest in attractive opportunities in the aerospace and automotive industries to drive longer-term growth.

In automotive, we believe our leading positions in the supply of aluminum products are due to our advanced design capabilities, efficient production systems and established relationships with leading automotive OEMs. This includes being the second largest global supplier of auto crash management systems by volume. We expect that E.U. and U.S. regulations requiring reductions in carbon emissions and fuel efficiency, as well as relatively high fuel prices, will continue to drive aluminum demand in the automotive industry. Whereas growth in aluminum use in vehicles has historically been driven by increased use of aluminum castings, we anticipate that future growth will be primarily in the kinds of extruded and rolled products that we supply to the OEMs.

 

 

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In addition, we hold market leading positions in a number of other attractive product lines.

 

LOGO

 

(a) CRU International Limited, based on data regarding the year ended 2011
(b) Based on Company internal market analysis
* Based on volumes

Advanced R&D and technological capabilities

We have made substantial investments to develop unique R&D and technological capabilities, which we believe give us a competitive advantage as a supplier of the high value-added, specialty products on which we focus and which make up the majority of our product portfolio. In particular, our R&D facility in Voreppe, France has given us a leading position in the development of proprietary next-generation specialty alloys, as evidenced by our robust intellectual property portfolio. We use our technological capabilities to develop tailored products in close partnerships with our customers, with the aim of building long-term and synergistic relationships.

One of our hallmark R&D achievements was the recent development of AIRWARE®, a lightweight specialty aluminum-lithium alloy developed for our aerospace customers to enable them to reduce fuel consumption and costs. AIRWARE® was developed for certain customers using our pilot cast-house in Voreppe, and following a substantial capital expenditure investment, is now being produced on an industrial scale in our aerospace facility in Issoire, France. AIRWARE® combines optimized density, corrosion resistance and strength in order to achieve up to 25% weight reduction compared to other aluminum products and significantly higher corrosion and fatigue resistance than equivalent composite products. This technology drives incremental margin compared to tradition aluminum alloys.

 

 

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Global network of efficient facilities with a broad range of capabilities operated by a highly skilled workforce

We operate a network of strategically located facilities that we believe allows us to compete effectively in our selected end-markets across numerous geographies. With an estimated replacement value of over €6.5 billion without inventories, our facilities have enabled us to reliably produce a broad range of high-quality products. They are operated by a highly skilled workforce with decades of accumulated operational experience. We believe this collective knowledge base would be very difficult to replicate and is a key contributing factor to our ability to produce consistently high-quality products.

Our six key production sites feature industry-leading manufacturing capabilities with required industry qualifications that are, in our view, difficult for market outsiders to accomplish. For example, we believe that Neuf-Brisach is the most integrated downstream aluminum production facility in Europe, with capabilities spanning the recycling, casting, rolling and finishing phases of production. In July 2013, we completed two projects to enhance the capacity and performance of one of our main rolling mills at Neuf-Brisach, representing a total investment of €23 million. The first project modernized a casting complex dedicated to rolling slab production, delivering safety and quality improvements and increasing casting capacity, and the second project involved the complete replacement of a pusher furnace, dedicated to the homogenization and preheating of slabs before rolling. Our Issoire, France and Ravenswood, West Virginia, United States plants have unique capabilities for producing the specialized wide and very high gauge plates required for the aerospace sector. We spent €20 million in the two-year period ended December 31, 2012 at Ravenswood, mainly to complete significant equipment upgrades, including a hot mill and new stretcher that we believe is the most powerful stretcher in our industry. Additionally, our network of small extrusion and automotive structures plants enables us to serve many of our customers on a localized basis, allowing us to more rapidly meet demand through close proximity. We believe our portfolio of facilities provides us with a strong platform to retain and grow our global customer base.

Long-standing relationships with a diversified and blue-chip customer base

Our customer base includes some of the largest manufacturers in the aerospace, packaging and automotive end-markets. We believe that our ability to produce tailored, high value-added products fosters longer-term and synergistic relationships with this blue-chip customer base. We regard our relationships with our customers as partnerships in which we work together to utilize our unique R&D and technological capabilities to develop customized solutions to meet evolving requirements. This includes developing products together through long-term R&D partnerships. In addition, we collaborate with our customers to complete a rigorous process for qualifying our products, which requires substantial time and investment and creates high switching costs.

We have a relatively diverse customer base with our 10 largest customers representing approximately 47% of our revenues and approximately 52% of our volumes for the six months ended June 30, 2013. The average length of our relationships with our top 20 customers exceeds 25 years, and in some cases goes back as far as 40 years, particularly with our aerospace and packaging customers. Most of our major aerospace, packaging and automotive customers have multi-year contracts with us (i.e., contracts with terms of three to five years), making us critical partners to our customers. As a result, we estimate that approximately 50% of our half-year 2013 volumes are generated under multi-year contracts, with more than 42% of half-year 2013 volumes governed by contracts valid until 2014 or later and more than 32% of half-year 2013 volumes governed by contracts valid until 2015 or later. In addition, more than 69% of our half-year 2013 packaging volumes are contracted until 2014 or later. We believe this provides us with stability and significant visibility into our future volumes and earnings.

Stable business model that delivers robust free cash flow across the cycle

There are several ways in which our business model is designed to produce stable and consistent cash flows and profitability. For example, we seek to limit our exposure to commodity metal price volatility primarily by utilizing pass-through mechanisms or contractual arrangements and financial derivatives.

 

 

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Our business also features relatively countercyclical cash flows. During an economic downturn, lower demand causes our sales volumes to decrease, which results in a corresponding reduction in our inventory purchases and a reduction in our working capital requirements. As a result, operating cash flows become positive. We believe this helps to drive robust free cash flow across cycles and provides significant downside protection for our liquidity position in the event of a downturn. For example, in 2009 during the last prolonged downturn in demand, our volumes declined from 1,058 kt to 868 kt. This decline resulted in a €276 million reduction of our total working capital, mainly driven by inventory purchases reductions of €213 million and a positive operating cash flow from continuing operations of €181 million.

In addition, we have a significant presence in what have proved to be relatively stable, recession-resilient end-markets with 47% of volumes in the year ended December 31, 2012 sold into the can sheet and packaging end-markets, and 9% of volumes in that period sold into the aerospace end-market, which is driven by global demand trends rather than regional trends. Our automotive products are predominantly used in premium models manufactured by the German OEMs, which are not as dependent on the European economy and continue to benefit from rising demand in developing economies, particularly China.

We are also focused on optimizing the cost efficiency of our operations. In 2010, we implemented a rigorous continuous improvement program with the annual goal of outperforming inflation in our non-metal cost base (labor, energy, maintenance) and lowering our breakeven level. As a result of this program, we reduced our costs by €49 million in 2010, €67 million in 2011 and €57 million in 2012.

Strong and experienced management team

We have a strong and experienced management team led by Pierre Vareille, our Chief Executive Officer, who has more than 30 years of experience in the manufacturing industry and a successful track record of leading global manufacturing companies, particularly in the domain of metal transformation for industries such as aerospace and automotive. Both Mr. Vareille and our Chief Financial Officer, Didier Fontaine, have previously been involved in the management of public companies. Our executive officers and other key members of our management team have an average of more than 15 years of relevant industry experience. Our team has expertise across the commercial, technical and management aspects of our business and industry, which provides for strong customer service, rigorous quality and cost controls, and focus on health, safety and environmental improvements. Our board of directors includes current and former executives of Alcan, Rio Tinto, Bosch, Kaiser Aluminum and automotive suppliers such as Faurecia, who bring extensive experience in operations, finance, governance and corporate strategy.

Our Business Strategies

Our objective is to expand our leading position as a supplier of high value-added, technologically advanced products in which we believe that we have a competitive advantage. Our strategy to achieve this objective has three pillars: (i) selective participation, (ii) global leadership position and (iii) best-in-class efficiency and operational performance.

Selective Participation

Continue to target investment in high-return opportunities in our core markets (aerospace, packaging and automotive), with the goal of driving growth and profitability

We are focused on our three strategic end-markets—aerospace, packaging and automotive—which we believe have attractive growth prospects for aluminum. These are also markets where we believe that we can differentiate ourselves through our high value-added products, our strong customer relationships and our R&D and technological capabilities. Our capital expenditures and R&D spend are focused on these three strategic end-

 

 

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markets and are made in response to specific volume requirements from long-term customer contracts, which ensures relatively short payback periods and good visibility into return on investment. Examples of this focused approach include a new casthouse at Issoire to support growing demand for AIRWARE®, a new state-of-the-art press at Singen to increase capacity for automotive extrusions and a heat treatment and conversion line at Neuf-Brisach to serve growing demand for aluminum automotive sheet.

As part of our focus on our core end-markets and our strategy to improve our profitability, we also consider potential divestitures of non-strategic businesses. For example, we divested the vast majority of our Alcan International Network (“AIN”) specialty chemicals and raw materials supply chain services division in 2011 to CellMark AB. In each of 2011 and 2012, the discontinued operations of our AIN business generated losses of €8 million.

Focus on higher margin, technologically advanced products that facilitate long-term relationships as a “mission critical” supplier to our customers

Our product portfolio is predominantly focused on high value-added products, which we believe we are particularly well-suited to developing and manufacturing for our customers. These products tend to require close collaboration with our customers to develop tailored solutions, as well as significant effort and investment to adhere to rigorous qualification procedures, which enables us to foster long-term relationships with our customers. Our products typically command higher margins than more commoditized products, and are supplied to end-markets that we believe have highly attractive characteristics and long-term growth trends.

Global Leadership Position

Continue to differentiate our products, with the goal of maintaining our leading market positions and remaining a supplier of choice to our customers

We aim to deepen our ties with our customers by consistently providing best-in-class quality, market leading supply chain integration, joint product development projects, customer technical support and scrap and recycling solutions. We believe that our product offering is differentiated by our market leading R&D capabilities. Our key R&D programs are focused on high growth and high margin areas such as specialty material solutions, next generation alloys and sustainable engineered solutions / manufacturing technologies. Recent examples of market leading breakthroughs include our AIRWARE® lithium alloy technology and our Solar Surface® Selfclean, a coating solution used in the solar industry which provides additional performance and functionality of the aluminum by chemically breaking down dirt and contaminants in contact with the surface.

Build a global footprint with a focus on expansion in Asia, particularly in China, and work to gain scale through acquisitions in Europe and the United States

We intend to selectively expand our global operations where we see opportunities to enhance our manufacturing capabilities, grow with current customers and gain new customers, or penetrate higher-growth regions. We believe disciplined expansion focused on these objectives will allow us to achieve attractive returns for our shareholders. In line with these principles, our recent expansions include:

 

   

the formation of a joint venture in China, Engley Automotive Structures Co., Ltd., which is currently producing aluminum crash-management systems in Changchun and Kunshan, China; and

 

   

the successful expansion of our Constellium Automotive USA, LLC plant, located in Novi, Michigan, which is producing highly innovative crash-management systems for the automotive market.

 

 

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Best-in-Class Performance

Contain our fixed costs and offset inflation with increased productivity

We have been executing an extensive cost savings program focusing on selling, general and administrative expenses (“SG&A”), conversion costs and purchasing. In 2010, 2011 and 2012, we realized a structural realignment of our cost structure and achieved annual costs savings of €49, €67, and €57 million, respectively. This represents approximately 4% of our estimated addressable cost base in 2012 (i.e., excluding raw material cost). These savings are split between operating expenses (48%), SG&A savings (21%) and procurement savings (31%). This program was designed to right-size our cost structure, increase our profitability and provide a competitive advantage against our peers. Our cost savings program will continue to be a priority as we focus on optimizing our cost base and offsetting inflation.

Establish best-in-class operations through Lean manufacturing

We believe that there are significant opportunities to improve our services and quality and to reduce our manufacturing costs by implementing Lean manufacturing initiatives. “Lean manufacturing” is a production practice that improves efficiency of operations by identifying and removing tasks and process steps that do not contribute to value creation for the end customer. We continually evaluate debottlenecking opportunities globally through modifications of, and investments in, existing equipment and processes. We aim to establish best-in-class operations and achieve cost reductions by standardizing manufacturing processes and the associated upstream and downstream production elements where possible, while still allowing the flexibility to respond to local market demands and volatility.

To focus our efforts, we have launched a Lean manufacturing program that is designed to improve the flow of value to customers by eliminating waste in both processes and resources. We measure operational success of this program in five key areas: (i) safety, (ii) quality, (iii) working capital, (iv) delivery performance and (v) innovation.

Our Lean manufacturing program is overseen by a dedicated team, headed by Yves Mérel. Mr. Mérel reports directly to our Chief Executive Officer, Pierre Vareille. Mr. Vareille and Mr. Mérel have long track records of successfully implementing Lean manufacturing programs at other companies they have managed in the past.

Recent Developments

Third Quarter 2013 Results

In addition to the results reported in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board, this section includes information regarding certain non-GAAP financial measures. Adjusted EBITDA, Adjusted Free Cash Flow and Net Debt are measures not defined under IFRS. Please see the reconciliations in footnotes (4) and (2) to “Summary Consolidated Historical Financial Data.”

Group results

Total shipments for the three months ended September 30, 2013 were 257 kt, which represented an increase of 1 kt, or 0.4%, from the three months ended September 30, 2012, which quarter was negatively affected by the strike at our Ravenswood facility. The increase reflects higher shipment volumes in aerospace and automotive partially offset by lower volumes in soft alloys and packaging. Revenues for the three months ended September 30, 2013 were €862 million, which represented a decrease of €23 million, or 2.6%, from the three months ended September 30, 2012; however after adjusting for constant LME prices, exchange rates and the divestiture of two soft alloy plants in France, revenues for the three months ended September 30, 2013 calculated on a comparable basis were 6% ahead of the three months ended September 30, 2012.

 

 

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Total shipments in the nine months to September 30, 2013 were 791 kt, which represented a decrease of 7 kt, or 1%, from the nine months to September 30, 2012. The decrease reflects higher shipment volumes in our aerospace and transportation segment more than offset by lower volumes in our packaging and automotive rolled products segment and the impact of the sale of Ham and Saint-Florentin, two of our soft alloy plants in France. Revenues in the nine months ended September 30, 2013 were €2,689 million, which represented a decrease of €107 million, or 4%, from the nine month period ended September 30, 2012; however after adjusting for constant LME prices, exchange rates and the divestiture of the two soft alloy plants in France, revenues for the nine months to September 30, 2013 calculated on a comparable basis were 3% ahead of the nine months ended September 30, 2012.

Adjusted EBITDA for the three months ended September 30, 2013 was €64 million, which represented an increase of €25 million, or 64%, from the three months ended September 30, 2012. This improvement in Adjusted EBITDA reflected improved results from all three reporting segments driven by increased shipment volumes in the aerospace and automotive markets combined with production and cost efficiencies. For the three months ended September 30, 2013 performance in our Aerospace & Transportation reporting segment was affected by brief outages at our Issoire plant and a less favorable product mix.

Adjusted EBITDA per ton for the three months ended September 30, 2013 of €247 per ton which represents an increase of €94 per ton, or 61%, from the three months ended September 30, 2012, reflecting higher Adjusted EBITDA on stable volumes.

For the nine months ended September 30, 2013, Adjusted EBITDA was €221 million which represented an increase of €40 million, or 22%, over the nine months ended September 30, 2012. This increase reflects the improved product mix favoring the aerospace sector, strong results from the automotive sector, and continuing benefits from production and cost efficiencies and improvements achieved at our major manufacturing locations.

Aerospace and Transportation segment

Shipments in Aerospace and Transportation for the three months ended September 30, 2013 were 62 kt, which represented an increase of 10 kt, or 19%, from the three months ended September 30, 2012. This resulted in Adjusted EBITDA for the three months ended September 30, 2013 of €19 million, which represented an increase of €6 million, or 46%, from the three months ended September 30, 2012. Adjusted EBITDA per ton for the three months ended September 30, 2013 was €316 per ton, which represented an increase of €60 per ton, or 23% over the same period in the prior year. Comparisons of the three months ended September 30, 2013 with the three months ended September 30, 2012 in this reporting segment are impacted by the employee strike last year at our Ravenswood facility during collective bargaining agreement negotiations, which had an adverse effect on sales, production and Adjusted EBITDA during the three months ended September 30, 2012. Q3 was affected by brief outages at our Issoire plant (due to exceptional weather conditions) and a less favorable product mix.

For the nine months ended September 30, 2013, sales volumes for Aerospace and Transportation were 183 kt which represented an increase of 12 kt, or 7%, over the same period in 2012. Although there is evidence of higher inventory levels at some of our major customers this had a limited impact on sales and we continue to see increases in market share including from our multi-year contract with Airbus. Adjusted EBITDA for the nine months ended September 30, 2013 was €91 million, representing an increase of €13 million, or nearly 17%, over the same period in 2012 and Adjusted EBITDA per ton was €497 per ton, which represented an increase of €38 per ton, or 8% over the same period in the prior year.

Packaging & Automotive Rolled Products segment

Adjusted EBITDA in our Packaging & Automotive Rolled Products reporting segment for the three months ended September 30, 2013 was €29 million which represented an increase of €2 million, or 7%, over the three months ended September 30, 2012 and shipments were 152 kt, which represented a decrease of 3 kt from the

 

 

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three months ended September 30, 2012. Adjusted EBITDA per ton for the three months ended September 30, 2013 was €193 per ton, which represented an increase of €16 per ton, or 9% over the same period in the prior year. Auto body sheet volumes were strong in the third quarter as we continue to gain market share and win business at major European car manufacturers. In the three months ended September 30, 2013, we were selected as the largest aluminum supplier for a new model for a German car manufacturer which is scheduled to begin production in 2014. Overall demand for canstock was stable in the three months ended September 30, 2013 with volumes in Europe growing in line with the market offset by lower exports. Inventory levels remain high at can manufacturers following the bad weather in Europe earlier in the year. Our foil stock business continues to perform well.

Shipments for the nine months ended September 30, 2013 of 464 kt were 4 kt lower than for the same period in 2012. This represented a decrease of 0.9% with higher auto body sheet sales offset by lower canstock volumes. Cost and productivity improvements contributed to the increased Adjusted EBITDA of €85 million, which represented an increase of €11 million, or nearly 15%, over the same period for the prior year. Adjusted EBITDA per ton for the nine months ended September 30, 2013 was €182 per ton, which represented an increase of €24 per ton, or 15% over the same period in the prior year.

Automotive Structures & Industry segment

Shipment volumes in Automotive Structures & Industry for the three months ended September 30, 2013 were 45 kt which represented a decrease of 4 kt, or 8%, from the three months ended September 30, 2012 reflecting the sale of our Ham and Saint Florentin soft alloy plants in France. Adjusting for the sale of these two plants, volumes were 1 kt, or 2%, higher than the three months ended September 30, 2012 and revenues were €3 million, or 1%, higher than the three months ended September 30, 2012. Automotive structures continued to perform well with higher volumes reflecting stronger demand particularly from the European and Chinese markets. However, volumes of soft alloys were down quarter-over-quarter due to poor market conditions within the building and construction sectors. Adjusted EBITDA for the three months ended September 30, 2013, which included the benefit of production efficiencies achieved since last year, was €16 million, which was nearly 46% or €5 million higher than the three months ended September 30, 2012. Adjusted EBITDA per ton for the three months ended September 30, 2013 was €352 per ton, which represented an increase of €125 per ton or 55%, over the same period in 2012.

For the nine months ended September 30, 2013, shipments and revenue in Automotive Structures & Industry were 146 kt and €654 million respectively, representing a decrease of approximately 8% and 7% respectively, from the same period for the prior year.

Adjusted EBITDA in Automotive Structures & Industry for the nine months ended September 30, 2013 was €46 million, which represented an increase of €7 million, or nearly 18%, over the same period in 2012, reflecting the strong sales to the automotive market and the continued cost and productivity improvements. Adjusted EBITDA per ton for the nine months ended September 30, 2013 was €314 per ton, which represented an increase of €69 per ton or 28%, over the same period in 2012.

Net income

Net income from continuing operations in the three months ended September 30, 2013 of €41 million was €9 million lower than in the three months ended September 30, 2012, mainly as a result of lower unrealized gains on derivatives. Unrealized gains on derivatives (reflecting principally the weakening of the US dollar relative to

 

 

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the Euro) were €34 million in the three months ended September 30, 2013 compared with €58 million in the three months ended September 30, 2012.

For the nine months ended September 30, 2013, net income from continuing operations was €63 million which represented a decrease of €24 million over the same period in 2012. This mainly results from lower unrealized gains on derivatives (€48 million lower in the nine months ended September 30, 2013 compared with the same period in 2012). Net income for the nine months ended September 30, 2013 also includes costs of €24 million incurred during the three months ended June 30, 2013 in connection with Constellium’s initial public offering.

Cash flow and liquidity

Adjusted Free Cash Flow for the three months ended September 30, 2013 was €41 million, which represented an increase of €29 million over the previous quarter and was due to strong operating performance of the business and a reduction in working capital. Adjusted Free Cash Flow for the three months ended September 30, 2013 was, however, €18 million lower than the three months ended September 30 ,2012, which mainly results from an increase in capital expenditures of €14 million during the three months ended September 30, 2013.

Adjusted Free Cash Flow for the nine months ended September 30, 2013 was an outflow of €17 million, compared to an €8 million outflow in the comparable period in 2012. This resulted from higher capital investment in the business with capital expenditures for the nine months ended September 30, 2013 totaling €92 million, which was an increase of €22 million over the same period in 2012. Cash flow from operating activities, excluding margin calls, for the nine months ended September 30, 2013 was €75 million, which represents an increase of €13 million over the same period in 2012.

Net Debt as of September 30, 2013, was €181 million which represented an increase of €164 million from December 31, 2012. This increase reflects distributions totaling approximately €250 million made to shareholders prior to the completion of our initial public offering in May 2013, with these distributions being partly offset by the proceeds from our initial public offering and the cash flow of the business over the nine months ended September 30, 2013. Net Debt as of September 30, 2013 was 0.7 times the last twelve months’ Adjusted EBITDA.

As of September 30, 2013, liquidity, which we calculate as the unutilized balance on our long-term financing facilities plus cash and cash equivalents, was €377 million, comprised of €141 million available under our factoring facilities, €37 million under our Asset Based Loan (ABL) facility and €199 million of cash and cash equivalents.

Multi-year Boeing Contract

On November 21, 2013, we announced that we have been awarded a multi-year agreement with The Boeing Company to support all of The Boeing Company’s leading commercial airplane programs. With this agreement, we will increase both the scope and range of products we supply. Under the new agreement, we will supply Boeing aluminum products for airframes utilizing our current and advanced-generation aluminum alloys. The products will be supplied from our two major A&T manufacturing sites in Ravenswood, WV and in Issoire, France.

Corporate History and Information

Constellium Holdco B.V. (formerly known as Omega Holdco B.V.) was incorporated as a Dutch private limited liability company on May 14, 2010. Constellium Holdco B.V. was formed to serve as the holding company for various entities comprising the Alcan Engineered Aluminum Products business unit (the “AEP Business”), which it acquired from affiliates of Rio Tinto on January 4, 2011.

 

 

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Our principal shareholders are investment funds affiliated with, or co-investment vehicles that are managed (or the general partners of which are managed) by subsidiaries of, Apollo Global Management, LLC (Apollo Global Management, LLC and its subsidiaries collectively, or any one of such entities individually, “Apollo”), a leading global alternative investment manager; affiliates of Rio Tinto, a leading international mining group, combining Rio Tinto plc, a London listed public company headquartered in the United Kingdom, and Rio Tinto Limited, which is listed on the Australian Stock Exchange, with executive offices in Melbourne (the two companies are joined in a dual listed companies (“DLC”) structure as a single economic entity, called the Rio Tinto Group (“Rio Tinto”)); and Bpifrance Participations (f/k/a Fonds Stratégique d’Investissements), a société anonyme incorporated under the laws of the Republic of France, which is a French public investment fund specializing in the business of equity financing via direct investments or fund of funds (“Bpifrance”). Bpifrance is a wholly-owned subsidiary of BPI-Groupe (bpifrance), a French financial institution jointly owned and controlled by the Caisse des Dépôts et Consignations, a French special public entity (établissement special) and EPIC BPI-Groupe, a French public institution of industrial and commercial nature. As used in this prospectus, the term “Apollo Funds” means investment funds affiliated with, or co-investment vehicles that are managed (or the general partners of which are managed) by, Apollo; the term “Rio Tinto” refers to Rio Tinto or an affiliate of Rio Tinto; and the term “Bpifrance” means Bpifrance Participations (f/k/a Fonds Stratégique d’Investissements) or other entities affiliated with Bpifrance.

On December 30, 2011, we disposed of substantially all of our interests in AIN, our specialty chemicals and raw materials supply chain services division, to CellMark AB. The remaining entities have ceased operations.

On March 28, 2013, we made a distribution of share premium to our Class A and Class B1 shareholders of €103 million (and an additional distribution to our class B2 shareholders of €392,000 on May 21, 2013).

Our board of directors further approved a distribution of profits of an additional €147 million to our existing Class A, Class B1 and Class B2 shareholders. Due to certain European tax and accounting restrictions, however, we did not anticipate being able to pay such additional distribution to such shareholders until after the completion of the initial public offering. Consequentially, in order to facilitate the payment of such distribution, we issued preference shares to our existing pre-IPO Class A, Class B1 and Class B2 shareholders. These preference shares entitled them to receive distributions in priority to ordinary shareholders in the aggregate amount of €147 million in proportion to their percentage immediately prior to the completion of the initial public offering. We were able to make such distribution of €147 million on May 21, 2013 and the preference shares were acquired by the Company for no consideration on May 29, 2013. Our Amended and Restated Articles of Association and Dutch law provide that so long as the preference shares are held by the Company, they will have no voting rights and no right to profits.

On May 16, 2013, we effected a pro rata share issuance of Class A ordinary shares, Class B1 ordinary shares and Class B2 ordinary shares to our existing shareholders, which we implemented through the issuance of 22.8 new Class A ordinary shares, 22.8 Class B1 ordinary shares and 22.8 Class B2 ordinary shares for each outstanding Class A, Class B1 and Class B2 ordinary share, respectively. As a result, the Company issued an aggregate amount of 83,945,965 additional Class A ordinary shares, 815,252 additional Class B1 ordinary shares and 923,683 additional Class B2 ordinary shares, nominal value €0.02 per share, prior to consummation of the initial public offering. The pro rata share issuance was undertaken in order to provide an appropriate per-share valuation in respect of the offering price for our initial public offering.

On May 21, 2013, Constellium Holdco B.V. was converted into a Dutch public limited liability company and renamed Constellium N.V. Any references to Dutch law and the Amended and Restated Articles of Association are references to Dutch law and the articles of association of the Company as applicable following the conversion.

On May 29, 2013, we completed our initial public offering of 22,222,222 of our ordinary shares at a price to the public of $15.00 per share. A total of 13,333,333 shares were offered by us and a total of 8,888,889 shares

 

 

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were offered by Apollo Funds and Rio Tinto. On June 24, 2013, the underwriters of our initial public offering exercised their over-allotment option to purchase from us an additional 2,251,306 Class A ordinary shares at a public offering price of $15.00 per share less the underwriting discount. The exercise of the over-allotment option brought the total number of Class A ordinary shares sold in the initial public offering to 24,473,528.

In connection with our initial public offering, Apollo Funds and Rio Tinto entered into an agreement with Bpifrance pursuant to which Bpifrance agreed to place an order to purchase approximately 4.4 million ordinary shares at a per share price equal to the public offering price (the “Bpifrance share purchase”). Apollo Funds and Rio Tinto agreed to use best efforts to cause the underwriters to allocate such number of shares to Bpifrance. The agreement further provides that for one year following the closing of our initial public offering, Bpifrance is restricted from buying additional shares in the Company unless this restriction is waived by both Apollo Funds and Rio Tinto or certain specified events occur.

On November 14, 2013, we completed a secondary public offering of 17,500,000 of our ordinary shares at a price to the public of $17.00 per share. The shares were offered by Rio Tinto and Omega Management GmbH & Co. KG (“Management KG”). On November 8, 2013, the underwriters of this secondary public offering exercised their option to purchase from Rio Tinto an additional 2,625,000 Class A ordinary shares at a public offering price of $17.00 per share less the underwriting discount. The exercise of the purchase option brought the total number of Class A ordinary shares sold in the secondary public offering to 20,125,000.

Following the completion of this current offering, the public shareholders, Apollo Funds, Rio Tinto and Bpifrance are expected to hold approximately 46.8%, 35.8%, 1.2% and 12.2%, respectively, of the outstanding shares of Constellium N.V and approximately 4.0% of the outstanding shares of Constellium N.V. are expected to be held by Omega Management GmbH & Co. KG (“Management KG”), which was formed in connection with a management equity plan to facilitate equity ownership by Constellium’s management team. The partnership agreement of Management KG provides that the Constellium shares held by Management KG will be voted in the discretion of the advisory board at the level of the general partner of Management KG.

Risk Factors

Investing in our ordinary shares involves substantial risk. The risks described under the heading “Risk Factors” immediately following this summary may cause us not to realize the full benefits of our strengths or may cause us to be unable to successfully execute all or part of our strategy. Some of the more significant challenges include the following:

 

   

our potential failure to implement our business strategy, including our productivity and cost reduction initiatives;

 

   

our susceptibility to cyclical fluctuations in the metals industry, our end-markets and our customers’ industries and changes in general economic conditions;

 

   

the highly competitive nature of the industry in which we operate and the risk that aluminum will become less competitive compared to alternative materials;

 

   

the possibility of unplanned business interruptions; and

 

   

adverse conditions and disruptions in European economies.

You should carefully consider all of the information included in this prospectus, including matters set forth under the headings “Risk Factors” and “Important Information and Cautionary Statement Regarding Forward-Looking Statements,” before deciding to invest in our ordinary shares.

 

 

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THE OFFERING

 

Issuer

Constellium N.V.

 

Ordinary shares offered by the selling shareholder

The selling shareholder is offering 8,345,713 Class A ordinary shares.

 

Offering price

$19.80 per ordinary share.

 

Voting rights

Our ordinary shares have one vote per share.

 

Purchase option

The underwriter may also purchase up to an additional 1,251,847 Class A ordinary shares from Rio Tinto at the public offering price, less the underwriting discount, within 30 days from the date of this prospectus.

 

Use of proceeds

We will not receive any proceeds from the sale of our ordinary shares by the selling shareholder. The selling shareholder will receive all of the net proceeds and bear all commissions and discounts, if any, from the sale of our ordinary shares pursuant to this prospectus. See “Use of Proceeds” and “Principal and Selling Shareholders.”

 

Dividend policy

Our board of directors is currently exploring adoption of a dividend program beginning in 2014; however, no assurances can be made that any future dividends will be paid on the ordinary shares. See “Dividend Policy.”

 

Listing

Our Class A ordinary shares are listed on the New York Stock Exchange and Euronext Paris under the symbol “CSTM”.

 

Tax considerations

See “Material Tax Consequences,” beginning on page 177.

 

Risk factors

See “Risk Factors” and other information included in this prospectus for a discussion of factors you should consider before deciding to invest in our ordinary shares.

Unless otherwise indicated, all references in this prospectus to the number and percentages of shares outstanding following this offering:

 

   

reflect the offering price of $19.80 per ordinary share;

 

   

assume no exercise of the underwriter’s option to purchase up to an additional 1,251,847 Class A ordinary shares from Rio Tinto;

 

   

do not give effect to 5,292,291 ordinary shares reserved for future issuance under the Constellium N.V. 2013 Equity Incentive Plan.

 

 

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Summary Consolidated Historical Financial Data

The following tables set forth our summary historical combined and consolidated financial and other data.

On January 4, 2011, Omega Holdco B.V., which later changed its name to Constellium Holdco B.V., and then again to Constellium N.V., acquired the Alcan Engineered Aluminum Products business unit (the “AEP Business” or the “Predecessor”) from affiliates of Rio Tinto (the “Acquisition”). For comparison purposes, our results of operations for the years ended December 31, 2011 and 2012 and the nine months ended September 30, 2012 and 2013 are presented alongside the results of operations of the Predecessor for the year ended December 31, 2010. However, our Successor and Predecessor periods are not directly comparable due to the impact of the application of purchase accounting and the preparation of the Predecessor accounts on a carve-out basis. The financial position, results of operations and cash flows of the Predecessor do not necessarily reflect what our financial position or results of operations would have been if we had been operated as a standalone entity during the periods covered by the Predecessor financial statements and are not indicative of our future results of operations and financial position.

Unless otherwise indicated, all share and per share numbers have been retroactively adjusted to reflect the issuance of 22.8 additional shares for each outstanding share at the time of our initial public offering in May 2013, as if it had occurred on January 4, 2011.

Effective January 1, 2013, we have adopted IAS 19 Employee Benefits (revised) (IAS 19) in our unaudited condensed interim consolidated financial statements as of and for the period ended September 30, 2013 and in accordance with transition rules in IAS 19 we have retrospectively applied this standard to the nine months ended September 30, 2012. We have not restated our audited combined and consolidated financial statements for the years ended December 31, 2009, 2010, 2011 and 2012 as the impact of this revised standard is not material to our results of operations and financial position.

You should base your investment decision on a review of the entire prospectus. In particular, you should read the following data in conjunction with “Selected Financial Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the historical combined and consolidated financial statements, and the unaudited condensed interim consolidated financial statements including the notes to those combined, consolidated and condensed interim consolidated financial statements, which appear elsewhere in this prospectus.

 

    Predecessor
as of and for
the year
ended
December 31,
        Successor
as of and for
the year
ended
December 31,
    Successor
as of and for
the nine months period
ended
September 30,
 

(€ in millions unless otherwise stated)

  2010          2011     2012     2012     2013  
                           (unaudited)  

Statement of income data:

             

Revenue

    2,957            3,556        3,610        2,796        2,689   

Gross profit

    242            321        478        373        369   

Operating profit/(loss)

    (248         (59     257        181        171   

Profit/(loss) for the period—continuing operations

    (209         (166     142        87        63   

Profit/(loss) for the period

    (207         (174     134        85        67   

Profit/(loss) per share—basic and diluted

    n/a            (2.0     1.5        0.94        0.69   

Profit/(loss) per share—basic and diluted—continuing operations

    n/a            (1.9     1.6        0.97        0.65   
 

Weighted average number of shares outstanding (basic)

    n/a            89,338,433        89,442,416        89,442,416        96,784,238   

Weighted average number of shares outstanding (diluted)

    n/a            89,338,433        89,442,416        89,442,416        105,027,055   
 

Dividends per ordinary share (euro)

    —              —                 —          —     
 

 

 

       

 

 

   

 

 

   

 

 

   

 

 

 

Balance sheet data:

             

Total assets

    1,837            1,612        1,631        n/a        1,819   

Net liabilities or total invested equity

    199            (113     (47     n/a        (6

Share capital

    n/a            —          —          —          2   
 

 

 

       

 

 

   

 

 

   

 

 

   

 

 

 

 

 

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    Predecessor
as of and for
the year
ended
December 31,
        Successor
as of and for
the year
ended
December 31,
    Successor
as of and for
the nine months period
ended
September 30,
 

(€ in millions unless otherwise stated)

  2010          2011     2012     2012     2013  

Other operational and financial data (unaudited):

             

Net trade working capital(1)

    519            381        289        463        320   

Adjusted Free Cash Flow(2)

    (117         (105     114        (8     (17

Capital expenditure

    51            97        126        70        92   

Volumes (in kt)

    972            1,058        1,033        798        791   

Revenue per ton (€/ton)

    3,042            3,361        3,495        3,504        3,399   

Profit/(loss) per ton (€/ton)

    (213         (164     130        107        85   

Management Adjusted EBITDA(3)

    58            103        203        160        187   

Management Adjusted EBITDA (€/ton)(3)

    60            97        197        201        236   

Adjusted EBITDA(4)

    48            160        228        181        221   

Adjusted EBITDA (€/ton)(4)

    49            151        221        227        279   

 

(1) Net trade working capital represents total inventories plus trade receivables less trade payables.
(2) Adjusted free cash flow represents cash flow from / (used in) operating activities, excluding margin calls, less capital expenditures. The following table reconciles our cash flow from operations to our adjusted free cash flow for the periods presented:

 

     Predecessor
for the year
ended
December 31,
         Successor
for the year
ended
December 31,
    Successor
for the nine
months
ended
September 30,
 

(€ in millions unless otherwise stated)

   2010           2011     2012     2012     2013  
                             (unaudited)  

Net cash flows from (used in) operating activities

     (66          (29     246        59        79   

Margin calls

     —               21        (6     3        (4

Net cash flows from (used in) operating activities, excluding margin calls

     (66        (8     240        62        75   

Purchases of property, plant & equipment

     (51          (97     (126     (70     (92
  

 

 

        

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted free cash flow

     (117          (105     114        (8     (17
  

 

 

        

 

 

   

 

 

   

 

 

   

 

 

 

 

(3) In considering the financial performance of the business, management and our chief operational decision maker in accordance with IFRS analyze the primary financial performance measure of Management Adjusted EBITDA in all of our business segments. The most directly comparable IFRS measure to Management Adjusted EBITDA is our profit or loss for the period. We believe Management Adjusted EBITDA, as defined below, is useful to investors and is used by our management for measuring profitability because it excludes the impact of certain non-cash charges, such as depreciation, amortization, impairment and unrealized gains and losses on derivatives as well as items that do not impact the day-to-day operations and that management in many cases does not directly control or influence. Therefore such adjustments eliminate items which have less bearing on our core operating performance. Adjusted EBITDA measures are frequently used by securities analysts, investors and other interested parties in their evaluation of Constellium and in comparison to other companies, many of which present an adjusted EBITDA-related performance measure when reporting their results.

Management Adjusted EBITDA is defined as profit for the period from continuing operations before results from joint ventures, net financial expense, income taxes and depreciation, amortization and impairment, as adjusted to exclude losses on disposal of property, plant and equipment, acquisition and separation costs, restructuring costs and unrealized gains or losses on derivatives and on foreign exchange differences. Management Adjusted EBITDA is not a presentation made in accordance with IFRS, is not a measure of financial condition, liquidity or profitability, and should not be considered as an alternative to profit or loss for the year determined in accordance with IFRS or operating cash flows determined in accordance with IFRS.

 

 

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The following table reconciles our profit or loss for the period from continuing operations to our Management Adjusted EBITDA for the years presented:

 

     Predecessor
for the year
ended
December 31,
         Successor
for the year
ended
December 31,
    Successor
for the nine
months
ended
September 30,
 

(€ in millions unless otherwise stated)

   2010           2011     2012     2012      2013  
                             (unaudited)  

Profit/(loss) for the period from continuing operations

     (209          (166     142        87        63   

Finance costs—net

     7             39        60        49        44   

Income tax

     (44          (34     47        42        43   

Share of profit from joint ventures

     (2          —          5        —          (3

Depreciation and amortization

     38             2        11        7        19   

Impairment charges

     224             —          3        —          —     

Expenses related to the acquisition and separation(a)

     —               102        3        3        —     

Restructuring costs(b)

     6             20        25        15        6   

Unrealized losses on derivatives at fair value and exchange gains from the remeasurement of monetary assets and liabilities

     38             140        (60     (49     (2

Swiss pension plan settlement(c)

     —               —          8        8        —     

Ravenswood benefit plan amendment(d)

     —               —          (48     (10     (11 )

Ravenswood CBA renegotiation(e)

     —               —          7        8        —     

Net losses on disposals(f)

     —               —          —          —          4   

Other(g)

     —               —          —          —          24  
  

 

 

        

 

 

   

 

 

   

 

 

   

 

 

 

Management Adjusted EBITDA

     58             103        203        160        187   
  

 

 

        

 

 

   

 

 

   

 

 

   

 

 

 

 

  (a) Represents expenses related to the Acquisition and separation of the Company from its previous owners.
  (b) Restructuring costs represent one-time termination benefits or severance, plus contract termination costs, primarily related to equipment and facility lease obligations.
  (c) Represents a loss generated by a settlement on withdrawal from the foundation that administered its employee benefit plan in Switzerland of €8 million.
  (d) Represents a €48 million gain due to amendments of our Ravenswood plan in H2 2012 and a gain of €11 million related to our amendment to our Ravenswood benefit plan in the nine months ended September 30, 2013.
  (e) Represents non-recurring professional fees, including legal expenses and bonuses in relation to the successful renegotiation of the five-year collective bargaining agreement at our Ravenswood manufacturing site in September 2012.
  (f) Represents the net loss on disposal of our plants in Ham and Saint Florentin, France which were completed on May 31, 2013 and other European assets.
  (g) Represents costs incurred in connection with our initial public offering in May 2013.

 

(4) Adjusted EBITDA is an additional performance measure used by management as an important supplemental measure in evaluating our operating performance, in preparing internal forecasts and budgets necessary for managing our business and, specifically in relation to the exclusion of the effect of favorable or unfavorable metal price lag, this measure allows management and the investor to assess operating results and trends without the impact of our accounting for inventories. We use the weighted average cost method in accordance with IFRS which leads to the purchase price paid for metal impacting our cost of goods sold and therefore profitability in the period subsequent to when the related sales price impacts our revenues.

Management also believes this measure provides additional information used by our lending facilities providers with respect to the ongoing performance of our underlying business activities. We use Adjusted EBITDA in calculating our compliance with the financial covenants under the Term Loan Agreement.

Adjusted EBITDA is defined as Management Adjusted EBITDA further adjusted for favorable (unfavorable) metal price lag, exceptional consulting costs, effects of purchase accounting adjustment, standalone costs and Apollo management fees, application of our post-Acquisition hedging policy, gain on forgiveness of a related party loan, and exceptional employee bonuses in relation to cost saving implementation and targets. Adjusted

 

 

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EBITDA is not a presentation made in accordance with IFRS, is not a measure of financial condition, liquidity or profitability and should not be considered as an alternative to profit or loss for the year determined in accordance with IFRS or operating cash flows determined in accordance with IFRS.

As explained in footnote 2 and above, we believe Management Adjusted EBITDA and Adjusted EBITDA are important supplemental measures of operating performance because they provide a measure of our operations. By providing these measures, together with the reconciliations, we believe we are enhancing investors’ understanding of our business and our results of operations, as well as assisting investors in evaluating how well we are executing our strategic initiatives.

The following table reconciles our Management Adjusted EBITDA to our Adjusted EBITDA for the years presented:

 

     Predecessor    Successor      Successor  
     Year ended December 31,      Nine months ended September 30,  
         2010          2011          2012          2012          2013    
                 

(€ in millions)

(unaudited)

 

Management Adjusted EBITDA

     58              103         203         160         187   

Favorable / (unfavorable) metal price lag(a)

     (47           12         16         16         21   

Exceptional consulting costs(b)

     30              —           —           —           —     

Transition and start-up costs(c)

     —                21         —           —           —     

Effects of purchase accounting adjustment(d)

     —                12         —           —           —     

Standalone costs(e)

     (7           1         —           —           —     

Apollo management fee(f)

     —                1         3         2         2   

Transition to new hedging policy(g)

     11              —           —           —           —     

Exceptional employee bonuses in relation to cost savings and turnaround plans(h)

     —                2         2         3         —     

Other(i)

     3              8         4         —           11   
  

 

 

         

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted EBITDA

     48              160         228         181         221   

 

  (a) Represents the financial impact of the timing difference between when aluminum prices included within our revenues are established and when aluminum purchase prices included in our cost of sales are established. We account for inventory using a weighted average price basis and this adjustment is to remove the effect of volatility in London Metal Exchange (“LME”) prices. This lag will, generally, increase our earnings and Adjusted EBITDA in times of rising primary aluminum prices and decrease our earnings and Adjusted EBITDA in times of declining primary aluminum prices. The calculation of our metal price lag adjustment is based on an internal standardized methodology calculated at each of our manufacturing sites and is calculated as the average value of product recorded in inventory, which approximates the spot price in the market, less the average value transferred out of inventory, which is the weighted average of the metal element of our cost of goods sold, by the quantity sold in the period.
  (b) Represents exceptional external consultancy costs which relate to the preparation of the divestment of the AEP Business in 2010.
  (c) Represents exceptional external consultancy costs related to the implementation of our cost savings program and set up of our IT infrastructure in 2011.
  (d) Represents the non-cash step up in inventory costs on the Acquisition.
  (e) Represents the incremental standalone costs that would have been incurred if the Predecessor had operated as a standalone entity. The corporate head office costs include finance, legal, human resources and other corporate services that are now provided to our reporting segments and are principally provided at our corporate support services functions in Paris.
  (f) Represents the Apollo management fee, payable annually post-Acquisition, which is equal to the greater of $2 million per annum or one percent of our Adjusted EBITDA measure before such fees, as defined in the Pre-IPO Shareholders Agreement, plus related expenses. Upon consummation of the initial public offering the Company and Apollo agreed to terminate the management agreement.
  (g)

Prior to the Acquisition, the Predecessor did not hedge U.S. dollar denominated aerospace contracts, which resulted in exposures to fluctuating euro-to-U.S. dollar exchange rates. Following completion of the Acquisition, we have implemented a policy to fully hedge foreign currency transactions against fluctuations in foreign currency. This adjustment is calculated based on the revenues generated by our aerospace contracts

 

 

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  and assumes a U.S dollar: euro exchange rate of 1.2253 to 1, which is the average exchange rate for the first six months of 2006 when such contract volumes became committed and therefore this rate has been applied to revenue recorded throughout the Predecessor Period. If the U.S. dollar had weakened/strengthened by 8% against the euro, our adjustment would have been €12 million higher or lower in 2010.
  (h) Represents one-off bonuses under a two-year plan, paid to selected employees in relation to the achievement of cost savings targets and the costs of a bonus plan in relation to the turnaround program at our Ravenswood site.
  (i) Other adjustments are as follows: (i) in 2010, the adjustment of €3 million relates to exceptional scrap costs resulting from processing issues directly resulting from quality issues in the supply of raw materials at our Ravenswood plant; (ii) in 2011, €8 million of losses on metal purchases were attributable to the initial invoicing in U.S. dollars instead of euros by a metal supplier at inception of the contract. All invoices are now received and paid in euros. As this U.S. dollar-to-euro exposure from January through November 2011 was not effectively hedged, we consider this to be an exceptional loss and not part of our underlying trading; (iii) in 2012, the exceptional costs incurred in respect of efforts in contemplation of our initial public offering; and (iv) in the nine months ended September 30, 2013, fees associated with the set up of our management equity program and scoping costs on the sale of existing sites and of potential new sites.

 

 

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RISK FACTORS

You should carefully consider the following risk factors and all other information contained in this prospectus, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited combined and consolidated financial statements and the related notes, before investing in our ordinary shares. If any of the following risks materialize, our business, results of operations and financial condition could be materially and adversely affected. In that case, the trading price of our ordinary shares could decline, and you may lose some or all of your investment.

This prospectus contains forward-looking statements that involve risks and uncertainties. See “Important Information and Cautionary Statement Regarding Forward-Looking Statements.” Our actual results could differ materially and adversely from those anticipated in these forward-looking statements.

Risks Related to Our Business

If we fail to implement our business strategy, including our productivity and cost reduction initiatives, our financial condition and results of operations could be materially adversely affected.

Our future financial performance and success depend in large part on our ability to successfully implement our business strategy, including investing in high-return opportunities in our core markets, focusing on higher-margin, technologically advanced products, differentiating our products, expanding our strategic relationships with customers in selected international regions, fixed-cost containment and cash management, and executing on our Lean manufacturing program. We cannot assure you that we will be able to successfully implement our business strategy or be able to continue improving our operating results. Implementation of our business strategy could be affected by a number of factors beyond our control, such as increased competition, legal and regulatory developments, general economic conditions or an increase in operating costs. Any failure to successfully implement our business strategy could adversely affect our financial condition and results of operations. In addition, we may decide to alter or discontinue certain aspects of our business strategy at any time. Although we have undertaken and expect to continue to undertake productivity and cost reduction initiatives to improve performance, such as the Lean manufacturing program, we cannot assure you that all of these initiatives will be completed or that any estimated cost savings from such activities will be fully realized. Even when we are able to generate new efficiencies in the short- to medium-term, we may not be able to continue to reduce cost and increase productivity over the long term.

The cyclical and seasonal nature of the metals industry, our end-use markets and our customers’ industries, in particular our aerospace, automotive, heavy duty truck and trailer industries, could negatively affect our financial condition and results of operations.

The metals industry is generally cyclical in nature, and these cyclical fluctuations tend to directly correlate with changes in general and local economic conditions. These conditions include the level of economic growth, financing availability, the availability of affordable energy sources, employment levels, interest rates, consumer confidence and housing demand. Historically, in periods of recession or periods of minimal economic growth, metals companies have often tended to underperform other sectors. In addition, economic downturns in regional and global economies, including in Europe, or a prolonged recession in our principal industry segments, have had a negative impact on our operations in the past and could have a negative impact on our future financial condition or results of operations. Although we continue to seek to diversify our business on a geographic basis, we cannot assure you that diversification would mitigate the effect of cyclical downturns.

We are particularly sensitive to cycles in the aerospace, defense, automotive, other transportation, building and construction and general engineering end-markets, which are highly cyclical. During recessions or periods of low growth, these industries typically experience major cutbacks in production, resulting in decreased demand for aluminum products. This leads to significant fluctuations in demand and pricing for our products and services. Because our operations are capital intensive and we generally have high fixed costs and may not be able

 

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to reduce costs and production capacity on a sufficiently rapid basis, our near-term profitability may be significantly affected by decreased processing volumes. Accordingly, reduced demand and pricing pressures may significantly reduce our profitability and materially adversely affect our financial condition, results of operations and cash flows.

In particular, we derive a significant portion of our revenues from products sold to the aerospace industry, which is highly cyclical and tends to decline in response to overall declines in the general economy. The commercial aerospace industry is historically driven by the demand from commercial airlines for new aircraft. Demand for commercial aircraft is influenced by airline industry profitability, trends in airline passenger traffic, the state of the U.S. and global economies and numerous other factors, including the effects of terrorism. In recent years, a number of major airlines have undergone chapter 11 bankruptcy or comparable insolvency proceedings and experienced financial strain from volatile fuel prices. The aerospace industry also suffered significantly in the wake of the events of September 11, 2001, resulting in a sharp decrease globally in new commercial aircraft deliveries and order cancellations or deferrals by the major airlines. Despite existing backlogs, continued financial uncertainty in the industry, inadequate liquidity of certain airline companies, production issues and delays in the launch of new aircraft programs at major aircraft manufacturers, stock variations in the supply chain, terrorist acts or the increased threat of terrorism may lead to reduced demand for new aircraft that utilize our products, which could materially adversely affect our financial position, results of operations and cash flows.

Further, the demand for our automotive extrusions and rolled products and many of our general engineering and other industrial products is dependent on the production of cars, light trucks, and heavy duty vehicles and trailers. The automotive industry is highly cyclical, as new vehicle demand is dependent on consumer spending and is tied closely to the strength of the overall economy. We note that the demand for luxury vehicles in China has become significant over the past several years and therefore fluctuations in the Chinese economy may adversely affect the demand for our products. Production cuts by manufacturers may adversely affect the demand for our products. Many automotive related manufacturers and first tier suppliers are burdened with substantial structural costs, including pension, healthcare and labor costs that have resulted in severe financial difficulty, including bankruptcy, for several of them. A worsening of these companies’ financial condition or their bankruptcy could have further serious effects on the conditions of the markets, which directly affects the demand for our products. In addition, the loss of business with respect to, or a lack of commercial success of, one or more particular vehicle models for which we are a significant supplier could have a materially adverse impact on our financial position, results of operations and cash flows.

Customer demand in the aluminum industry is also affected by holiday seasons, weather conditions, economic and other factors beyond our control. Our volumes are impacted by the timing of the holiday seasons in particular, with August and December typically being the lowest months and January to June being the strongest months. Our business is also impacted by seasonal slowdowns and upturns in certain of our customers’ industries. Historically, the can industry is strongest in the spring and summer season, whereas the automotive and construction sectors encounter slowdowns in both the third and fourth quarters of the calendar year. Therefore, our quarterly financial results could fluctuate as a result of climatic or other seasonal changes, and a prolonged period of unusually cool summers in different regions in which we conduct our business could have a negative effect on our financial results and cash flows.

We are subject to unplanned business interruptions that may materially adversely affect our business.

Our operations may be materially adversely affected by unplanned events such as explosions, fires, war or terrorism, inclement weather, accidents, equipment, IT systems and process failures, electrical blackouts, transportation interruptions and supply interruptions. Operational interruptions at one or more of our production facilities could cause substantial losses in our production capacity or increase our operating costs. In addition, replacement of assets damaged by such events could be difficult or expensive, and to the extent these losses are not covered by insurance or our insurance policies have significant deductibles, our financial position, results of

 

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operations and cash flows may be materially adversely affected by such events. For example, in 2008, a stretcher at Constellium’s Ravenswood facility was damaged due to a defect in its hydraulic system, causing a substantial outage at that facility that had a material impact on our production volumes at this facility and on our financial results for the affected period.

Furthermore, because customers may be dependent on planned deliveries from us, customers that have to reschedule their own production due to our delivery delays may be able to pursue financial claims against us, and we may incur costs to correct such problems in addition to any liability resulting from such claims. Interruptions may also harm our reputation among actual and potential customers, potentially resulting in a loss of business.

Our business involves significant activity in Europe, and adverse conditions and disruptions in European economies could have a material adverse effect on our operations or financial performance.

A material portion of our sales are generated by customers located in Europe. The financial markets remain concerned about the ability of certain European countries, particularly Greece, Ireland and Portugal, but also others such as Spain and Italy, to finance their deficits and service growing debt burdens amidst difficult economic conditions. This loss of confidence has led to rescue measures for Spain, Greece, Portugal and Ireland by Eurozone countries and the International Monetary Fund. Despite these measures, concerns persist regarding the debt burden of certain Eurozone countries and their ability to meet future financial obligations, the overall stability of the euro and the suitability of the euro as a single currency given the diverse economic and political circumstances in individual Eurozone countries. In addition, the actions required to be taken by those countries as a condition to rescue packages, and by other countries to mitigate similar developments in their economies, have resulted in increased political discord within and among Eurozone countries. The interdependencies among European economies and financial institutions have also exacerbated concern regarding the stability of European financial markets generally. These concerns could lead to the re-introduction of individual currencies in one or more Eurozone countries, or, in more extreme circumstances, the possible dissolution of the euro currency entirely. Should the euro dissolve entirely, the legal and contractual consequences for holders of euro-denominated obligations would be determined by laws in effect at such time. These potential developments, or market perceptions concerning these and related issues, could materially adversely affect the value of the Company’s euro-denominated assets and obligations. In addition, concerns over the effect of this financial crisis on financial institutions in Europe and globally could have a material adverse impact on the capital markets generally. Persistent disruptions in the European financial markets, the overall stability of the euro and the suitability of the euro as a single currency or the failure of a significant European financial institution, could have a material adverse impact on our operations or financial performance.

In addition, there can be no assurance that the actions we have taken or may take in response to the economic conditions may be sufficient to counter any continuation or reoccurrence of the downturn or disruptions. A significant global economic downturn or disruptions in the financial markets would have a material adverse effect on our financial position, results of operations and cash flows.

Adverse changes in currency exchange rates could negatively affect our financial results.

The financial condition and results of operations of some of our operating entities are reported in various currencies and then translated into euros at the applicable exchange rate for inclusion in our historical combined and consolidated financial statements. As a result, the appreciation of the euro against the currencies of our operating local entities may have a negative impact on reported revenues and operating profit, and the resulting accounts receivable, while depreciation of the euro against these currencies may generally have a positive effect on reported revenues and operating profit. We do not hedge translation of forecasted results or actual results.

In addition, while the majority of costs incurred are denominated in local currencies, a portion of the revenues are denominated in U.S. dollars. As a result, appreciation in the U.S. dollar may have a positive impact on earnings while depreciation of the U.S. dollar may have a negative impact on earnings. While we engage in

 

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significant hedging activity to attempt to mitigate this foreign transactions currency risk, this may not fully protect us from adverse effects due to currency fluctuations on our business, financial condition or results of operations.

A portion of our revenues is derived from our international operations, which exposes us to certain risks inherent in doing business abroad.

We have operations primarily in the United States, Germany, France, Slovakia, Switzerland, the Czech Republic and China and primarily sell our products across Europe, Asia and North America. We also continue to explore opportunities to expand our international operations, particularly in other parts of Asia. Our operations generally are subject to financial, political, economic and business risks in connection with our global operations, including:

 

   

changes in international governmental regulations, trade restrictions and laws, including those relating to taxes, employment and repatriation of earnings;

 

   

currency exchange rate fluctuations;

 

   

tariffs and other trade barriers;

 

   

the potential for nationalization of enterprises or government policies favoring local production;

 

   

renegotiation or nullification of existing agreements;

 

   

interest rate fluctuations;

 

   

high rates of inflation;

 

   

currency restrictions and limitations on repatriation of profits;

 

   

differing protections for intellectual property and enforcement thereof;

 

   

divergent environmental laws and regulations; and

 

   

political, economic and social instability.

The occurrence of any of these events could cause our costs to rise, limit growth opportunities or have a negative effect on our operations and our ability to plan for future periods. In certain emerging markets, the degree of these risks may be higher due to more volatile economic conditions, less developed and predictable legal and regulatory regimes and increased potential for various types of adverse governmental action.

Our results of operations, cash flows and liquidity could be adversely affected if we are unable to execute on our hedging policy, if counterparties to our derivative instruments fail to honor their agreements or if we are unable to purchase derivative instruments.

We purchase and sell LME and other forwards, futures and options contracts as part of our efforts to reduce our exposure to changes in currency exchange rates, aluminum prices and other raw materials prices. Our ability to realize the benefit of our hedging program is dependent upon many factors, including factors that are beyond our control. For example, our foreign exchange hedges are scheduled to mature on the expected payment date by the customer; therefore, if the customer fails to pay an invoice on time and does not warn us in advance, we may be unable to reschedule the maturity date of the foreign exchange hedge, which could result in an outflow of foreign currency that will not be offset until the customer makes the payment. We may realize a gain or a loss in unwinding such hedges. In addition, our metal-price hedging programs depend on our ability to match our monthly exposure to sold and purchased metal, which can be made difficult by seasonal variations in metal demand, unplanned changes in metal delivery dates by either us or by our customers and other disruptions to our inventories, including for maintenance.

 

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We may also be exposed to losses if the counterparties to our derivative instruments fail to honor their agreements. Further, if major financial institutions continue to consolidate and are forced to operate under more restrictive capital constraints and regulations, there could be less liquidity in the derivative markets, which could have a negative effect on our ability to hedge and transact with creditworthy counterparties.

To the extent our hedging transactions fix prices or exchange rates and primary aluminum prices, energy costs or foreign exchange rates are below the fixed prices or rates established by our hedging transactions, our income and cash flows will be lower than they otherwise would have been. Further, we do not apply hedge accounting to our forwards, futures or option contracts. As a result, unrealized gains and losses on our derivative financial instruments must be reported in our consolidated results of operations. The inclusion of such unrealized gains and losses in earnings may produce significant period to period earnings volatility that is not necessarily reflective of our underlying operating performance. In addition, in certain scenarios when market price movements result in a decline in value of our current derivatives position, our mark-to-market expense may exceed our credit line and counterparties may request the posting of cash collateral which, in turn, can be a significant demand on our liquidity.

At certain times, hedging instruments may simply be unavailable or not available on terms acceptable to us. In addition, recent legislation has been adopted to increase the regulatory oversight of over-the-counter derivatives markets and derivative transactions. Final regulations pursuant to this legislation defining which companies will be subject to the legislation have not yet been adopted. If future regulations subject us to additional capital or margin requirements or other restrictions on our trading and commodity positions, they could have an adverse effect on our financial condition and results of operations.

Aluminum may become less competitive with alternative materials, which could reduce our share of industry sales, lower our selling prices and reduce our sales volumes.

Our fabricated aluminum products compete with products made from other materials—such as steel, glass, plastics and composites—for various applications. Higher aluminum prices relative to substitute materials tend to make aluminum products less competitive with these alternative materials. Environmental and other regulations may also increase our costs and may be passed on to our customers, and may restrict the use of chemicals needed to produce aluminum products. These regulations may make our products less competitive as compared to materials that are subject to fewer regulations.

Customers in our end-markets, including the aerospace, automotive and can sectors, use and continue to evaluate the further use of alternative materials to aluminum in order to reduce the weight and increase the efficiency of their products. Although trends in “lightweighting” have generally increased rates of using aluminum as a substitution of other materials, the willingness of customers to accept substitutions for aluminum, or the ability of large customers to exert leverage in the marketplace to reduce the pricing for fabricated aluminum products, could adversely affect the demand for our products, and thus materially adversely affect our financial position, results of operations and cash flows.

We are dependent on a limited number of suppliers for a substantial portion of our primary and scrap aluminum.

We have supply arrangements with a limited number of suppliers for aluminum and other raw materials. Our top 10 suppliers (which include Rio Tinto) accounted for approximately 46% of our total purchases at December 31, 2012. Increasing aluminum demand levels have caused regional supply constraints in the industry, and further increases in demand levels could exacerbate these issues. We maintain long-term contracts for a majority of our supply requirements, and for the remainder we depend on annual and spot purchases. There can be no assurance that we will be able to renew, or obtain replacements for, any of our long-term contracts when they expire on terms that are as favorable as our existing agreements or at all. Additionally, if any of our key suppliers is unable to deliver sufficient quantities of this material on a timely basis, our production may be disrupted and we could be forced to purchase primary metal and other supplies from alternative sources, which

 

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may not be available in sufficient quantities or may only be available on terms that are less favorable to us. As a result, an interruption in key supplies required for our operations could have a material adverse effect on our ability to produce and deliver products on a timely or cost-efficient basis and therefore on our financial condition, results of operations and cash flows. In addition, a significant downturn in the business or financial condition of our significant suppliers exposes us to the risk of default by the supplier on our contractual agreements, and this risk is increased by weak and deteriorating economic conditions on a global, regional or industry sector level.

We also depend on scrap aluminum for our operations and acquire our scrap inventory from numerous sources. These suppliers generally are not bound by long-term contracts and have no obligation to sell scrap metal to us. In periods of low inventory prices, suppliers may elect to hold scrap until they are able to charge higher prices. In addition, the slowdown in industrial production and consumer consumption during the recent economic crisis reduced and may continue to reduce the supply of scrap metal available. If an adequate supply of scrap metal is not available to us, we would be unable to recycle metals at desired volumes and our results of operation, financial condition and cash flows could be materially adversely affected.

If we were to lose order volumes from any of our largest customers, our sales volumes, revenues and cash flows would be reduced.

Our business is exposed to risks related to customer concentration. Our ten largest customers accounted for approximately 43% of our consolidated revenues for the year ended December 31, 2012 and 47% of our consolidated revenues for the six months ended June 30, 2013. A significant downturn in the business or financial condition of our significant customers exposes us to the risk of default on contractual agreements and trade receivables, and this risk is increased by weak and deteriorating economic conditions on a global, regional or industry sector level.

We have long-term contracts with a significant number of our customers, some of which are subject to renewal, renegotiation or re-pricing at periodic intervals or upon changes in competitive supply conditions. Our failure to successfully renew, renegotiate or re-price such agreements, or a material deterioration in or termination of these customer relationships, could result in a reduction or loss in customer purchase volume or revenue, and if we are not successful in replacing business lost from such customers, our results of operations, financial condition and cash flows could be materially adversely affected.

In addition, our strategy of having dedicated facilities and arrangements with customers subjects us to the inherent risk of increased dependence on a single or a few customers with respect to these facilities. In such cases, the loss of such a customer, or the reduction of that customer’s business at one or more of our facilities, could negatively affect our financial condition and results of operations, and we may be unable to timely replace, or replace at all, lost order volumes and revenue.

We may not be able to compete successfully in the highly competitive markets in which we operate, and new competitors could emerge, which could negatively impact our share of industry sales, sales volumes and selling prices.

We are engaged in a highly competitive industry. We compete in the production and sale of rolled aluminum products with a number of other aluminum rolling mills, including large, single-purpose sheet mills, continuous casters and other multi-purpose mills, some of which are larger and have greater financial and technical resources than we do. Producers with a different cost basis may, in certain circumstances, have a competitive pricing advantage. Our competitors may be better able to withstand reductions in price or other adverse industry or economic conditions.

In addition, a current or new competitor may also add or build new capacity, which could diminish our profitability by decreasing the equilibrium prices in our markets. New competitors could emerge from within Europe or North America or globally, including from China, Russia and the Middle East. Emerging or transitioning markets in these regions with abundant natural resources, low-cost labor and energy, and lower

 

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environmental and other standards may pose a significant competitive threat to our business. Our competitive position may also be affected by exchange rate fluctuations that may make our products less competitive in relation to the products of companies based in other countries and economies of scale in purchasing, production and sales. Changes in regulation that have a disproportionately negative effect on us or our methods of production may also diminish our competitive advantage and industry position. In addition, technological innovation is important to our customers who require us to lead or keep pace with new innovations to address their needs. If we do not compete successfully, our share of industry sales, sales volumes and selling prices may be negatively impacted.

In addition, the aluminum industry has experienced consolidation over the past years and there may be further industry consolidation in the future. Although industry consolidation has not yet had a significant negative impact on our business, if we do not have sufficient market presence or are unable to differentiate ourselves from our competitors, we may not be able to compete successfully against other companies. If as a result of consolidation, our competitors are able to obtain more favorable terms from suppliers or otherwise take actions that could increase their competitive strengths, our competitive position and therefore our business, results of operations and financial condition may be materially adversely affected.

The price volatility of energy costs may adversely affect our profitability.

Our operations use natural gas and electricity, which represent the third largest component of our cost of sales, after metal and labor costs. We purchase part of our natural gas and electricity on a spot-market basis. The volatility in costs of fuel, principally natural gas, and other utility services, principally electricity, used by our production facilities affect operating costs. Fuel and utility prices have been, and will continue to be, affected by factors outside our control, such as supply and demand for fuel and utility services in both local and regional markets as well as governmental regulation and imposition of further taxes on energy. Although we have secured some of our natural gas and electricity under fixed price commitments, future increases in fuel and utility prices, or disruptions in energy supply, may have an adverse effect on our financial position, results of operations and cash flows.

Regulations regarding carbon dioxide emissions, and unfavorable allocation of rights to emit carbon dioxide or other air emission related issues, could have a material adverse effect on our business, financial condition and results of operations.

Substantial quantities of greenhouse gases are released as a consequence of our operations. Compliance with existing, new or proposed regulations governing such emissions tend to become more stringent over time and could lead to a need for us to further reduce such greenhouse gas emissions, to purchase rights to emit from third parties, or to make other changes to our business, all of which could result in significant additional costs or could reduce demand for our products. In addition, we are a significant purchaser of energy. Existing, new and proposed regulations relating to the emission of carbon dioxide by our energy suppliers could result in materially increased energy costs for our operations, and we may be unable to pass along these increased energy costs to our customers, which could have a material adverse effect on our business, financial condition and results of operations.

Measures to reduce carbon dioxide and other greenhouse gas emissions that could directly or indirectly affect us or our suppliers are currently being developed or may be developed in the future. Many scientists, legislators and others attribute climate change to increased levels of greenhouse gases, including carbon dioxide, which has led to significant legislative and regulatory efforts to limit greenhouse gas emissions. Existing and possible new regulations regarding carbon dioxide and other greenhouse gas emissions, especially a revised European emissions trading system or a successor to the Kyoto Protocol under the United Nations Framework Convention on Climate Change, could have a material adverse effect on our business, financial condition and results of operations.

 

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Our fabrication process is subject to regulations that may hinder our ability to manufacture our products. Some of the chemicals we use on our fabrication processes are subject to government regulation, such as REACH (Registration, Evaluation, Authorisation, and Restriction of Chemicals substances) in the European Union. Under REACH, we are required to register some of our products with the European Chemicals Agency, and this process could cause significant delays or costs. If we fail to comply with these or similar laws and regulations, we may be required to make significant expenditures to reformulate the chemicals that we use in our products and materials or incur costs to register such chemicals to gain and/or regain compliance, and we may lose customers or revenue as a result. Additionally, we could be subject to significant fines or other civil and criminal penalties should we not achieve such compliance. To the extent that other nations in which we operate also require chemical registration, potential delays similar to those in Europe may delay our entry into these markets. Any failure to obtain or delay in obtaining regulatory approvals for chemical products used in our facilities could have a material adverse effect on our business, financial condition and results of operations.

We may not be able to successfully develop and implement new technology initiatives and other strategic investments in a timely manner.

We invested in, and are involved with, a number of technology and process initiatives, including the development of new aluminum-lithium products. Being at the forefront of technological development is important to remain competitive. Several technical aspects of certain of these initiatives are still unproven and/or the eventual commercial outcomes and feasibility cannot be assessed with any certainty. Even if we are successful with these initiatives, we may not be able to bring them to market as planned before our competitors or at all, and the initiatives may end up costing more than expected. As a result, the costs and benefits from our investments in new technologies and the impact on our financial results may vary from present expectations.

In addition, we have undertaken and may continue to undertake growth, streamlining and productivity initiatives to improve performance, including with respect to our AIRWARE® material solution. We cannot assure you that these initiatives will be completed or that they will have their intended benefits, such as the realization of estimated cost saving from such activities. Capital investments in debottlenecking or other organic growth initiatives may not produce the returns we anticipate. Even if we are able to generate new efficiencies successfully in the short- to medium-term, we may not be able to continue to reduce cost and increase productivity over the long term.

Our business requires substantial capital investments that we may be unable to fulfill.

Our operations are capital intensive. Our total capital expenditures were €55 million and €47 million for the six months ended June 30, 2013 and 2012, respectively, €126 million for the year ended December 31, 2012, and €97 million for the year ended December 31, 2011. We may not generate sufficient operating cash flows and our external financing sources may not be available in an amount sufficient to enable us to make anticipated capital expenditures, service or refinance our indebtedness or fund other liquidity needs. If we are unable to make upgrades or purchase new plants and equipment, our financial condition and results of operations could be materially adversely affected by higher maintenance costs, lower sales volumes due to the impact of reduced product quality, and other competitive factors.

As part of our ongoing evaluation of our operations, we may undertake additional restructuring efforts in the future which could in some instances result in significant severance-related costs and other restructuring charges.

We recorded restructuring charges of €2 million and €10 million for the six months ended June 30, 2013 and 2012, respectively, €25 million for the year ended December 31, 2012, and €20 million for the year ended December 31, 2011. The 2012 costs are primarily in relation to an efficiency improvement program ongoing at our Sierre, Switzerland facility and corporate restructuring. Restructuring costs in 2011 were primarily in relation to corporate restructuring and full-time employee reductions throughout our operations. We may pursue

 

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additional restructuring activities in the future, which could result in significant severance-related costs, impairment charges, restructuring charges and related costs and expenses, including resulting labor disputes, which could materially adversely affect our profitability and cash flows.

A deterioration in our financial position or a downgrade of our ratings by a credit rating agency could increase our borrowing costs and our business relationships could be adversely affected.

A deterioration of our financial position or a downgrade of our credit ratings for any reason could increase our borrowing costs and have an adverse effect on our business relationships with customers, suppliers and hedging counterparties. As discussed above, we enter into various forms of hedging arrangements against currency, interest rate or metal price fluctuations and trade metal contracts on the LME. Financial strength and credit ratings are important to the availability and pricing of these hedging and trading activities. As a result, any downgrade of our credit ratings may make it more costly for us to engage in these activities, and changes to our level of indebtedness may make it more difficult or costly for us to engage in these activities in the future.

In addition, a downgrade could adversely affect our existing financing, limit access to the capital or credit markets, or otherwise adversely affect the availability of other new financing on favorable terms, if at all, result in more restrictive covenants in agreements governing the terms of any future indebtedness that we incur, increase our borrowing costs, or otherwise impair our business, financial condition and results of operations.

Our indebtedness could materially adversely affect our ability to invest in or fund our operations, limit our ability to react to changes in the economy or our industry or force us to take alternative measures.

Our indebtedness impacts our flexibility in operating our business and could have important consequences for our business and operations, including the following: (i) it may make us more vulnerable to downturns in our business or the economy; (ii) a substantial portion of our cash flows from operations will be dedicated to the repayment of our indebtedness and will not be available for other purposes; (iii) it may restrict us from making strategic acquisitions, introducing new technologies or exploiting business opportunities; and (iv) it may adversely affect the terms under which suppliers provide goods and services to us. As further described in “Description of Certain Indebtedness,” we recently refinanced our $200 million Original Term Loan (€151 million at the year-end exchange rate) by entering into a seven-year term loan in the aggregate principal amount of $360 million and €75 million (equivalent to €347 million in the aggregate at the year-end exchange rate). By increasing our indebtedness as a result of the refinancing, we have made ourselves more susceptible to the risks discussed above.

If we are unable to meet our debt service obligations and pay our expenses, we may be forced to reduce or delay business activities and capital expenditures, sell assets, obtain additional debt or equity capital, restructure or refinance all or a portion of our debt before maturity or take other measures. Such measures may materially adversely affect our business. If these alternative measures are unsuccessful, we could default on our obligations, which could result in the acceleration of our outstanding debt obligations and could have a material adverse effect on our business, results of operations and financial condition.

The terms of our indebtedness contain covenants that restrict our current and future operations, and a failure by us to comply with those covenants may materially adversely affect our business, results of operations and financial condition.

Our indebtedness contains, and any future indebtedness we may incur would likely contain, a number of restrictive covenants that will impose significant operating and financial restrictions on our ability to, among other things: (i) incur or guarantee additional debt; (ii) pay dividends and make other restricted payments; (iii) create or incur certain liens; (iv) make certain loans, acquisitions or investments; (v) engage in sale of assets and subsidiary stock; (vi) enter into transactions with affiliates; (vii) transfer all or substantially all of our assets or enter into merger or consolidation transactions; and (viii) enter into sale and lease-back transactions. In

 

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addition, our Term Loan requires us to maintain a consolidated secured net leverage ratio of no more than 3.00 to 1.00. As a result of these covenants, we may be limited in the manner in which we conduct our business, and we may be unable to engage in favorable business activities or finance future operations or capital needs.

A failure to comply with our debt covenants could result in an event of default that, if not cured or waived, could have a material adverse effect on our business, results of operations and financial condition. If we default under our indebtedness, our lenders may not be required to lend additional amounts to us and could in certain circumstances elect to declare all outstanding borrowings, together with accrued and unpaid interest and fees, to be due and payable, or take other remedial actions. Our existing indebtedness also contains cross-default provisions, which means that if an event of default occurs under certain material indebtedness, such event of default will trigger an event of default under our other indebtedness. If our indebtedness were to be accelerated, we cannot assure you that our assets would be sufficient to repay such indebtedness in full and our lenders could foreclose on our pledged assets. See “Description of Certain Indebtedness.”

Our variable rate indebtedness subjects us to interest rate risk, which could cause our annual debt service obligations to increase significantly.

A portion of our indebtedness is subject to variable rates of interest and exposes us to interest rate risk. See “Description of Certain Indebtedness.” If interest rates increase, our debt service obligations on the variable rate indebtedness would increase, resulting in a reduction of our net income, even though the amount borrowed would remain the same.

We could be required to make unexpected contributions to our defined benefit pension plans as a result of adverse changes in interest rates and the capital markets.

Most of our pension obligations relate to funded defined benefit pension plans for our employees in the United States, unfunded pension benefits in France, Switzerland and Germany, and lump sum indemnities payable to our employees in France and Germany upon retirement or termination. Our pension plan assets consist primarily of funds invested in listed stocks and bonds. Our estimates of liabilities and expenses for pensions and other post-retirement benefits incorporate a number of assumptions, including expected long-term rates of return on plan assets and interest rates used to discount future benefits. Our results of operations, liquidity or shareholders’ equity in a particular period could be materially adversely affected by capital market returns that are less than their assumed long-term rate of return or a decline in the rate used to discount future benefits. If the assets of our pension plans do not achieve assumed investment returns for any period, such deficiency could result in one or more charges against our earnings for that period. In addition, changing economic conditions, poor pension investment returns or other factors may require us to make unexpected cash contributions to the pension plans in the future, preventing the use of such cash for other purposes.

We could experience labor disputes that disrupt our business.

A significant number of our employees (approximately 80% of our total headcount) are represented by unions or equivalent bodies or are covered by collective bargaining or similar agreements that are subject to periodic renegotiation. Although we believe that we will be able to successfully negotiate new collective bargaining agreements when the current agreements expire, these negotiations may not prove successful, may result in a significant increase in the cost of labor, or may break down and result in the disruption or cessation of our operations. For example, we experienced work stoppages and labor disturbances at our Ravenswood facility in early August 2012 in conjunction with the renegotiation of the collective bargaining agreement; the Ravenswood employees returned to work in mid-September 2012. Additionally, we experienced work stoppages and labor disturbances at our Issoire and Neuf-Brisach facilities in November 2013; the employees of both facilities returned to work in early December 2013. In addition, and mainly in Europe, existing collective bargaining agreements may not prevent a strike or work stoppage at our facilities in the future. Any such stoppages or disturbances may have a negative impact on our financial condition and results of operations by limiting plant production, sales volumes, profitability and operating costs.

 

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The loss of certain members of our management team may have a material adverse effect on our operating results.

Our success will depend, in part, on the efforts of our senior management and other key employees. These individuals possess sales, marketing, engineering, technical, manufacturing, financial and administrative skills that are critical to the operation of our business. If we lose or suffer an extended interruption in the services of one or more of our senior officers or other key employees, our ability to operate and expand our business, improve our operations, develop new products, and, as a result, our financial condition and results of operations, may be negatively affected. Moreover, the pool of qualified individuals is highly competitive, and we may not be able to attract and retain qualified personnel to replace or succeed members of our senior management or other key employees, should the need arise.

In addition, in light of demographic trends in the labor markets where we operate, we expect that our factories will be confronted with high levels of natural attrition in the coming years due to retirements. Strategic workforce planning will be a challenge to ensure a controlled exit of skills and competencies and the timely acquisition of new talent and competencies, in line with changing technological and industrial needs.

We have a short history as a standalone company which may pose operational challenges to our management.

Following the closing of the Acquisition, we are no longer owned by Rio Tinto. Our management team has faced and could continue to face operational and organizational challenges and costs related to establishing ourselves as a standalone company, such as establishing various corporate functions, formulating policies, preparing standalone financial statements and integrating the management team. These challenges may divert their attention from running our core business or otherwise materially adversely affect our operating results.

If we do not adequately maintain and evolve our financial reporting and internal controls, we may be unable to accurately report our financial results or prevent fraud and may, as a result, become subject to sanctions by the SEC. Establishing effective internal controls may also result in higher than anticipated operating expenses.

We expect that we will need to continue to improve existing, and implement new, financial reporting and management systems, procedures and controls to manage our business effectively and support our growth in the future, especially because we lack a history of operations as a standalone entity. Any delay in the implementation of, or disruption in the transition to, new or enhanced systems, procedures and controls, or the obsolescence of existing financial control systems, could harm our ability to accurately forecast sales demand and record and report financial and management information on a timely and accurate basis.

Moreover, to comply with our obligations as a public company under Section 404 of the Sarbanes-Oxley Act of 2002, we must enhance and maintain our internal controls. Effective internal controls are necessary for us to provide reliable financial reports and prevent fraud. We are in the process of refining and enhancing our internal controls to satisfy the requirements of Section 404, which requires annual management assessments of the effectiveness of our internal controls over financial reporting and a report by our independent auditors addressing these assessments starting with our annual report for the year ending December 31, 2014. We are working to establish internal controls that will facilitate compliance with these requirements, and we may accordingly experience higher than anticipated operating expenses, as well as increased independent auditor fees as we continue our compliance efforts.

If we fail to comply with the requirements of Section 404 in a timely manner, we might be subject to sanctions or investigations by regulatory authorities such as the SEC. If we do not adequately implement improvements to our disclosure controls and procedures or to our internal controls in a timely manner, our independent registered public accounting firm may not be able to certify as to the effectiveness of our internal control over financial reporting. This may subject us to adverse regulatory consequences or a loss of confidence in the reliability of our financial statements.

 

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We could also suffer a loss of confidence in the reliability of our financial statements if our independent registered public accounting firm reports a material weakness in our internal controls, if we do not develop and maintain effective controls and procedures or if we are otherwise unable to deliver timely and reliable financial information. Any loss of confidence in the reliability of our financial statements or other negative reaction to our failure to develop timely or adequate disclosure controls and procedures or internal controls could result in a decline in the trading price of our ordinary shares. In addition, if we fail to remedy any material weakness, our financial statements may be inaccurate, we may face restricted access to the capital markets and the price of our ordinary shares may be materially adversely affected.

We may not be able to adequately protect proprietary rights to our technology.

Our success depends in part upon our proprietary technology and processes. We believe that our intellectual property has significant value and is important to the marketing of our products and maintaining our competitive advantage. Although we attempt to protect our intellectual property rights both in the United States and in foreign countries through a combination of patent, trademark, trade secret and copyright laws, as well as through confidentiality and nondisclosure agreements and other measures, these measures may not be adequate to fully protect our rights. For example, we have a growing presence in China, which historically has afforded less protection to intellectual property rights than the United States or the Netherlands. Our failure to obtain or maintain adequate protection of our intellectual property rights for any reason could have a material adverse effect on our business, results of operations and financial condition.

We have applied for patent protection relating to certain existing and proposed products and processes. While we generally apply for patents in those countries where we intend to make, have made, use or sell patented products, we may not accurately predict all of the countries where patent protection will ultimately be desirable. If we fail to timely file a patent application in any such country, we may be precluded from doing so at a later date. Furthermore, we cannot assure you that any of our patent applications will be approved. We also cannot assure you that the patents issuing as a result of our foreign patent applications will have the same scope of coverage as our United States patents. The patents we own could be challenged, invalidated or circumvented by others and may not be of sufficient scope or strength to provide us with any meaningful protection or commercial advantage. Further, we cannot assure you that competitors will not infringe our patents, or that we will have adequate resources to enforce our patents.

We also rely on unpatented proprietary technology. It is possible that others will independently develop the same or similar technology or otherwise obtain access to our unpatented technology. To protect our trade secrets and other proprietary information, we require employees, consultants, advisors and collaborators to enter into confidentiality agreements. We cannot assure you that these agreements will provide meaningful protection for our trade secrets, know-how or other proprietary information in the event of any unauthorized use, misappropriation or disclosure of such trade secrets, know-how or other proprietary information. If we are unable to maintain the proprietary nature of our technologies, we could be materially adversely affected.

We rely on our trademarks, trade names and brand names to distinguish our products from the products of our competitors, and have registered or applied to register many of these trademarks. We cannot assure you that our trademark applications will be approved. Third parties may also oppose our trademark applications, or otherwise challenge our use of the trademarks. In the event that our trademarks are successfully challenged, we could be forced to rebrand our products, which could result in loss of brand recognition, and could require us to devote resources to advertising and marketing new brands. Further, we cannot assure you that competitors will not infringe our trademarks, or that we will have adequate resources to enforce our trademarks.

We may institute or be named as a defendant in litigation regarding our intellectual property and such litigation may be costly and divert management’s attention and resources.

Any attempts to enforce our intellectual property rights, even if successful, could result in costly and prolonged litigation, divert management’s attention and resources, and materially adversely affect our results of

 

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operations and cash flows. The unauthorized use of our intellectual property may adversely affect our results of operations as our competitors would be able to utilize such property without having had to incur the costs of developing it, thus potentially reducing our relative profitability.

Furthermore, we may be subject to claims that we have infringed the intellectual property rights of another. Even if without merit, such claims could result in costly and prolonged litigation, cause us to cease making, licensing or using products or technologies that incorporate the challenged intellectual property, require us to redesign, reengineer or rebrand our products, if feasible, divert management’s attention and resources, and materially adversely affect our results of operations and cash flows. We may also be required to enter into licensing agreements in order to continue using technology that is important to our business, or we may be unable to obtain license agreements on acceptable terms, either of which could negatively affect our financial position, results of operations and cash flows.

Failure to protect our information systems against cyber-attacks or information security breaches could have a material adverse effect on our business.

Information security risks have generally increased in recent years because of the proliferation of new technologies and the increased sophistication and activities of perpetrators of cyber-attacks. A failure in or breach of our information systems as a result of cyber-attacks or information security breaches could disrupt our business, result in the disclosure or misuse of confidential or proprietary information, damage our reputation, increase our costs or cause losses. As cyber threats continue to evolve, we may be required to expend additional resources to continue to enhance our information security measures or to investigate and remediate any information security vulnerabilities.

Current liabilities under, as well as the cost of compliance with, environmental, health and safety laws could increase our operating costs and negatively affect our financial condition and results of operations.

Our operations are subject to federal, state and local laws and regulations in the jurisdictions where we do business, which govern, among other things, air emissions, wastewater discharges, the handling, storage and disposal of hazardous substances and wastes, the remediation of contaminated sites, and employee health and safety. At December 31, 2012 and June 30, 2013, we had close-down and environmental restoration costs provisions of €56 million and €49 million, respectively. Future environmental regulations could impose stricter compliance requirements on the industries in which we operate. Additional pollution control equipment, process changes, or other environmental control measures may be needed at some of our facilities to meet future requirements. If we are unable to comply with these laws and regulations, we could incur substantial costs, including fines and civil or criminal sanctions, or costs associated with upgrades to our facilities or changes in our manufacturing processes in order to achieve and maintain compliance.

Financial responsibility for contaminated property can be imposed on us where current operations have had an environmental impact. Such liability can include the cost of investigating and remediating contaminated soil or ground water, fines and penalties sought by environmental authorities, and damages arising out of personal injury, contaminated property and other toxic tort claims, as well as lost or impaired natural resources. Certain environmental laws impose strict, and in certain circumstances joint and several, liability for certain kinds of matters, such that a person can be held liable without regard to fault for all of the costs of a matter even though others were also involved or responsible.

We have accrued, and expect to accrue, costs relating to the above matters that are reasonably expected to be incurred based on available information. However, it is possible that actual costs may differ, perhaps significantly, from the amounts expected or accrued. Similarly, the timing of those expenditures may occur faster than anticipated. These differences could negatively affect our financial position, results of operations and cash flows.

 

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Other legal proceedings or investigations, or changes in applicable laws and regulations, could increase our operating costs and negatively affect our financial condition and results of operations.

In addition to the matters described above, we may from time to time be involved in, or be the subject of, disputes, proceedings and investigations with respect to a variety of matters, including matters related to personal injury, intellectual property, employees, taxes, contracts, anti-competitive or anti-corruption practices as well as other disputes and proceedings that arise in the ordinary course of business. It could be costly to address these claims or any investigations involving them, whether meritorious or not, and legal proceedings and investigations could divert management’s attention as well as operational resources, negatively affecting our financial position, results of operations and cash flows. Additionally, as with the environmental laws and regulations, other laws and regulations which govern our business are subject to change at any time. Compliance with changes to existing laws and regulations could have a material adverse effect on our financial position, results of operations and cash flows.

Product liability claims against us could result in significant costs and could materially adversely affect our reputation and our business.

If any of the products that we sell are defective or cause harm to any of our customers, we could be exposed to product liability lawsuits and/or warranty claims. If we were found liable under product liability claims or are obligated under warranty claims, we could be required to pay substantial monetary damages. We believe we possess adequate product liability insurance to match our level of exposure. However, even if we successfully defend ourselves against these types of claims, we could still be forced to spend a substantial amount of money in litigation expenses, our management could be required to devote significant time and attention to defending against these claims, and our reputation could suffer, any of which could harm our business.

Our operations present significant risk of injury or death.

Because of the heavy industrial activities conducted at our facilities, there exists a risk of injury or death to our employees or other visitors, notwithstanding the safety precautions we take. Our operations are subject to regulation by national, state and local agencies responsible for employee health and safety, which has from time to time levied fines against us for certain isolated incidents. While such fines have not been material and we have in place policies to minimize such risks, we may nevertheless be unable to avoid material liabilities for any employee death or injury that may occur in the future, and any such incidents may materially adversely impact our reputation. Over the last three years, none of the incidents resulting in employee fatalities or significant injuries have resulted in significant disruptions of operations, losses or liabilities.

The insurance that we maintain may not fully cover all potential exposures.

We maintain property, casualty and workers’ compensation insurance, but such insurance does not cover all risks associated with the hazards of our business and is subject to limitations, including deductibles and maximum liabilities covered. We may incur losses beyond the limits, or outside the coverage, of our insurance policies, including liabilities for environmental compliance or remediation. In addition, from time to time, various types of insurance for companies in our industries have not been available on commercially acceptable terms or, in some cases, have not been available at all. In the future, we may not be able to obtain coverage at current levels, and our premiums may increase significantly on coverage that we maintain.

Increases in our effective tax rate and exposures to additional income tax liabilities due to audits could materially adversely affect our business.

We operate in multiple tax jurisdictions and pay tax on our income according to the tax laws of these jurisdictions. Various factors, some of which are beyond our control, determine our effective tax rate and/or the amount we are required to pay, including changes in or interpretations of tax laws in any given jurisdiction, our ability to use net operating loss and tax credit carry forwards and other tax attributes, changes in geographical

 

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allocation of income and expense, and our judgment about the realizability of deferred tax assets. Such changes to our effective tax rate could materially adversely affect our financial position, liquidity, results of operations and cash flows.

In addition, due to the size and nature of our business, we are subject to ongoing reviews by taxing jurisdictions on various tax matters, including challenges to positions we assert on our income tax and withholding tax returns. We accrue income tax liabilities and tax contingencies based upon our best estimate of the taxes ultimately expected to be paid after considering our knowledge of all relevant facts and circumstances, existing tax laws, our experience with previous audits and settlements, the status of current tax examinations and how the tax authorities view certain issues. Such amounts are included in income taxes payable, other non-current liabilities or deferred income tax liabilities, as appropriate, and updated over time as more information becomes available. We record additional tax expense in the period in which we determine that the recorded tax liability is less than the ultimate assessment we expect. We are currently subject to audit and review in a number of jurisdictions in which we operate, and further audits may commence in the future.

Our historical and adjusted financial information presented in this prospectus may not be representative of results we would have achieved as an independent company or of our future results.

The historical and adjusted financial information we have included in this prospectus does not necessarily reflect what our results of operations, financial position or cash flows would have been had we been an independent company during the periods presented. For this reason, as well as the inherent uncertainties of our business, the historical and adjusted financial information does not necessarily indicate what our results of operations, financial position, cash flows or costs and expenses will be in the future. Past performance is not necessarily an indicator of future performance. In addition, our financial results as a subsidiary of Rio Tinto may not be indicative of our results as a standalone company, as they may not be directly comparable.

We are principally owned by Apollo Funds and Bpifrance, and their interests may conflict with or differ from your interests as a shareholder.

After the completion of this offering, Apollo Funds and Bpifrance will continue to own a significant amount of our equity and their interests may not always be aligned with yours. In addition, our directors will be elected by our shareholders at a General Meeting upon a binding nomination by the non-executive directors as described in “Management—Board Structure.” The General Meeting may at all times overrule the binding nature of such nomination by a resolution adopted by a majority of at least two-thirds of the votes cast, provided that such majority represents more than 50% of our issued share capital. Therefore, so long as Apollo Funds and Bpifrance in the aggregate hold more than one-third of our outstanding ordinary shares, and vote such shares at the general meeting in accordance with the voting arrangements pursuant to an agreement among the shareholders, the binding nomination of the non-executive directors cannot be overruled by the other holders of our ordinary shares. If the binding nomination is overruled, the non-executive directors may then make a new nomination. If such a nomination has not been made or has not been made in time, this shall be stated in the notice and the General Meeting shall be free to appoint a director in its discretion. Such a resolution of the General Meeting must be adopted by at least two-thirds of the votes cast, provided that such majority represents more than 50% of our issued share capital. As noted above, Apollo Funds and Bpifrance will be required to vote the ordinary shares held by them at the general meeting in respect of the election of directors in accordance with certain voting arrangements pursuant to their shareholders agreement with Constellium. See “Certain Relationships and Related Party Transactions—Amended and Restated Shareholders Agreement.” These shareholders may have interests that are different from yours and they may exercise their voting and other rights in a manner that may be adverse to your interests.

In addition, this concentration of ownership could have the effect of delaying or preventing a change in control or otherwise discouraging a potential acquirer from attempting to obtain control of us, which could cause the market price of our ordinary shares to decline or prevent our shareholders from realizing a premium over the market price for their ordinary shares.

 

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Apollo Funds make investments in companies in the ordinary course of Apollo’s business and Apollo Funds currently hold, and may from time to time in the future acquire, controlling interests in businesses engaged in the metals industry that complement or directly or indirectly compete with certain portions of our business. So long as Apollo Funds continue to indirectly own a significant amount of our equity, even if such amount is less than 50%, Apollo Funds will continue to be able to strongly influence or effectively control our business decisions.

We are a foreign private issuer under the U.S. securities laws within the meaning of the NYSE rules. As a result, we qualify for and rely on exemptions from certain corporate governance requirements and may rely on other exemptions available to us in the future.

As a “foreign private issuer,” as such term is defined in Rule 405 under the Securities Act, we are permitted to follow our home country practice in lieu of certain corporate governance requirements of the NYSE, including that (i) a majority of the board of directors consists of independent directors; (ii) the nominating and corporate governance committee be composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities; and (iii) the compensation committee be composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities. Foreign private issuers are also exempt from certain U.S. securities law requirements applicable to U.S. domestic issuers, including the requirement to file quarterly reports on Form 10-Q and to distribute a proxy statement pursuant to Exchange Act Section 14 in connection with the solicitation of proxies for shareholders meetings.

We rely on the exemptions for foreign private issuers and follow Dutch corporate governance practices in lieu of some of the NYSE corporate governance rules specified above. We currently rely on exemptions from the requirements set out in (i), (ii) and (iii) above, but in the future, we may change what home country corporate governance practices we follow, and, accordingly, which exemptions we rely on from the NYSE requirements. So long as we qualify as a foreign private issuer, you may not have the same protections afforded to shareholders of companies that are subject to all of the NYSE corporate governance requirements.

We may lose our foreign private issuer status in the future, which could result in significant additional costs and expenses.

Although we expect that we will continue to maintain our status as a foreign private issuer, we could cease to be a foreign private issuer if a majority of our outstanding voting securities are directly or indirectly held of record by U.S. residents and we fail to meet additional requirements necessary to avoid loss of foreign private issuer status. The regulatory and compliance costs to us under U.S. securities laws as a U.S. domestic issuer may be significantly more than costs we incur as a foreign private issuer. If we are not a foreign private issuer, we will be required to file periodic reports and registration statements on U.S. domestic issuer forms with the SEC, including proxy statements pursuant to Section 14 of the Exchange Act. These SEC disclosure requirements are more detailed and extensive than the forms available to a foreign private issuer. In addition, our directors, officers and 10% owners would become subject to insider short-swing profit disclosure and recovery rules under Section 16 of the Exchange Act. We may also be required to modify certain of our policies to comply with corporate governance practices associated with U.S. domestic issuers. Such conversion and modifications would involve additional costs.

In addition, we would lose our ability to rely upon exemptions from certain NYSE corporate governance requirements that are available to foreign private issuers. In particular, within six months of losing our foreign private issuer status we would be required to have a majority of independent directors and a nominating/corporate governance committee and a compensation committee comprised entirely of independent directors, unless other exemptions are available under the NYSE rules. Any of these changes would likely increase our regulatory and compliance costs and expenses, which could have a material adverse effect on our business and financial results.

 

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We do not comply with all the provisions of the Dutch Corporate Governance Code. This may affect your rights as a shareholder.

We are subject to the Dutch Corporate Governance Code, which applies to all Dutch companies listed on a government-recognized stock exchange, whether in the Netherlands or elsewhere, including the NYSE and Euronext Paris. The Dutch Corporate Governance Code contains principles and best practice provisions for boards of directors, shareholders and general meetings of shareholders, financial reporting, auditors, disclosure, compliance and enforcement standards. The Dutch Corporate Governance Code is based on a “comply or explain” principle. Accordingly, companies are required to disclose in their annual reports, filed in the Netherlands, whether they comply with the provisions of the Dutch Corporate Governance Code and, if they do not comply with those provisions, to give the reasons for such non-compliance. The principles and best practice provisions apply to the board (relating to, among other matters, the board’s role and composition, conflicts of interest and independence requirements, board committees and remuneration), shareholders and the general meeting of shareholders (for example, regarding anti-takeover protection and obligations of a company to provide information to its shareholders), and financial reporting (such as external auditor and internal audit requirements). We have decided not to comply with a number of the provisions of the Dutch Corporate Governance Code because such provisions conflict, in whole or in part, with the corporate governance rules of NYSE and U.S. securities laws that apply to our company whose ordinary shares are traded on the NYSE, or because such provisions do not reflect best practices of global companies listed on the NYSE. This may affect your rights as a shareholder and you may not have the same level of protection as a shareholder in a Dutch company that fully complies with the Dutch Corporate Governance Code. See “Description of Capital Stock—Dutch Corporate Governance Code.”

Risks Related to Our Ordinary Shares and the Offering

The market price of our ordinary shares may fluctuate significantly, and you could lose all or part of your investment.

The market price of our ordinary shares may be influenced by many factors, some of which are beyond our control and could result in significant fluctuations, including: (i) the failure of financial analysts to cover our ordinary shares, changes in financial estimates by analysts or any failure by us to meet or exceed any of these estimates; (ii) actual or anticipated variations in our operating results; (iii) announcements by us or our competitors of significant contracts or acquisitions; (iv) the recruitment or departure of key personnel; (v) regulatory and litigation developments; (vi) developments in our industry; (vii) future sales of our ordinary shares; and (viii) investor perceptions of us and the industries in which we operate.

In addition, the stock market in general has experienced substantial price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of particular companies affected. These broad market and industry factors may materially harm the market price of our ordinary shares, regardless of our operating performance. In the past, following periods of volatility in the market price of certain companies’ securities, securities class action litigation has been instituted against these companies. If any such litigation is instituted against us, it could materially adversely affect our business, results of operations and financial condition.

Our recent transformation into a public company may significantly increase our operating costs and disrupt the regular operations of our business.

Prior to our initial public offering completed in May 2013, our business historically operated as a privately owned company, and therefore we have incurred and expect to incur significant additional legal, accounting, reporting and other expenses as a result of having publicly traded ordinary shares. We have incurred and will continue to incur increased costs or costs which we have not incurred previously, including, but not limited to, costs and expenses for directors’ fees, directors and officers liability insurance, investor relations and various other costs of a public company. The additional demands associated with being a public company may disrupt the regular operations of our business by diverting the attention of our senior management team away from

 

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revenue producing activities to management and administrative oversight, adversely affecting our ability to identify and complete business opportunities and increasing the difficulty we face in both retaining professionals and managing and growing our businesses. Any of these effects could materially harm our business, results of operations and financial condition.

We also anticipate that we will incur costs associated with corporate governance requirements, including requirements under the Sarbanes-Oxley Act of 2002, as amended, as well as rules implemented by the SEC and the NYSE. We expect these rules and regulations to increase our legal and financial compliance costs and make some management and corporate governance activities more time-consuming and costly. For example, these rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. This could have a material adverse impact on our ability to recruit and bring on qualified independent directors.

Sales of substantial amounts of our ordinary shares in the public market, or the perception that these sales may occur, could cause the market price of our ordinary shares to decline.

Sales of substantial amounts of our ordinary shares in the public market, or the perception that these sales may occur, could cause the market price of our ordinary shares to decline. This could also impair our ability to raise additional capital through the sale of our equity securities. In addition, the sale of our ordinary shares by our officers and directors in this offering and in the public market after expiration of the lock-up agreements entered into by them in connection with this offering, or the perception that such sales may occur, could cause the market price of our ordinary shares to decline. Prior to the completion of our initial public offering, we amended our Amended and Restated Articles of Association to provide authorization to issue up to 398,500,000 Class A ordinary shares and 1,500,000 Class B ordinary shares. A total of 104,076,718 Class A ordinary shares and 950,337 Class B ordinary shares will be outstanding upon the completion of this offering. All of the ordinary shares sold in this offering will be freely transferrable without restriction or further registration. We may issue ordinary shares or other securities from time to time as consideration for, or to finance, future acquisitions and investments or for other capital needs. We cannot predict the size of future issuances of our shares or the effect, if any, that future sales and issuances of shares would have on the market price of our ordinary shares. If any such acquisition or investment is significant, the number of ordinary shares or the number or aggregate principal amount, as the case may be, of other securities that we may issue may in turn be substantial and may result in additional dilution to our shareholders. We may also grant registration rights covering ordinary shares or other securities that we may issue in connection with any such acquisitions and investments.

Any shareholder acquiring 30% or more of our voting rights may be required to make a mandatory takeover bid or be subject to voting restrictions.

Under Dutch law, if a party directly or indirectly acquires control of a Dutch company, all or part of whose shares are admitted to trading on a regulated market, that party may be required to make a public offer for all other shares of the company (mandatory takeover bid). “Control” is defined as the ability to exercise, whether or not in concert with others, at least 30% of the voting rights at a general meeting of shareholders. Controlling shareholders existing before this offering are generally exempt from this requirement, unless their controlling interest drops below 30% and then increases again to 30% or more. The purpose of this requirement is to protect the interests of minority shareholders. Any shareholder acquiring 30% or more of our voting rights may be limited in its ability to vote on our ordinary shares.

Provisions of our organizational documents and applicable law may impede or discourage a takeover, which could deprive our investors of the opportunity to receive a premium for their ordinary shares or to make changes in our board of directors.

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preventing them from changing the composition of our management. In addition, the same provisions may discourage, delay or prevent a merger, consolidation or acquisition that shareholders may consider favorable. Provisions of our Amended and Restated Articles of Association impose various procedural and other requirements, which could make it more difficult for shareholders to effect certain corporate actions. These anti-takeover provisions could substantially impede the ability of our shareholders to benefit from a change in control and, as a result, may materially adversely affect the market price of our ordinary shares and your ability to realize any potential change of control premium.

Our general meeting of shareholders has empowered our board of directors to issue shares and restrict or exclude preemptive rights on those shares for a period of five years. Accordingly, an issue of new shares may make it more difficult for a shareholder to obtain control over our general meeting of shareholders.

In addition, because certain of our products may have applications in the defense sector, we may be subject to rules and regulations in France and other jurisdictions that could impede or discourage a takeover or other change in control of Constellium or its subsidiaries. In particular, Constellium supplies aluminum alloy products, such as plates, sheets, profiles, tubes and castings, and related services and R&D activities in connection with aerospace and defense programs in France. As a result, a controlling investment in Constellium or certain of Constellium’s French subsidiaries, or the purchase of assets constituting a business which produces products or provides services with applications in the defense sector, by a company or individual that is considered to be foreign or non-resident in France may be subject to the French Monetary and Financial Code, which requires prior authorization of the French Ministry of Economy.

United States civil liabilities may not be enforceable against us.

We are incorporated under the laws of the Netherlands and substantial portions of our assets are located outside of the United States. In addition, certain members of our board, our officers and certain experts named herein reside outside the United States. As a result, it may be difficult for investors to effect service of process within the United States upon us or such other persons residing outside the United States, or to enforce outside the United States judgments obtained against such persons in U.S. courts in any action, including actions predicated upon the civil liability provisions of the U.S. federal securities laws. In addition, it may be difficult for investors to enforce, in original actions brought in courts in jurisdictions located outside the United States, rights predicated upon the U.S. federal securities laws.

There is no treaty between the United States and the Netherlands for the mutual recognition and enforcement of judgments (other than arbitration awards) in civil and commercial matters. Therefore, a final judgment for the payment of money rendered by any federal or state court in the United States based on civil liability, whether or not predicated solely upon the U.S. federal securities laws, would not be enforceable in the Netherlands unless the underlying claim is re-litigated before a Dutch court. Under current practice however, a Dutch court will generally grant the same judgment without a review of the merits of the underlying claim if (i) that judgment resulted from legal proceedings compatible with Dutch notions of due process, (ii) that judgment does not contravene public policy of the Netherlands and (iii) the jurisdiction of the United States federal or state court has been based on internationally accepted principles of private international law.

Based on the foregoing, there can be no assurance that U.S. investors will be able to enforce against us or members of our board of directors, officers or certain experts named herein who are residents of the Netherlands or countries other than the United States any judgments obtained in U.S. courts in civil and commercial matters, including judgments under the U.S. federal securities laws.

In addition, there is doubt as to whether a Dutch court would impose civil liability on us, the members of our board of directors, our officers or certain experts named herein in an original action predicated solely upon the U.S. federal securities laws brought in a court of competent jurisdiction in the Netherlands against us or such members, officers or experts, respectively.

 

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The rights of our shareholders may be different from the rights of shareholders governed by the laws of U.S. jurisdictions.

Our corporate affairs are governed by our Amended and Restated Articles of Association and by the laws governing companies incorporated in the Netherlands. The rights of shareholders and the responsibilities of members of our board of directors may be different from the rights and obligations of shareholders in companies governed by the laws of U.S. jurisdictions. In the performance of its duties, our board of directors is required by Dutch law to consider the interests of our company, its shareholders, its employees and other stakeholders, in all cases with due observation of the principles of reasonableness and fairness. It is possible that some of these parties will have interests that are different from, or in addition to, your interests as a shareholder. See “Description of Capital Stock—Dutch Corporate Governance Code” and “Description of Capital Stock—Differences in Corporate Law.”

Although shareholders have the right to approve legal mergers or demergers, Dutch law does not grant appraisal rights to a company’s shareholders who wish to challenge the consideration to be paid upon a legal merger or demerger of a company. In addition, if a third party is liable to a Dutch company, under Dutch law shareholders generally do not have the right to bring an action on behalf of the company or to bring an action on their own behalf to recover damages sustained as a result of a decrease in value, or loss of an increase in value, of their stock. Only in the event that the cause of liability of such third party to the company also constitutes a tortious act directly against such stockholder and the damages sustained are permanent, may that stockholder have an individual right of action against such third party on its own behalf to recover damages. The Dutch Civil Code provides for the possibility to initiate such actions collectively. A foundation or an association whose objective, as stated in its articles of association, is to protect the rights of persons having similar interests, may institute a collective action. The collective action cannot result in an order for payment of monetary damages but may result in a declaratory judgment (verklaring voor recht), for example, declaring that a party has acted wrongfully or has breached a fiduciary duty. The foundation or association and the defendant are permitted to reach (often on the basis of such declaratory judgment) a settlement which provides for monetary compensation for damages. A designated Dutch court may declare the settlement agreement binding upon all the injured parties with an opt-out choice for an individual injured party. An individual injured party, within the period set by the court, may also individually institute a civil claim for damages if such injured party is not bound by a collective agreement.

The provisions of Dutch corporate law and our Amended and Restated Articles of Association have the effect of concentrating control over certain corporate decisions and transactions in the hands of our board of directors. As a result, holders of our shares may have more difficulty in protecting their interests in the face of actions by members of the board of directors than if we were incorporated in the United States.

Exchange rate fluctuations may adversely affect the foreign currency value of the ordinary shares and any dividends.

The ordinary shares are quoted in U.S. dollars on the NYSE and in euros on Euronext Paris. Our financial statements are prepared in euros. Fluctuations in the exchange rate between euros and the U.S. dollar will affect, among other matters, the U.S. dollar value and the euro value of the ordinary shares and of any dividends.

If securities or industry analysts do not publish research or reports or publish unfavorable research about our business, our stock price and trading volume could decline.

The trading market for our ordinary shares depends in part on the research and reports that securities or industry analysts publish about us, our business or our industry. We may have limited, and may never obtain significant, research coverage by securities and industry analysts. If no additional securities or industry analysts commence coverage of our company, the trading price for our shares could be negatively affected. In the event we obtain additional securities or industry analyst coverage, if one or more of the analysts who covers us

 

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downgrades our stock, our share price will likely decline. If one or more of these analysts, or those who currently cover us, ceases to cover us or fails to publish regular reports on us, interest in the purchase of our shares could decrease, which could cause our stock price or trading volume to decline.

We may be classified as a passive foreign investment company for U.S. federal income tax purposes, which could subject U.S. investors in our ordinary shares to significant adverse U.S. federal income tax consequences.

A foreign corporation will be a passive foreign investment company for U.S. federal income tax purposes (a “PFIC”) in any taxable year in which, after taking into account the income and assets of the corporation and certain subsidiaries pursuant to applicable “look-through rules,” either (i) at least 75% of its gross income is “passive income,” or (ii) at least 50% of its assets produce or are held for the production of “passive income.” For this purpose, “passive income” generally includes dividends, interest, royalties and rents and certain other categories of income, subject to certain exceptions. We believe that we will not be a PFIC for the current taxable year and that we have not been a PFIC for prior taxable years and we expect that we will not become a PFIC in the foreseeable future, although there can be no assurance in this regard. The determination of whether we are a PFIC is a fact-intensive determination that includes ascertaining the fair market value (or, in certain circumstances, tax basis) of all of our assets on a quarterly basis and the character of each item of income we earn. This determination is made annually and cannot be completed until the close of a taxable year. It depends upon the portion of our assets (including goodwill) and income characterized as passive under the PFIC rules. Accordingly, it is possible that we may become a PFIC due to changes in our income or asset composition or a decline in the market value of our equity. Because PFIC status is a fact-intensive determination, no assurance can be given that we are not, have not been, or will not become, classified as a PFIC.

If we were to be classified as a PFIC in any taxable year, U.S. Holders (as defined in “Material Tax Consequences—Material U.S. Federal Income Tax Consequences”) generally would be subject to special tax rules that could result in materially adverse U.S. federal income tax consequences. Further, prospective investors should assume that a “qualified electing fund” election, which, if made, could serve as an alternative to the general PFIC rules and could reduce any adverse consequences to U.S. Holders if we were to be classified as a PFIC, will not be available because we do not intend to provide U.S. Holders with the information needed to make such an election. A mark-to-market election may be available, however, if our ordinary shares are regularly traded. For more information, see the section titled “Material Tax Consequences—Material U.S. Federal Income Tax Consequences—Passive Foreign Investment Company Consequences” and consult your tax advisor concerning the U.S. federal income tax consequences of acquiring, owning or disposing of our ordinary shares if we are or become classified as a PFIC.

 

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IMPORTANT INFORMATION AND CAUTIONARY STATEMENT REGARDING

FORWARD-LOOKING STATEMENTS

This prospectus contains “forward-looking statements” with respect to our business, results of operations and financial condition, and our expectations or beliefs concerning future events and conditions. You can identify certain forward-looking statements because they contain words such as, but not limited to, “believes,” “expects,” “may,” “should,” “approximately,” “anticipates,” “estimates,” “intends,” “plans,” “targets,” “likely,” “will,” “would,” “could” and similar expressions (or the negative of these terminologies or expressions). All forward-looking statements involve risks and uncertainties. Many risks and uncertainties are inherent in our industry and markets. Others are more specific to our business and operations. The occurrence of the events described and the achievement of the expected results depend on many events, some or all of which are not predictable or within our control. Actual results may differ materially from the forward-looking statements contained in this prospectus.

Important factors that could cause actual results to differ materially from those expressed or implied by the forward-looking statements are disclosed under the heading “Risk Factors” and elsewhere in this prospectus, including, without limitation, in conjunction with the forward-looking statements included in this prospectus. All forward-looking statements in this prospectus and subsequent written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the cautionary statements. Some of the factors that we believe could materially affect our results include:

 

   

our ability to implement our business strategy, including our productivity and cost reduction initiatives;

 

   

our susceptibility to cyclical fluctuations in the metals industry, our end-markets and our customers’ industries, and changes in general economic conditions;

 

   

the highly competitive nature of the metals industry and the risk that aluminum will become less competitive compared to alternative materials;

 

   

the possibility of unplanned business interruptions and equipment failure;

 

   

adverse conditions and disruptions in European economies;

 

   

the risk associated with being dependent on a limited number of suppliers for a substantial portion of our primary and scrap aluminum;

 

   

the risk that we may be required to bear increases in operating costs under our multi-year contracts with customers, or certain fixed costs in the event of early termination of contracts;

 

   

competition and consolidation in the industries in which we operate;

 

   

our ability to maintain and continuously improve our information technology and operational systems and financial reporting and internal controls;

 

   

our ability to manage our labor costs and labor relations and attract and retain qualified employees;

 

   

the risk that regulation and litigation pose to our business, including our ability to maintain required licenses and regulatory approvals and comply with applicable laws and regulations, and the effects of potential changes in governmental regulations;

 

   

risk associated with our global operations, including natural disasters and currency fluctuations;

 

   

changes in our effective income tax rate or accounting standards;

 

   

costs or liabilities associated with environmental, health and safety matters; and

 

   

the other factors presented under the heading “Risk Factors.”

We caution you that the foregoing list of important factors may not contain all of the material factors that are important to you. In addition, in light of these risks and uncertainties, the matters referred to in the forward-looking statements contained in this prospectus may not in fact occur. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as required by law.

 

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USE OF PROCEEDS

The selling shareholder will receive all of the net proceeds from the sales of our ordinary shares offered by them pursuant to this prospectus. We will not receive any proceeds from the sale of these ordinary shares, but we will bear the costs associated with this registration in accordance with the amended and restated shareholders agreement. The selling shareholder will bear any underwriting commissions and discounts attributable to their sale of our ordinary shares and we will bear the remaining expenses. See “Principal and Selling Shareholders.”

 

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DIVIDEND POLICY

Our board of directors is currently exploring adoption of a dividend program beginning in 2014; however, no assurances can be made that any future dividends will be paid on the ordinary shares. Any declaration and payment of future dividends to holders of our ordinary shares will be at the discretion of our board of directors and will depend on many factors, including our financial condition, earnings, capital requirements, level of indebtedness, statutory future prospects and contractual restrictions applying to the payment of dividends and other considerations that our board of directors deems relevant. In general, any payment of dividends must be made in accordance with our Amended and Restated Articles of Association and the requirements of Dutch law. Under Dutch law, payment of dividends and other distributions to shareholders may be made only if our shareholders’ equity exceeds the sum of our called up and paid-in share capital plus the reserves required to be maintained by law and by our Amended and Restated Articles of Association.

Generally, we rely on dividends paid to us, or funds otherwise distributed or advanced to us, by our subsidiaries to fund the payment of dividends, if any, to our shareholders. In addition, restrictions contained in the agreements governing our outstanding indebtedness limit our ability to pay dividends on our ordinary shares and limit the ability of our subsidiaries to pay dividends to us. Future indebtedness that we may incur may contain similar restrictions.

 

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PRICE RANGE OF ORDINARY SHARES

Our ordinary shares began trading on the NYSE and Euronext Paris under the symbol “CSTM” following our initial public offering on May 23, 2013. Before then, there was no public market for our ordinary shares. The following table sets forth, for the periods indicated, the high and low closing prices of our ordinary shares as reported by the NYSE since May 23, 2013.

 

     High      Low  

Second Quarter 2013 (beginning May 23, 2013)

   $ 16.15       $ 14.53   

Third Quarter 2013

   $ 20.13       $ 15.86   

Fourth Quarter 2013 (through December 11, 2013)

   $ 21.93       $ 16.69   

On December 11, 2013, the closing price as reported on the NYSE of our ordinary shares was $21.07 per share. As of December 11, 2013, we had one holder of record of our ordinary shares.

 

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CAPITALIZATION

The following table sets forth our cash and cash equivalents and our capitalization as of September 30, 2013 on an historical basis:

This table should be read in conjunction with “Use of Proceeds,” “Selected Financial Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and the consolidated financial statements and the related notes thereto, which appear elsewhere in this prospectus. Applicable exchange rates are as of September 30, 2013 of €1 to $1.3505.

 

     Historical
September  30,
2013
 
    

(€ in millions)

(unaudited)

 

Cash and cash equivalents(1)

     203   

Current borrowings(2)

     34   
  

 

 

 

Non-current borrowings

  

Term Loan due March 2020(3)

     328   

ABL facility

     —    

Other long-term borrowings(4)

     4   
  

 

 

 

Total long-term borrowings

     332   
  

 

 

 

Total borrowings

     366   
  

 

 

 

Share capital

     2   

Share premium

     162   

Retained deficit

     (173
  

 

 

 

Total deficit

     (9
  

 

 

 

Total capitalization(5)

     357   
  

 

 

 

 

(1) Cash and cash equivalents include cash in hand and in bank accounts, short-term deposits held on call with banks and highly liquid investments, which are readily convertible into cash, less bank overdrafts repayable on demand if there is a right of offset.
(2) Represents amounts drawn under the Ravenswood LLC revolving credit facility of €29 million and €3 million drawn under the Term Loan facility due March 2020.
(3) Represents amounts drawn under the Term Loan facility due 2020 totaling €340 million net of financing costs related to the issuance of the debt totaling €9 million at September 30, 2013.
(4) Represents other miscellaneous borrowings.
(5) Total capitalization is total borrowings and total deficit.

As of September 30, 2013, €366 million of our borrowings are secured and guaranteed.

 

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OUR HISTORY AND CORPORATE STRUCTURE

Our History

Constellium Holdco B.V. (formerly known as Omega Holdco B.V.) was incorporated as a Dutch private limited liability company on May 14, 2010. Constellium Holdco B.V. was formed to serve as the holding company for various entities comprising the Alcan Engineered Aluminum Products business unit (the “AEP Business”), which Constellium acquired from affiliates of Rio Tinto on January 4, 2011 (the “Acquisition”).

Upon completion of the Acquisition on January 4, 2011, Constellium Holdco B.V.’s principal shareholders were investment funds affiliated with, or co-investment vehicles that were managed (or the general partners of which were managed) by subsidiaries of, Apollo Global Management, LLC (Apollo Global Management, LLC and its subsidiaries collectively, or any one of such entities individually, “Apollo”), a leading global alternative investment manager; affiliates of Rio Tinto, a leading international mining group, combining Rio Tinto plc, a London listed public company headquartered in the United Kingdom, and Rio Tinto Limited, which is listed on the Australian Stock Exchange, with executive offices in Melbourne (the two companies are joined in a dual listed companies (“DLC”) structure as a single economic entity, called the Rio Tinto Group (“Rio Tinto”)); and Bpifrance Participations (f/k/a Fonds Stratégique d’Investissements), a société anonyme incorporated under the laws of the Republic of France, which is a French public investment fund specializing in the business of equity financing via direct investments or fund of funds (“Bpifrance”). Bpifrance is a wholly-owned subsidiary of BPI-Groupe (bpifrance), a French financial institution jointly owned and controlled by the Caisse des Dépôts et Consignations, a French special public entity (établissement special) and EPIC BPI-Groupe, a French public institution of industrial and commercial nature. As used in this prospectus, the term “Apollo Funds” means investment funds affiliated with, or co-investment vehicles that are managed (or the general partners of which are managed) by, Apollo; the term “Rio Tinto” refers to Rio Tinto or an affiliate of Rio Tinto; and the term “Bpifrance” means Bpifrance Participations (f/k/a Fonds Stratégique d’Investissements) or other entities affiliated with Bpifrance. Apollo Funds, Rio Tinto and Bpifrance held 51%, 39% and 10%, respectively, of the outstanding shares of Constellium Holdco B.V. at the closing of the Acquisition and in the aggregate subscribed for a total of $125 million of equity in Constellium. Apollo Funds, Rio Tinto and Bpifrance continue to be our principal shareholders.

As of December 31, 2012, approximately 6.85% of the outstanding shares of Constellium Holdco B.V. were held by Omega Management GmbH & Co. KG (“Management KG”), which was formed in connection with a management equity plan to facilitate equity ownership by Constellium’s management team. Under the terms of the management equity plan described in “Management—Management Equity Plan,” a total of 55 of our current and former directors, officers and employees invested in the company. The partnership agreement of Management KG provides that the Constellium shares held by Management KG will be voted in the discretion of the advisory board at the level of the general partner of Management KG.

At the closing of the Acquisition, Apollo Omega (Lux) S.à r.l. (“Apollo Omega”) and Bpifrance also committed to provide a $275 million (€212 million) delayed draw bridge term loan to Constellium Holdco B.V., of which $185 million (€143 million at the year-end exchange rate) was drawn at and following such closing to fund various one-time, non-recurring costs expected in the first 18-months post-closing. The amounts outstanding under this term loan were subsequently repaid in full, and this term loan was terminated in connection with Constellium’s entry into the Original Term Loan described below.

On October 10, 2011, we and Rio Tinto agreed on certain post-closing purchase price adjustments that resulted in a net payment by Rio Tinto to Constellium Holdco B.V. of $6 million (€4 million) plus a settlement of inter-company balances of $6 million (€4 million). We received a net amount of $12 million (€9 million). On December 30, 2011, we disposed of substantially all of our interests in AIN, our specialty chemicals and raw materials supply chain services division, to CellMark AB. We are currently engaged in discussions with CellMark regarding certain post-closing purchase price adjustments relating to the disposition.

 

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On May 25, 2012, we secured external financing from a group of lenders in the form of a six-year term loan for $200 million (€151 million at the year-end exchange rate). Proceeds from the Original Term Loan were used to repay the term loan facility provided by Apollo Omega and Bpifrance discussed above. Concurrently, we entered into a new revolving credit facility (“ABL”) in the United States replacing the previous facility. See “Description of Certain Indebtedness.”

On March 25, 2013, we refinanced the Original Term Loan with the proceeds of a seven-year term loan in the aggregate amount of $360 million and €75 million borrowed by Constellium Holdco B.V. and Constellium France S.A.S. from a group of lenders. The proceeds from the Term Loan were used to repay the Original Term Loan (which facility was thereafter terminated) and pay fees and expenses associated with the refinancing and the remainder was used to fund distributions to our shareholders of record prior to completion of our initial public offering of approximately €250 million in the aggregate.

On March 28, 2013, we made a distribution of share premium to our Class A and Class B1 shareholders of €103 million and an additional distribution to our Class B2 shareholders of €392,000 on May 21, 2013.

Our board of directors further approved a distribution of profits of an additional €147 million to our existing pre-IPO Class A, Class B1 and Class B2 shareholders. Due to certain European tax and accounting restrictions, however, we did not anticipate being able to pay such additional distribution to such shareholders until after the completion of the initial public offering. Consequentially, in order to facilitate the payment of such distribution, we issued preference shares to our existing Class A, Class B1 and Class B2 shareholders. These preference shares entitled them to receive distributions in priority to ordinary shareholders in the aggregate amount of approximately €147 million in proportion to their percentage immediately prior to the completion of the initial public offering. We were able to make such distribution of €147 million on May 21, 2013 and the preference shares were acquired by the Company for no consideration on May 29, 2013. Our Amended and Restated Articles of Association and Dutch law provide that so long as the preference shares are held by the Company, they will have no voting rights and no right to profits.

On May 16, 2013, we effected a pro rata share issuance of Class A ordinary shares, Class B1 ordinary shares and Class B2 ordinary shares to our existing shareholders, which we implemented through the issuance of 22.8 new Class A ordinary shares, 22.8 Class B1 ordinary shares and 22.8 Class B2 ordinary shares for each outstanding Class A, Class B1 and Class B2 ordinary share, respectively. As a result, the Company issued an aggregate amount of 83,945,965 additional Class A ordinary shares, 815,252 additional Class B1 ordinary shares and 923,683 additional Class B2 ordinary shares, nominal value €0.02 per share, prior to consummation of the initial public offering. The pro rata share issuance was undertaken in order to provide an appropriate per-share valuation in respect of the offering price for our initial public offering.

On May 21, 2013, Constellium Holdco B.V. was converted into a Dutch public limited liability company and renamed Constellium N.V. Any references to Dutch law and the Amended and Restated Articles of Association are references to Dutch law and the articles of association of the Company as applicable following the conversion.

On May 29, 2013, we completed our initial public offering of 22,222,222 of our ordinary shares at a price to the public of $15.00 per share. A total of 13,333,333 shares were offered by us and a total of 8,888,889 shares were offered by Apollo Funds and Rio Tinto. On June 24, 2013, the underwriters of our initial public offering exercised their over-allotment option to purchase from us an additional 2,251,306 Class A ordinary shares at a public offering price of $15.00 per share less the underwriting discount. The exercise of the over-allotment option brought the total number of Class A ordinary shares sold in the initial public offering to 24,473,528.

In connection with our initial public offering, Apollo Funds and Rio Tinto entered into an agreement with Bpifrance pursuant to which Bpifrance agreed to place an order to purchase approximately 4.4 million ordinary shares at a per share price equal to the public offering price (the “Bpifrance share purchase”). Apollo Funds and

 

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Rio Tinto agreed to use best efforts to cause the underwriters to allocate such number of shares to Bpifrance. The agreement further provides that for one year following the closing of our initial public offering, Bpifrance is restricted from buying additional shares in the Company unless this restriction is waived by both Apollo Funds and Rio Tinto or certain specified events occur.

On November 14, 2013, we completed a secondary public offering of 17,500,000 of our ordinary shares at a price to the public of $17.00 per share. The shares were offered by Rio Tinto and Management KG. On November 8, 2013, the underwriters of this secondary public offering exercised their option to purchase from Rio Tinto an additional 2,625,000 Class A ordinary shares at a public offering price of $17.00 per share less the underwriting discount. The exercise of the purchase option brought the total number of Class A ordinary shares sold in the secondary public offering to 20,125,000.

The business address (head office) of Constellium N.V. is Tupolevlaan 41-61, 1119 NW Schiphol-Rijk, the Netherlands, and our telephone number is +31 20 654 97 80. The address for our agent for service in the United States is Corporation Service Company, 80 State Street, Albany, NY 12207-2543, and its telephone number is (518) 433-4740.

Corporate Structure

The following diagram summarizes our corporate structure (including our significant subsidiaries) after giving effect to this offering, assuming no exercise of the underwriters’ option to purchase additional shares:

 

LOGO

 

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SELECTED FINANCIAL INFORMATION

The following tables set forth our historical combined and consolidated financial data.

On January 4, 2011, Omega Holdco B.V., which later changed its name to Constellium Holdco B.V., and then again to Constellium N.V. (referred to in this prospectus as the “Successor”) acquired the Alcan Engineered Aluminum Products business unit (the “AEP Business” or the “Predecessor”) from affiliates of Rio Tinto (the “Acquisition”). For comparison purposes, our results of operations for the years ended December 31, 2011 and 2012 and the six months ended June 30, 2012 and 2013 are presented alongside the results of operations of the Predecessor for the years ended December 31, 2010. However, our Successor and Predecessor periods are not directly comparable due to the impact of the application of purchase accounting and the preparation of the Predecessor accounts on a carve-out basis. The financial position, results of operations and cash flows of the Predecessor do not necessarily reflect what our financial position or results of operations would have been if we had been operated as a standalone entity during the periods covered by the Predecessor financial statements and are not indicative of our future results of operations and financial position.

The selected historical financial information of the Predecessor as of and for the years ended December 31, 2008, 2009 and 2010 has been derived from the audited combined financial statements included elsewhere in this prospectus. The Predecessor financial information has been prepared to present the assets, liabilities, revenues and expenses of the combined AEP Business on a standalone basis up to the date of divestment from Rio Tinto.

The selected historical financial information of the Successor as of and for the years ended December 31, 2011 and 2012 and the six months ended June 30, 2012 and 2013 has been derived from the audited consolidated financial statements and the unaudited condensed interim consolidated financial statements included elsewhere in this prospectus.

The audited combined, consolidated and unaudited condensed interim consolidated financial statements included elsewhere in this prospectus have been prepared according to the International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or IASB.

Effective January 1, 2013, we have adopted IAS 19 Employee Benefits (revised) (IAS 19) in our unaudited condensed interim consolidated financial statements as of and for the period ended June 30, 2013 and in accordance with the transition rules in IAS 19 we have retrospectively applied this standard to the six months ended June 30, 2012. We have not restated our audited combined and consolidated financial statements for the years ended December 31, 2009, 2010, 2011 and 2012 as the impact of this revised standard is not material to our results of operations and financial position.

Unless otherwise indicated, all share and per share numbers have been retroactively adjusted to reflect the issuance of 22.8 additional shares for each outstanding share at the time of our initial public offering in May 2013, as if it had occurred on January 4, 2011.

 

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You should base your investment decision on a review of the entire prospectus. In particular, you should read the following data in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the historical combined and consolidated financial statements, including the notes to those combined and consolidated financial statements, which appear elsewhere in this prospectus.

 

    Predecessor
as of and for the year ended

December 31,
        Successor
as of and
for the year
ended
December 31,
    Successor
as of and for
the six months

ended
June 30,
 
(€ in millions other than per share and per
ton data)
      2008             2009             2010              2011     2012     2012     2013  
                                       (unaudited)  

Statement of income data:

                 

Revenue

    3,318        2,292        2,957            3,556        3,610        1,911        1,827   

Gross profit

    50        42        242            321        478        274        255   

Operating profit/(loss)

    (825     (240     (248         (59     257        100        102   

Profit/(loss) for the period—continuing operations

    (639     (215     (209         (166     142        37        22   

Profit/(loss) for the period

    (644     (218     (207         (174     134        36        22   

Profit/(loss) per share—basic and diluted

    n/a        n/a        n/a            (2.0     1.5        0.4        0.2   

Profit/(loss) per share—basic and diluted—continuing operations

    n/a        n/a        n/a            (1.9     1.6        0.4        0.2   

Pro forma profit per share—basic and diluted—continuing operations

    —         —         —             —         1.4        —          —     
 

Weighted average number of shares outstanding (basic)

    n/a        n/a        n/a            89,338,433        89,442,416        89,442,416        92,273,677   

Weighted average number of shares outstanding (diluted)

    n/a        n/a        n/a            89,338,433        89,442,416        89,442,416        92,513,392   
 

Dividends per ordinary share (euro)

    —         —         —             —         —         —          —     

Balance sheet data:

                 

Total assets

    2,583        2,040        1,837            1,612        1,631        1,631        1,849   

Net liabilities or total invested equity

    227        108        199            (113     (47     (37     (62

Share capital

    n/a        n/a        n/a            —         —         —          2   

Other operational and financial data (unaudited):

                 

Net trade working capital(1)

    n/a        416        519            381        289        514        373   

Capital expenditure

    127        61        51            97        126        47        55   

Volumes (in KT)

    1,058        868        972            1,058        1,033        542        534   

Revenue per ton

    3,136        2,641        3,042            3,361        3,495        3,526        3,421   

 

 

(1) Net trade working capital represents total inventories plus trade receivables less trade payables.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis, or MD&A, is based principally on our audited combined financial statements as of and for the year ended December 31, 2010, which we refer to in this section as the “Predecessor Period,” and our audited consolidated financial statements as of and for the years ended December 31, 2011 and 2012 and the unaudited condensed interim consolidated financial statements as of and for the six months ended June 30, 2012 and 2013, which we refer to in this section as the “Successor Period” which appear elsewhere in this prospectus. The following discussion is to be read in conjunction with “Selected Financial Information,” “Business” and our audited combined and consolidated financial statements, our unaudited condensed interim consolidated financial statements and the notes thereto, which appear elsewhere in this prospectus.

The following discussion and analysis includes forward-looking statements. These forward-looking statements are subject to risks, uncertainties and other factors that could cause our actual results to differ materially from those expressed or implied by our forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those discussed below and elsewhere in this prospectus. See in particular “Important Information and Cautionary Statement Regarding Forward-Looking Statements” and “Risk Factors.”

Introduction

The following MD&A is provided to supplement the audited combined and consolidated financial statements, our unaudited condensed interim consolidated financial statements and the related notes included elsewhere in this prospectus to help provide an understanding of our financial condition, changes in financial condition and results of our operations. The MD&A is organized as follows:

 

   

Basis of Preparation. This section provides a description of the financial statements included in this prospectus, detailing the method of preparation of the period prior to the Acquisition in the audited combined financial statements of the Predecessor (as defined below) and after the Acquisition (as defined below) on January 4, 2011 in our audited consolidated financial statements and unaudited condensed interim consolidated financial statements.

 

   

Company Overview. This section provides a general description of our business as well as an introduction to our operating segments, key factors influencing our financial condition and results of operations, and our Key Performance Indicators, in addition to recent developments that we believe are necessary to understand our financial condition and results of operations and to anticipate future trends in our business.

 

   

Results of Operations. This section provides a discussion of the results of operations on a historical basis for each of our fiscal periods in the years ended December 31, 2010, 2011 and 2012 and for the six months ended June 30, 2012 and 2013.

 

   

Covenant Compliance and Financial Ratios. This section provides a reconciliation of our Adjusted EBITDA to our net income/loss for the period as required under our financing facilities.

 

   

Liquidity and Capital Resources. This section provides an analysis of our cash flows for each of our fiscal years ended December 31, 2010, 2011 and 2012 and for the six months ended June 30, 2012 and 2013.

 

   

Contractual Obligations and Contingencies. This section provides a discussion of our commitments as of December 31, 2012.

 

   

Quantitative and Qualitative Disclosures about Market Risk. This section discusses our exposure to potential losses arising from adverse changes in interest rates and commodity prices.

 

   

Critical Accounting Policies and Estimates. This section discusses the accounting policies and estimates that we consider to be important to our financial condition and results of operations and that require significant judgment and estimates on the part of management in their application.

 

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Basis of Presentation

On January 4, 2011, Omega Holdco B.V., which later changed its name to Constellium Holdco B.V., and then again to Constellium N.V. (the “Successor”), and which, together with its subsidiaries, are referred to in this section as the “Successor,” acquired the Alcan Engineered Aluminum Products business unit (the “AEP Business” or the “Predecessor”) from affiliates of Rio Tinto (the “Acquisition”). Apollo Funds and Bpifrance acquired 51% and 10%, respectively, of Constellium Holdco B.V., and Rio Tinto retained 39%.

The following table represents the fair value adjustments recorded by us on completion of the acquisition of the AEP Business:

 

     € millions  

Total consideration

     (4

Less book value of assets acquired and liabilities acquired

  

Total book value of assets acquired and liabilities assumed

     199   

Less discontinued operation assets and liabilities (1)

     (9

Book value of assets acquired and liabilities assumed subject to purchase price adjustments

     190   

Purchase price adjustments

  

Intangible assets excluding goodwill

     —    

Property, plant and equipment (2)

     (123

Other current assets and liabilities (3)

     64   

Provisions (4)

     (34

Deferred tax liabilities—net (5)

     (112

Net assets acquired at fair value

     (15

Goodwill

     11   

 

(1) We acquired the assets and liabilities of the AIN business exclusively with a view to its subsequent disposal and a sale process commenced as of January 4, 2011. Therefore, the AIN assets and liabilities did not form part of the purchase price allocation exercise as they were classified as held for sale. The assets of the AIN business of €103 million were comprised predominantly of €44 million of trade receivables, €43 million of inventories and €10 million of cash and cash equivalents. The AIN business liabilities of €94 million were comprised of €50 million of trade payables, €26 million of related party borrowings and €18 million of pension liabilities.

 

(2) Reflects the overall decrease in valuation of property, plant and equipment. Both the impairment model (IAS 36) used by the Predecessor and our application of purchase accounting (IFRS 3R) use the concept of fair value. However, the application results in different values.

 

  i. The impairment model of the Predecessor resulted in a €216 million impairment charge recorded in the 2010 financial statements which reduced the net book value of property plant and equipment to €214 million. The fair value less cost to sell was derived from the enterprise value agreed between buyer and seller. The fair value of each cash-generating unit was determined using a discounted cash flow model utilizing discount rates of 11.5%-14%. Where fair value less cost to sell is less than the carrying value, then the carrying value of property, plant and equipment is written down to no less than nil. In addition to this, where the fair value was higher than the carrying value, the Predecessor did not increase the net book value of the property, plant and equipment.

 

  ii. In purchase accounting the fair value of property plant and equipment is determined on an individual asset basis. In determining fair value, the Company also used a discounted cash flow model with assumed discount rates in a range of 17%-18.5%. Additionally, our business plan on an individual site basis resulted in different cash flow assumptions from the Predecessor. Additionally, management of the buyer and seller had different perspectives of the future cash flows of various locations which will have an impact on the allocation of fair value.

 

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The main difference between the discount rates noted above relates to the size premium reflected in the cost of equity for the Predecessor and the Company. Both the Predecessor and Company management used independent research published by investment research firms regarding historically observed size premiums over the return indicated by the capital asset pricing model to determine an appropriate size premium to include in the estimated discount rates.

 

(3) Reflects a step-up in value of our inventory as well as other adjustments to working capital mainly related to short-term loans receivable from the Predecessor, which were subsequently outside the scope of the Acquisition as receivables were forgiven, repaid or remained with Rio Tinto and its subsidiaries prior to the Acquisition on January 4, 2011.

 

(4) Reflects increased legal claims and other costs of approximately €26 million and marginal increases in close-down and environmental restoration costs and restructuring costs. Reflects increased provisions resulting from the Company analysis of the risks and associated probability of occurrence. In addition, in the Predecessor financial statements, a provision is recognized when there is a present obligation that arises from past events, its fair value can be measured reliably and there is a probable outflow of resources. In contrast, in purchase price allocation we recognize the provision at fair value when the fair value can be measured reliably, even if it is not probable that there will be an outflow of resources.

 

(5) Represents changes in deferred tax liabilities and assets reflecting (i) tax effect of fair value adjustments and (ii) changes in tax consolidation structure occurring at the acquisition.

For comparison purposes, our results of operations for the years ended December 31, 2011 and 2012 and for the six months ended June 30, 2012 and 2013 are presented alongside the Predecessor results of operations for the year ended December 31, 2010. These results are not prepared on the same basis of accounting and therefore may not be directly comparable as the Predecessor Period has been prepared using the principles of carve-out accounting. The carve-out combined financial statements present a group of entities, divisions and businesses which were acquired and these did not constitute a separate legal entity. Although we believe that the assumptions underlying the combined financial statements, including the allocations from the previous owner, are reasonable, the combined financial statements may not be representative of the results of operations, financial position and cash flows in the future or what it or they would have been had we been a standalone entity during the year ended December 31, 2010.

Company Overview

We are a global leader in the development, manufacture and sale of a broad range of highly engineered, value-added specialty plate, coil, sheet and extruded aluminum products to the aerospace, packaging, automotive, other transportation and industrial end-markets. Our leadership positions include a joint number one position in global aerospace plates and a number one position in European can sheet. This global leadership is supported by our well-invested facilities in Europe and the United States, as well as more than 50 years of proven manufacturing quality and innovation, a global sales network and pre-eminent R&D capabilities.

We have approximately 8,400 employees and 23 state-of-the-art, integrated production facilities, ten administrative and commercial sites, and one R&D center.

Our product portfolio is predominantly focused on high value-added, technologically advanced specialty products that command higher margins than less differentiated aluminum products. This portfolio serves a broad range of end-markets that exhibit attractive growth trends in future periods such as aerospace or automotive. Our technological advantage and relationship with our customers is driven by our pre-eminent R&D capabilities. We believe that our R&D capabilities are a key attraction for our customers. Many projects are designed to support specific commercial opportunities at the request of our customers and are carried out in partnership with them.

This regular interaction and partnership with our customers also help us maintain our leading market positions. We have long-standing, established relationships with some of the largest companies in the aerospace,

 

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packaging, automotive and other transportation industries including Boeing, Airbus, Rexam, Crown, Ball and Amcor, as well as a number of leading automotive firms. The average length of our customer relationships with our top 20 customers exceeds 25 years.

Our primary metal supply is secured through long-term contracts with several upstream companies, including affiliates of Rio Tinto, one of our shareholders. In addition, a material portion of our slab and billet supply is produced in our own casthouses. This provides a cost advantage compared to our competitors.

For the six months ended June 30, 2013, the last twelve months ended June 30, 2013 and the year ended December 31, 2012, we generated revenues of €1,827 million, €3,526 million and €3,610 million, respectively. For the six months ended June 30, 2013, the last twelve months ended June 30, 2013 and the year ended December 31, 2012 we generated net income from continuing operations of €22 million, €127 million, and €142 million, respectively. We also generated Management Adjusted EBITDA for the six months ended June 30, 2013, the last twelve months ended June 30, 2013 and the year ended December 31, 2012 of €137 million, €211 million and €203 million. Please see the reconciliation in “Key Performance Indicators” and also in footnote (2) to “Summary Consolidated Historical Financial Data.”

Our Operating Segments

We serve a diverse set of customers across a broad range of end-markets with very different product needs, specifications and requirements. As a result, we have organized our business into the following three segments to better serve our customer base:

Aerospace & Transportation Segment

Our global Aerospace & Transportation segment has market leadership positions in technologically advanced aluminum and specialty materials products with wide applications across the global aerospace, defense, transportation, and industrial sectors. We offer a wide range of products including plate, sheet, extrusions and precision casting products which allows us to offer tailored solutions to our customers. We seek to differentiate our products and act as a key partner to our customers through our broad product range, advanced R&D capabilities, extensive recycling capabilities and portfolio of plants with an extensive range of capabilities across Europe and North America. In order to reinforce the competitiveness of our metal solutions, we design our processes and alloys with a view to optimizing our customers’ operations and costs. This includes offering services such as customizing alloys to our customers’ processing requirements, processing short lead time orders and providing vendor managed inventories or tolling arrangements. Aerospace & Transportation accounted for 34% of our revenues and 47% of Management Adjusted EBITDA for the six months ended June 30, 2013.

Packaging & Automotive Rolled Products Segment

In our Packaging & Automotive Rolled Products segment, we produce and develop customized aluminum sheet and coil solutions. Approximately 83% of segment volume for the six months ended June 30, 2013 was in packaging applications, which primarily include beverage and food can stock as well as closure stock and foil stock. The remaining 17% of segment volume for that period was in automotive and customized solutions, which include technologically advanced products for the automotive and industrial sectors. Our Packaging & Automotive Rolled Products segment accounted for 43% of revenues and 31% of Management Adjusted EBITDA for the six months ended June 30, 2013.

Automotive Structures & Industry Segment

Our Automotive Structures & Industry segment produces (i) technologically advanced structures for the automotive industry, including crash management systems, side impact beams and cockpit carriers and (ii) soft and hard alloy extrusions and large profiles for automotive, rail, road, energy, building and industrial

 

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applications. We complement our products with a comprehensive offering of downstream technology and service activities, which include pre-machining, surface treatment, R&D and technical support services. Our Automotive Structures & Industry segment accounted for 23% of revenues and 20% of Management Adjusted EBITDA for the six months ended June 30, 2013.

Discontinued Operations

At December 30, 2011, we disposed of the vast majority of our specialty chemicals and raw materials supply chain services division, AIN. As at December 31, 2012, we have ceased operations in the remaining entities, therefore abandoning them.

In the six months ended June 30, 2013 we sold two of our soft alloy plants in France, Ham and Saint Florentin, which have not met the criteria of discontinued operations in accordance with IFRS and therefore have not been classified or disclosed as such. We have excluded the revenue or shipments from these plants in some of our analysis, where indicated, to allow comparison of period on period production.

Key Factors Influencing Constellium’s Financial Condition and Results from Operations

The Aluminum Industry

We participate in select segments of the aluminum semi-fabricated products industry, including rolled and extruded products. Aluminum is lightweight, has a high strength-to-weight ratio and is resistant to corrosion. It compares favorably to several alternative materials, such as steel, in these respects. Aluminum is also unique in the respect that it recycled repeatedly without any material decline in performance or quality. The recycling of aluminum delivers energy and capital investment savings relative to the cost of producing both primary aluminum and many other competing materials. Due to these qualities, the penetration of aluminum into a wide variety of applications continues to increase. We believe that long-term growth in aluminum consumption generally, and demand for those products we produce specifically, will be supported by factors that include growing populations, continued urbanization in emerging markets and increasing focus globally on sustainability and environmental issues. Aluminum is increasingly seen as the material of choice in a number of applications, including packaging, aerospace and automotive.

We do not mine bauxite, refine alumina, or smelt primary aluminum as part of our business. Our industry is cyclical and is affected by global economic conditions, industry competition and product development.

The financial performance of our operations is dependent on several factors, the most critical of which are as follows:

Volumes

The profitability of our businesses is determined, in part, by the volume of tons invoiced and processed. Increased production volumes will result in lower per unit costs, while higher invoiced volumes will result in additional revenues and associated margins.

Price and Margin

For all contracts, we continuously seek to eliminate the impact of aluminum price fluctuations in order to protect our net income and cash flows against the LME price variations of aluminum that we buy and sell, with the following methods:

 

   

In cases where we are able to align the price and quantity of physical aluminum purchases with that of physical aluminum sales, we do not need to employ derivative instruments to further mitigate our exposure, regardless of whether the LME portion of the price is fixed or floating.

 

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However, when we are unable to align the price and quantity of physical aluminum purchases with that of physical aluminum sales, we enter into derivative financial instruments to pass through the exposure to financial institutions at the time the price is set.

 

   

For a small portion of our volumes, the metal is owned by our customers and we bear no metal price risk.

We do not apply hedge accounting and therefore any mark-to-market movements are recognized in the “Other gains/losses (net).” Our risk management practices aim to reduce, but do not eliminate, our exposure to changing primary aluminum prices and, while we have limited our exposure to unfavorable price changes, we have also limited our ability to benefit from favorable price changes.

In addition, our operations require that a significant amount of inventory be kept on hand to meet future production requirements. The value of the base level of inventory is also susceptible to changing primary aluminum prices. In order to reduce these exposures, we focus on reducing inventory levels and offsetting future physical purchases and sales.

We refer to the timing difference between the price of primary aluminum included in our revenues and the price of aluminum impacting our cost of sales as “metal price lag.”

Also included in our results is the impact of differences between changes in the prices of primary and scrap aluminum. As we price our product using the prevailing price of primary aluminum but purchase large amounts of scrap aluminum to produce our products, we benefit when primary aluminum price increases exceed scrap price increases. Conversely, when scrap price increases exceed primary aluminum price increases, our results will be negatively impacted. The difference between the price of primary aluminum and scrap prices is referred to as the “scrap spread” and is impacted by the effectiveness of our scrap purchasing activities, the supply of scrap available and movements in the terminal commodity markets.

Seasonality

Customer demand in the aluminum industry is cyclical due to a variety of factors, including holiday seasons, weather conditions, economic and other factors beyond our control. Our volumes are impacted by the timing of the holiday seasons in particular, with August and December typically being the lowest months and January to June being the strongest months. Our business is also impacted by seasonal slowdowns and upturns in certain of our customers’ industries. Historically, the can industry is strongest in the spring and summer seasons, whereas the automotive and construction sectors encounter slowdowns in both the third and fourth quarters of the calendar year. In response to this seasonality, we seek to scale back and may even temporarily close some operations to reduce our operating costs during these periods.

Economic Conditions, Markets and Competition

We are directly affected by the economic conditions which impact our customers and the markets in which they operate. General economic conditions in the geographic regions in which our customers operate—such as the level of disposable income, the level of inflation, the rate of economic growth, the rate of unemployment, exchange rates and currency devaluation or revaluation—influence consumer confidence and consumer purchasing power. These factors, in turn, influence the demand for our products in terms of total volumes and the price that can be charged. In some cases we are able to mitigate the risk of a downturn in our customers’ businesses by building committed minimum volume thresholds into our commercial contracts. We further seek to mitigate the risk of a downturn by utilizing a temporary workforce for certain operations, which allows us to match our resources with the demand for our services. We also have an “asset-light” policy and seek to purchase transportation and logistics services from third parties, to the extent possible, in order to manage our fixed costs base.

 

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Although the metals industry and our end-markets are cyclical in nature and expose us to related risks, we believe that our portfolio is relatively resistant to these economic cycles in each of our three main end-markets (aerospace, packaging and automotive):

 

   

We believe that the aerospace industry is currently insulated from the economic cycle through a combination of drivers sustaining its growth. These drivers include increasing passenger traffic and the replacement of the fleet fueled by the age of the planes in service and the need for more efficient planes in an environment of high oil prices. These factors have materialized in the form of historically high backlogs for the aircraft manufacturers; the combined order backlog for Boeing and Airbus currently represents approximately eight years of manufacturing at current delivery rates.

 

   

Can packaging is a seasonal market peaking in the summer because of the increased consumption of soft drinks during the summer months. It tends not to be highly correlated to the general economic cycle and in addition, we believe European can body stock has an attractive long-term growth outlook due to ongoing trends in (i) end-market growth in beer, soft drinks and energy drinks, (ii) increasing use of cans versus glass in the beer market, (iii) increasing penetration of aluminum in can body stock at the expense of steel, and (iv) Eastern European consumption increase linked to purchasing power growth.

 

   

Although the automotive industry as a whole is a cyclical industry, its demand for aluminum has been increasing in recent years. According to a study done by the research firm Frost & Sullivan, the global market in Automotive applications for aluminum is expected to more than double by 2017 from $13 billion in 2010 to $28 billion in 2017. This was due to the lightweighting requirement for new car models, which drove a positive substitution of heavier metals in favor of aluminum.

In addition to the counter-cyclicality of our key end-markets, we believe our cash flows are also largely protected from variations in LME prices due to the fact that we hedge our sales based on their replacement cost, by setting the maturity of our futures on the delivery date to our customers. As a result, when LME prices increase, we have limited additional cash requirements to finance the increased replacement cost of our inventory. Aluminum prices are determined by worldwide forces of supply and demand, and, as a result, aluminum prices are volatile. The average LME transaction price per ton of primary aluminum in 2010, 2011, 2012 and the six months ended June 30, 2013 was €1,638, €1,720, €1,569 and €1,461, respectively. After high levels of volatility, LME aluminum price volatility stabilized during 2010 before returning again in 2011. LME prices reached a peak in the second quarter of 2011, before declining for the remainder of the year. Average LME aluminum prices per ton remained approximately 9% lower than the average 2011 levels and relatively constant during much of 2012. Prices continued to decline throughout 2013 with the average quarterly LME per ton in June 2013 decreasing to €1,405 per ton.

Average quarterly LME per ton using U.S. dollar prices converted to euros using the applicable European Central Bank rates:

 

(Euros/ton)

   2010      2011      2012      2013  

First quarter

     1,566         1,829         1,660         1,516   

Second quarter

     1,644         1,808         1,541         1,405   

Third quarter

     1,617         1,698         1,533      

Fourth quarter

     1,724         1,549         1,540      

Average for the year

     1,638         1,720         1,569      

Average for the six month period ended 2013

              1,461   

A portion of our revenues are denominated in U.S. dollars while the majority of our costs incurred are denominated in local currencies. We engage in significant hedging activity to attempt to mitigate the effects of foreign transaction currency fluctuations on our profitability.

 

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We mark-to-market open derivatives at the period end giving rise to unrealized gains or losses which are classified as non-cash items. These unrealized gains/losses have no bearing on the underlying performance of the business and are removed when calculating Management Adjusted EBITDA and Adjusted EBITDA.

Currency

We are a global company with operations as of June 30, 2013 in France, the United States, Germany, Switzerland, the Czech Republic, Slovakia and China. As a result, our revenue and earnings have exposure to a number of currencies, primarily the U.S. dollar, the euro and the Swiss Franc. Our consolidated or combined revenue and results of operations are affected by fluctuations in the exchange rates of the currencies of the countries in which we operate. We have implemented a strategy from mid-2011 onwards to hedge all highly probable or committed foreign currency cash flows. As we have a multiple-year sale agreement for the sale of fabricated metal products in U.S. dollars, the Company has entered into derivative contracts to forward sell U.S. dollars to match these future sales. Hedge accounting is not applied and therefore the mark-to-market impact is recorded in “Other gains/losses (net).”

Personnel Costs

Our operations are labor intensive and, as a result, our personnel costs represent 21% and 20% of our costs of operation for the year ended December 31, 2012 and six months ended June 30, 2013, respectively. Personnel costs generally increase and decrease proportionately with the expansion, addition or closing of operating facilities. Personnel costs include the salaries, wages and benefits of our employees, as well as costs related to temporary labor. During our seasonal peaks and especially during summer months, we have historically increased our temporary workforce to compensate for staff on holiday and increased volume of activity.

Separation from Rio Tinto and Other Acquisition Considerations

Our results since the Acquisition have been affected by certain additional factors that may make our historical results not indicative of our likely future performance.

The costs and expenses reflected in our combined financial statements include historical management fees for certain corporate functions which were provided to the Predecessor by Rio Tinto, including legal, finance, human resources and other administrative functions. These management fees were based on what Rio Tinto considered to be reasonable reflections of the historical utilization levels of these functions required in support of the AEP Business. Moreover, our combined financial statements and other historical financial information included in this prospectus do not necessarily indicate what our results of operations, financial condition or cash flows will be in the future. In particular, the Predecessor combined financial statements do not reflect the costs of borrowing funds as a separate entity.

Presentation of Financial Information

Constellium acquired the AEP Business from Rio Tinto on January 4, 2011. The financial information presented herein therefore consists of audited consolidated financial statements for the years ended December 31, 2011 and 2012 and the unaudited condensed interim consolidated financial statements for the six months ended June 30, 2012 and 2013 (the Successor Period) and audited combined financial statements for the year ended December 31, 2010 (the Predecessor Period).

The Predecessor combined financial statements were specifically prepared on a carve-out basis in connection with the disposal by Rio Tinto for the purposes of presenting, as far as practicable, the assets, liabilities, revenues and expenses of the AEP Business on a standalone basis. The Predecessor combined financial statements of Constellium are an aggregation of financial information from the individual companies that made up the AEP Business and include allocations of certain expenses from the previous owner.

 

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Accordingly, the combined financial statements of the Predecessor are not necessarily representative nor indicative of the financial position, results of operations or cash flows that would have been obtained had the AEP Business operated independently or under separate ownership.

Our consolidated financial statements have been prepared in accordance with IFRS as issued by the IASB and as endorsed by the European Union. The Predecessor combined financial statements have been prepared in accordance with IFRS as issued by the IASB.

Our presentation currency is the euro.

Effective January 1, 2013 we have adopted IAS 19 Employee Benefits (revised) (IAS 19) in our unaudited condensed interim consolidated financial statements as of and for the period ended June 30, 2013 and in accordance with the transition rules in IAS 19 we have retrospectively applied this standard to the six months ended June 30, 2012. We have not restated our audited combined and consolidated financial statements for the years ended December 31, 2009, 2010, 2011 and 2012 as the impact of this revised standard is not material to our results of operations and financial position.

Results of Operations

Description of Key Line Items of the Historical Combined and Consolidated Statements of Income

Set forth below is a brief description of the composition of the key line items of our historical combined and consolidated statements of income for continuing operations:

 

   

Revenue. Revenue represents the income recognized from the delivery of goods to third parties, including the sale of scrap metal and tooling, less discounts, credit notes and taxes levied on sales.

 

   

Cost of sales. Cost of sales include the costs of materials directly attributable to the normal operating activities of the business, including raw material and energy costs, personnel costs for those involved in production, depreciation and the maintenance of producing assets, packaging and freight on-board costs, tooling, dyes and utility costs.

 

   

Selling and administrative expenses. Selling and administrative expenses include depreciation of non-producing assets, amortization, personnel costs of those personnel involved in sales and corporate functions such as finance and IT.

 

   

Research and development expenses. Research and development expenses are costs in relation to bringing new products to market. Included in such expenses are personnel costs and depreciation and maintenance of assets offset by tax credits for research activities where applicable.

 

   

Restructuring costs. Restructuring costs are the expenses incurred in implementing management initiatives for cost-cutting and efficiency improvements. These costs primarily relate to severance payments, pension curtailment costs and contract termination costs.

 

   

Impairment charges. Impairment charges relate to the diminution in value of property, plant and equipment and intangible assets.

 

   

Other gains/ (losses), net. Other expenses or income include unusual infrequent or non-recurring items, realized and unrealized gains or losses on derivative instruments and exchange gains or losses on remeasurements of monetary assets or liabilities.

 

   

Other expenses. Other expenses mainly comprise acquisition and separation costs, which are costs incurred in relation to the acquisition by Constellium of substantially all of the entities, divisions and businesses of the AEP Business on January 4, 2011 and expenses related to our initial public offering in May 2013.

 

   

Finance income or expenses. Interest income mainly relates to interest earned on loans and deposits and lease payments received in relation to finance leases. Interest and similar expenses relate to interest and amortized set up fees charged on loans, factoring and other borrowings.

 

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Share of profit in joint ventures. A joint venture is a contractual arrangement whereby two or more parties undertake an economic activity that is subject to joint control. Results from investments in joint ventures represents Constellium’s share of results of Rhenaroll S.A., a company specializing in chrome plating, grinding and repairing of rolling mills rolls and rollers and Stojmetal Kamenice, which forges products for the automotive industry. The results of these joint ventures are accounted for using the equity method.

 

   

Income taxes. Income tax represents the aggregate amount included in the determination of profit or loss for the year in respect of current tax and deferred tax. Current tax is the amount of income taxes payable (recoverable) in respect of the taxable profit/(loss) for a year. Deferred tax represents the amounts of income taxes payable/(recoverable) in future periods in respect of taxable (deductible) temporary differences and unused tax losses.

 

     Predecessor
combined for the year
ended
December 31,
         Successor
consolidated
for the year
ended December 31,
    Successor
consolidated
for the six months
ended June 30,
 
         2010                   2011             2012             2012             2013      
     (€ in millions)                      (unaudited)  

Continuing operations

               

Revenue

     2,957             3,556        3,610        1,911        1,827   

Cost of sales

     (2,715          (3,235     (3,132     (1,637     (1,572
  

 

 

        

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     242             321        478        274        255   
  

 

 

        

 

 

   

 

 

   

 

 

   

 

 

 

Selling and administrative expenses

     (190          (216     (212     (101     (102

Research and development expenses

     (53          (33     (36     (20     (18

Restructuring costs

     (6          (20     (25     (10     (2

Impairment charges

     (224          —          —          —          —     

Other gains/(losses) net

     (17          (111     52        (43     (31
  

 

 

        

 

 

   

 

 

   

 

 

   

 

 

 

Income/(loss) from operations

     (248          (59     257        100        102   

Other expenses

     —               (102     (3     (2     (24

Finance costs net

     (7          (39     (60     (37     (34

Share of profit/(loss) of joint ventures

     2             —          (5     —          —     
  

 

 

        

 

 

   

 

 

   

 

 

   

 

 

 

Income/(loss) before income taxes

     (253          (200     189        61        44   

Income tax

     44             34        (47     (24     (22
  

 

 

        

 

 

   

 

 

   

 

 

   

 

 

 

Net income/(loss) from continuing operations

     (209          (166     142        37        22   

Net income/(loss) from discontinued operations

     2             (8     (8     (1     —     
  

 

 

        

 

 

   

 

 

   

 

 

   

 

 

 

Net income/(loss)

     (207          (174     134        36        22   
  

 

 

        

 

 

   

 

 

   

 

 

   

 

 

 

 

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Results of Operations for the six months ended June 30, 2013 and June 30, 2012

 

     Successor Consolidated
for the six months ended
June 30,
 
             2012                          2013          
     (€ millions and as a % of revenues)  
     (unaudited)  

Continuing operations

                           

Revenue

     1,911        100          1,827        100

Cost of sales

     (1,637     86          (1,572     86
  

 

 

   

 

 

        

 

 

   

 

 

 

Gross profit

     274        14          255        14
  

 

 

   

 

 

        

 

 

   

 

 

 

Selling and administrative expenses

     (101     5          (102     6

Research and development expenses

     (20     1          (18     1

Restructuring costs

     (10     1          (2     0

Other gains/(losses) net

     (43     2          (31     2
  

 

 

   

 

 

        

 

 

   

 

 

 

Income / (loss) from operations

     100        5          102        6

Other expenses

     (2     —               (24     1

Finance costs, net

     (37     2          (34     2
  

 

 

   

 

 

        

 

 

   

 

 

 

Income / (Loss) before income taxes

     61        3          44        2

Income tax

     (24     1          (22     1
  

 

 

   

 

 

   

 

  

 

 

   

 

 

 

Net Income / (Loss) from continuing operations

     37        2          22        1

Net loss from discontinued operations

     (1     —               —          —     

Net Income / (Loss)

     36        2          22        1
  

 

 

   

 

 

      

 

 

   

 

 

 

Revenue

Revenue from continuing operations decreased by 4%, or €84 million, to €1,827 million for the six months ended June 30, 2013, from €1,911 million for the six months ended June 30, 2012. This decrease can be attributed to declining LME prices across all of our segments, coupled with a marginal decline in volumes shipped. The disposal of two soft alloy plants in France in May 2013 led to a 7.6 kt decrease in volumes shipped in our AS&I segment. Revenues per ton decreased by 3%, or €105 per ton, to €3,421 per ton, in the six months ended June 30, 2013, from €3,526 per ton for the six months ended June 30, 2012.

Lower LME prices in the first six months of 2013 decreased our revenues by approximately €76 million. In the first half of 2013, the average spot rate for LME per ton was €1,461 per ton in comparison to €1,603 per ton for the corresponding period of 2012. On a constant LME price basis, utilizing the average LME price for the six months ended June 30, 2012 of €1,601 per ton, our revenue would have remained stable at €1,903 million.

Our volumes remained stable as shipments marginally decreased by 1%, or 8 kt, to 534 kt for the six months ended June 30, 2013, as compared to shipments of 542 kt for the six months ended June 30, 2012. Decreased volumes resulted in revenue decreasing by €6 million. Excluding revenue from our soft alloys plants which were disposed of in May 2013, our volumes would have been stable for the six months ended June 30, 2013, as compared to the six months ended June 30, 2012.

Our A&T segment increased production during the first six months of 2013 with a 2%, or 3 kt, increase in shipment volumes as a result of increased shipments to our customers in the aerospace industry, also aided by our new multi-year contract with Airbus. However, segment revenue decreased by €20 million, or 3%, with revenue per ton decreasing by 6% to €5,033 per ton in the six months ended June 30, 2013, from €5,328 per ton in the six months ended June 30, 2012. This decrease was as a result of weakened pricing and a weakening of the U.S. dollar in the first half of 2013.

 

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AS&I volumes and revenues were impacted by the disposal of two factories. Excluding production from our disposed soft alloy plants, our AS&I volume decreased by 1 kt. Segment revenue per ton for our AS&I segment increased to €4,178 per ton in the six months ended June 30, 2013 from €4,145 per ton for the six months ended June 30, 2012, benefiting from an increase in volumes in our higher value added products.

Our P&ARP segment volumes remained constant, although revenues declined by €20 million or 2% as a result of decreasing LME prices. P&ARP’s stable production coupled with lower LME prices in 2013 has contributed to segment revenue per ton decreasing to € 2,529 per ton in the first six months of 2013 from €2,585 per ton in the first six months of 2012.

Our segment revenues are discussed in more detail in the “Key Performance Indicators” section.

Cost of Sales and Gross Profit

Cost of sales decreased by 4%, or €65 million, to €1,572 million for the six months ended June 30, 2013, from €1,637 million for the six months ended June 30, 2012, in line with our decrease in shipment volumes and also as a reflection of lower input prices of metal. Falling LME prices contributed to a 5%, or €49 million, decrease in raw materials and consumable expenses to €982 million in the six months ended June 30, 2013, as compared to €1,031 million in the six months ended June 30, 2012.

Depreciation increased by €7 million, to €9 million for the six months ended June 30, 2013, from €2 million for the six months ended June 30, 2012, as we incurred a full period of depreciation of our 2012 investments.

On a per ton basis, cost of sales decreased by 3% to €2,944 per ton in the six months ended June 30, 2013, from €3,020 per ton in the six months ended June 30, 2012 due to lower spot prices for aluminum. Our raw materials cost per ton decreased by 3% to €1,839 per ton. We also incurred lower energy costs per ton. The costs of energy decreased by €9 million in line with decreased production volumes and the continued impact of our productivity initiatives.

Gross profit decreased by 7%, or €19 million, to €255 million for the six months ended June 30, 2013, from €274 million for the six months ended June 30, 2012. Our gross profit margin remained flat at 14% of revenues in the six months ended June 30, 2012 and 2013.

Our gross profit margin was also negatively impacted by our accounting for inventory under the weighted average cost method. Due to LME price movements and the timing of transfers from inventory to cost of sales this decreased our gross profit by €12 million compared to a decrease of €9 million in the six months ended June 30, 2013.

Selling and Administrative Expenses

Selling and administrative expenses remained relatively stable with an increase of 1%, or €1 million, to €102 million for the six months ended June 30, 2013, from €101 million for the six months ended June 30, 2012.

External consulting expenses increased by 10%, or €2 million, to €22 million for the six months ended June 30, 2013, from €20 million for the six months ended June 30, 2012. External consulting expenses related primarily to costs incurred in preparing to become a publicly traded company.

Other selling and administrative expenses decreased by 1%, or €1 million, to €80 million for the six months ended June 30, 2013, from €81 million for the six months ended June 30, 2012. This stability reflects our continuing efforts to rationalize our support functions.

Research and Development Expenses

Research and development expenses decreased by 10%, or €2 million, to €18 million for the six months ended June 30, 2013, from €20 million for the six months ended June 30, 2012, which reflects higher AIRWARE® related costs in 2012.

 

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Restructuring Costs

Restructuring expenses decreased by 80%, or €8 million, to €2 million for the six months ended June 30, 2013, from €10 million for the six months ended June 30, 2012 as the restructuring initiatives have either completed or are in their final phase.

Other Losses - Net

 

      (in millions of Euros)    Six months ended
June 30,
2012
    Six months ended
June 30,
2013
 

Realized losses on derivatives

     (24     (12

Unrealized losses on derivatives at fair value through profit and loss—net

     (8     (32

Unrealized exchange (losses) / gains from the remeasurement of monetary assets and liabilities—net

     (1     1   

Ravenswood pension plan amendment

     —          11   

Swiss pension plan settlement

     (8     —     

Loss on disposal

     —          (4

Other—net

     (2     5   
  

 

 

   

 

 

 

Total other losses—net

     (43     (31

Other losses—net were €31 million for the six months ended June 30, 2013, compared to a loss of €43 million for the six months ended June 30, 2012.

Unrealized losses on derivatives held at fair value through profit and loss increased by €24 million to €32 million in the six months ended June 30, 2013, from €8 million for the six months ended June 30, 2012. Our losses increased due to unrealized losses on derivatives entered into with the purpose of mitigating exposure to volatility in LME prices compounded by losses as the U.S. dollar weakened against the euro.

In the six months ended June 30, 2013, the impact of our hedging strategy in relation to foreign currency led to unrealized losses on derivatives of €4 million mainly driven by the leveling of the €/USD curve in 2013, whereas in the six months ended June 30, 2012 the impact of these derivatives was an unrealized loss of €3 million. In the six months ended June 30, 2013, €28 million of unrealized losses were recorded in relation to LME futures entered into to minimize the exposure to LME price volatility, compared to €4 million for the six months ended June 30, 2012, as the LME market decreased more in 2013 than in the same period of 2012.

Realized losses on derivatives decreased by €12 million to €12 million loss in the six months ended June 30, 2013 from €24 million loss for the six months ended June 30, 2012, as the matured deals on euro/USD showed less volatility against their hedges than in the first half of 2012.

In the six months ended June 30, 2013, we recognized an €11 million gain and in the six months ended June 30, 2012, an €8 million loss associated with amendments to our Ravenswood pension plan and a pension plan settlement in Switzerland, respectively. The gain at Ravenswood is a result of certain plan amendments reducing employee benefits resulting in recognition of negative past service cost. The loss of €8 million was recognized in relation to the plan in Switzerland due to the transfer of the pension plans to a new foundation and adjustments of assets and employee benefits. This led to a partial liquidation and triggered a settlement.

Loss on disposal in the six months ended June 30, 2013 relates primarily to the net loss on the disposal of our Saint Florentin and Ham plants. Other gains in the six months ended June 30, 2013 of €5 million reflects primarily reversals of our environmental provisions.

Other Expenses

Other expenses were €24 million in the six months ended June 30, 2013 as compared to €2 million of expenses in the six months ended June 30, 2012. In the six months ended June 30, 2013 these expenses relate to fees associated with our initial public offering in May 2013.

 

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Finance Cost - Net

Finance costs—net decreased by 8%, or €3 million, to €34 million in the six months ended June 30, 2013, from €37 million for the six months ended June 30, 2012.

Interest expense on borrowings and factoring arrangements increased by €13 million or 54%, to €37 million for the six months ended June 30, 2013, from €24 million for the six months ended June 30, 2012, due to interest payable on our New Term Loan which we entered into in March 2013. Our New Term Loan replaced the Original Term Loan entered into in May 2012 which in turn repaid our Shareholder Loan. In the six months ended June 30, 2013, we recognized €8 million and €13 million of unamortized exit and arrangement fees respectively on the termination of the Original Term Loan.

In the six months ended June 30, 2012, we recognized €7 million of unamortized fees associated with the termination of the Shareholder Loan as interest expense. Over the period, the expenses associated with our factoring arrangements remained stable, at €5 million for the six months ended June 30, 2013, from €7 million for the six months ended June 30, 2012.

This increase in interest expense was offset by the decrease in realized and unrealized losses on debt derivatives at fair value which we entered into to minimize our exposure to interest rate volatility. The realized and unrealized gains and losses for the six months ended June 30, 2013 was €4 million gain and €3 million loss respectively in comparison to a loss of €11 million for the six months ended June 30, 2012.

Income Tax

An income tax charge of €22 million was recognized for the six months ended June 30, 2013, from €24 million for the six months ended June 30, 2012. The effective rate of tax for the six months ended June 30, 2013 was 50% compared to 39% for the six months ended June 30, 2012. The effective tax rate for the six months ended June 30, 2013 reflects an estimated weighted average annual tax rate of 30%, the impact of certain exceptional transactions and a country mix effect.

Net Income for the Year from Continuing Operations

Net income for the year from continuing operations was €22 million for the six months ended June 30, 2013, compared to €37 million for the six months ended June 30, 2012, representing a decrease of €15 million. Gross profit margin remained stable and operating profit increased slightly benefitting from lower restructuring costs. Net income was impacted by €24 million of IPO related expenses.

Discontinued Operations

Losses from discontinued operations of €1 million were incurred in the six months ended June 30, 2012 in respect of our AIN segment. All AIN operations were ceased in 2012.

 

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Results of Operations for the years ended December 31, 2012 and December 31, 2011

 

     Successor consolidated
for the year ended
December 31,
 
                          2011                                                   2012                      
     (€ in millions and as a % of revenues)  

Continuing operations

             

Revenue

     3,556        100          3,610        100

Cost of sales

     (3,235     91          (3,132     87
  

 

 

   

 

 

        

 

 

   

 

 

 

Gross profit

     321        9          478        13
  

 

 

   

 

 

        

 

 

   

 

 

 

Selling and administrative expenses

     (216     6          (212     6

Research and development expenses

     (33     1          (36     1

Restructuring costs

     (20     1          (25     1

Other gains/(losses)—net

     (111     3          52        1
  

 

 

   

 

 

        

 

 

   

 

 

 

Income/(loss) from operations

     (59     2          257        7

Other expenses

     (102     3          (3     —    

Finance costs, net

     (39     1          (60     2

Share of profit of joint ventures

     —         —              (5     —    
  

 

 

   

 

 

        

 

 

   

 

 

 

Income/(loss) before income taxes

     (200     6          189        5

Income tax (expense)/benefit

     34        1          (47     1
  

 

 

   

 

 

        

 

 

   

 

 

 

Net Income/(loss) for the year from continuing operations

     (166     5          142        4

Net loss from discontinued operations

     (8     —              (8     —    
  

 

 

   

 

 

        

 

 

   

 

 

 

Net Income/(loss) for the year

     (174     5          134        4
  

 

 

   

 

 

        

 

 

   

 

 

 

Shipment volumes (in kt)

     1,058        n/a             1,033        n/a   

Revenue per ton (€ per ton)

     3,362        n/a             3,495        n/a   

Gross profit margin

     9     n/a             13     n/a   
  

 

 

   

 

 

        

 

 

   

 

 

 

Revenue

Revenue from continuing operations increased by 2%, or €54 million, to €3,610 million for the year ended December 31, 2012 from €3,556 million for the year ended December 31, 2011. This increase was attributed to stronger pricing as we benefited from foreign currency movements and also an advantageous product mix in our Aerospace and Packaging products. Our A&T segment performed strongly during 2012 as revenues increased by €166 million, primarily due to increased pricing as a result of foreign currency movements and higher spreads coupled with a 4% increase in shipment volumes as we encountered strong demand for aerospace products.

Our revenue growth was achieved against a background of lower LME prices in 2012. In 2012, the average spot rate for LME per ton was €1,569 per ton in comparison to €1,720 per ton in the year ended December 31, 2011.

Our volumes remained relatively stable as shipments marginally decreased by 2%, or 25 kt, to 1,033 kt for the year ended December 31, 2012 compared to shipments of 1,058 kt for the year ended December 31, 2011 resulting in a decline in revenue of €87 million. Our A&T segment performed strongly during 2012 with a 4%, or 8 kt, increase in shipment volumes as a result of increased activity in the aerospace industry whereas our other two operating segments suffered decreased volumes.

Revenues per ton increased by 4%, or €133 per ton, to €3,495 per ton in the year ended December 31, 2012 from €3,362 per ton for the year ended December 31, 2011. Our A&T segment saw revenue per ton increase by

 

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12% to €5,278 per ton in the year ended December 31, 2012 from €4,704 per ton in the year ended December 31, 2011 as a result of improved pricing mix; new products and the strengthening of the U.S. dollar in 2012 as a significant portion of our aerospace revenues are invoiced in U.S. dollars. The average € to U.S. dollar exchange rate for the year was 1.2847 $/€ in 2012 in comparison to 1.3905 $/€ in 2011.

Our other segments encountered more challenging trading conditions with declining shipments coupled with lower LME prices in 2012. Segment revenue for our P&ARP and AS&I segments decreased by €71 million and €49 million, respectively. Our P&ARP and AS&I segment volumes decreased by 2% or 15 kt and 6% or 13 kt, respectively.

Our segment revenues are discussed in more detail in the “Key Performance Indicators” section.

Cost of Sales and Gross Profit

Cost of sales decreased by 3%, or €103 million, to €3,132 million for the year ended December 31, 2012 from €3,235 million for the year ended December 31, 2011. The decrease is primarily attributable to a decrease in shipment volumes of 25 kt and lower input prices of metal which has led to an 8% or €174 million decrease in raw materials and consumable expenses over the period, to €1,987 million in the year ended December 31, 2012 compared to €2,161 million in the year ended December 31, 2011.

On a per ton basis, cost of sales decreased marginally by 1% to €3,032 per ton in the year ended December 31, 2012 from €3,058 per ton in the year ended December 31, 2011. This decrease was impacted by lower spot prices for aluminum, which contributed to our raw materials per ton decreasing by 6% to €1,924 per ton. These factors are offset by inflationary increases in employee remuneration across our segments.

Gross profit increased by 49%, or €157 million, to €478 million for the year ended December 31, 2012, from €321 million for the year ended December 31, 2011. Our gross profit margin increased to 13% in the year ended December 31, 2012 from 9% in the year ended December 31, 2011. Our margins were positively impacted by the strengthening of the U.S. dollar which increased our aerospace products revenues invoiced in U.S. dollars and margins where costs of goods sold were incurred primarily in euros and the overall impact of all our cost reduction initiatives which contributed to decreased maintenance costs. Our gross profit margin was negatively impacted by our accounting for inventory under the weighted average cost method. Due to LME price movements and the timing of transfers from inventory to cost of sales this decreased our gross profit by €16 million compared to a negative impact of €12 million in December 31, 2011.

Selling and Administrative Expenses

Selling and administrative expenses remained relatively stable with a decrease of 2%, or €4 million, to €212 million for the year ended December 31, 2012 from €216 million for the year ended December 31, 2011.

External consulting expenses decreased by 20%, or €11 million, to €43 million for the year ended December 31, 2012 from €54 million for the year ended December 31, 2011. External consulting expenses in the year ended December 31, 2012 related primarily to corporate tax and accounting advice, IT and other support related services and our pre-IPO costs of €4 million. In the year ended December 31, 2011, non-recurring consulting costs of €21 million related to the establishment of head office, IT and treasury functions which are fully operational in 2012.

The decrease in external consulting expenses was offset by an above inflationary increase in labor costs which were in part due to increased bonuses linked to the success of our cost reduction initiatives.

 

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Research and Development Expenses

Research and development expenses increased by 9%, or €3 million, to €36 million for the year ended December 31, 2012 from €33 million for the year ended December 31, 2011 as we continued to develop and expand our AIRWARE® offering.

Research and development expenses in the year ended December 31, 2012 were primarily incurred in our A&T segment of which €24 million was in relation to further development of our AIRWARE® product. Our P&ARP segment incurred €12 million across a number of various development projects which are ongoing and our AS&I segment reduced its research and development spend by €2 million as part of its cost efficiency program.

Research and development expenses in the year ended December 31, 2011 related to various projects, primarily in the A&T segment of €13 million and the P&ARP segment of €11 million.

Restructuring Costs

Restructuring expenses increased by 25%, or €5 million, to €25 million for the year ended December 31, 2012 from €20 million for the year ended December 31, 2011. Our expenses in the year ended December 31, 2012 were due to initiatives at our sites, primarily in Sierre, Switzerland, where we incurred €7 million during the period, as well as restructuring in other sites and at our corporate support services location in Paris.

The 2011 costs were related to restructuring programs put in place at our Ham and Singen facilities amounting to €14 million and €3 million, respectively and at the corporate level amounting to €3 million.

Other Gains/(Losses) - Net

 

      (in millions of Euros)    Year ended
December 31,
2011
    Year ended
December 31,
2012
 

Realized gains (losses) on derivatives

     31        (45

Unrealized gains (losses) on derivatives at fair value through profit and loss—net

     (144     61   

Unrealized exchange (losses) / gains from the remeasurement of monetary assets and liabilities—net

     4        (1

Ravenswood pension plan amendment

     —         48   

Swiss pension plan settlement

     —         (8

Ravenswood CBA negotiation

     —         (7

Other—net

     (2     4   
  

 

 

   

 

 

 

Total other gains/(losses)—net

     (111     52   

Other gains (net) were €52 million for the year ended December 31, 2012, compared to other losses (net) of €111 million for the year ended December 31, 2011.

Unrealized gains on derivatives held at fair value through profit and loss in the year ended December 31, 2012 was €61 million compared to €144 million of unrealized losses for the year ended December 31, 2011, which is made up of unrealized losses or gains on derivatives entered into with the purpose of mitigating exposure to volatility in foreign currency and LME prices.

In the year ended December 31, 2011, the impact of our hedging strategy in relation to foreign currency led to unrealized losses on derivatives of €59 million which related primarily to the exposure on the multiple year sale agreement for fabricated products in U.S. dollars by a euro functional subsidiary of the group. In the year ended December 31, 2012 the impact of these derivatives was an unrealized gain of €35 million as the U.S. dollar weakened against the euro in the second half of 2012.

 

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In the year ended December 31, 2011, €86 million of unrealized losses were recorded in relation to LME futures entered into to minimize the exposure to LME price volatility. A steep decline in LME prices of aluminum led to unrealized losses with the revaluation of the underlying transaction continuing to be off balance sheet as the sales had not yet been invoiced and recognized as revenue. In the year ended December 31, 2012 this resulted in an unrealized gain of €25 million. Hedges which had a significant negative mark-to-market at year end 2011 expired and offset the underlying commercial transactions during 2012. Further, the aluminum market traded sideways during 2012 and the mark-to-market at year end of derivatives related to aluminum hedging was close to zero.

In the year ended December 31, 2012, we also recognized a €48 million gain and an €8 million loss associated with changes in pension plans at Ravenswood and in Switzerland. The gain at Ravenswood was a result of certain plan amendments altering employee benefits resulting in recognition of negative past service cost. The loss in Switzerland resulted from the transfer of the pension plans to a new foundation and adjustments of assets and employee benefits.

During the third quarter of 2012, the collective bargaining agreement (CBA) regulating working conditions at Ravenswood was renegotiated and a new five-year CBA was put in place. Costs of €7 million during these renegotiations related to professional fees including legal expenses and bonuses related to the successful resolution of this renewed five-year agreement.

Other Expenses

In the year ended December 31, 2012, we recorded non-recurring acquisition costs of €3 million incurred at the beginning of 2012 in relation to the ongoing separation. In the year ended December 31, 2011, these costs amounted to €102 million in relation to the costs of the transaction itself as well as costs of separation.

Finance Cost - Net

Finance costs (net) increased by 54%, or €21 million, to €60 million in the year ended December 31, 2012, from €39 million for the year ended December 31, 2011.

The increase in net finance costs can be attributed to the Original Term Loan which we entered into in May 2012. Our interest payable on borrowings and factoring arrangements increased by 26% or €8 million to €39 million for the year ended December 31, 2012 from €31 million in the year ended December 31, 2011, as we incurred €7 million of arrangement fees in respect of the Original Term Loan.

The Original Term Loan had a variable interest rate and we entered into a cross currency interest rate swap to minimize our exposure to interest rate volatility. The realized and unrealized loss related to the cross currency interest rate swap on the Original Term Loan amounted to €18 million for the year ended December 31, 2012.

Income Tax

An income tax charge of €47 million was recognized for the year ended December 31, 2012, from an income tax benefit of €34 million for the year ended December 31, 2011. The effective rate of tax for the year ended December 31, 2012 was a 25% charge compared to a 17% benefit for the year ended December 31, 2011. In 2011 non-recurring Acquisition costs were considered nondeductible in some jurisdictions and deferred tax assets in 2011 were not recognized as it was determined to be more likely than not that sufficient future taxable profits would be generated in certain countries to allow the utilization of these tax losses or deferred tax assets.

 

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Net Income/(Loss) for the Year from Continuing Operations

Net income for the year from continuing operations was €142 million for the year ended December 31, 2012, compared to a loss of €166 million for the year ended December 31, 2011. This was driven by an increase in gross profit and gross profit margin as a result of increased spreads, better product mix and a reduced cost base, as well as other gains. These were partially offset by higher finance costs associated with the 2012 refinancing.

Discontinued Operations

Losses from discontinued operations of €8 million were incurred in both years ended December 31, 2012 and 2011. The loss was attributable to restructuring, separation and completion costs.

Results of Operations for the years ended December 31, 2011 and December 31, 2010

 

     Predecessor combined
for the year ended
December 31,
         Successor consolidated
for the year ended
December 31,
 
                              2010                                                       2011                       
     (€ in millions and as a % of revenues)  

Continuing operations

             

Revenue

     2,957        100          3,556        100

Cost of sales

     (2,715     92          (3,235     91
  

 

 

   

 

 

        

 

 

   

 

 

 

Gross profit

     242        8          321        9
  

 

 

   

 

 

        

 

 

   

 

 

 

Selling and administrative expenses

     (190     6          (216     6

Research and development expenses

     (53     2          (33     1

Restructuring costs

     (6     —              (20     1

Impairment charges

     (224     8         

Other gains/(losses)—net

     (17     1          (111     3
  

 

 

   

 

 

        

 

 

   

 

 

 

Income / (loss) from operations

     (248     8          (59     2

Other expenses

     —         —              (102     3

Finance costs, net

     (7     —              (39     1

Share of profit of joint ventures

     2        —              —         —    
  

 

 

   

 

 

        

 

 

   

 

 

 

Income / (loss) before income taxes

     (253     9          (200     6

Income tax (expense)/benefit

     44        1          34        1
  

 

 

   

 

 

        

 

 

   

 

 

 

Net Income / (loss) for the year from continuing operations

     (209     7          (166     5

Net Income / (loss) from discontinued operations

     2        —              (8     —    
  

 

 

   

 

 

        

 

 

   

 

 

 

Net Income / (loss) for the year

     (207     7          (174     5
  

 

 

   

 

 

      

 

 

   

 

 

 

Shipment volumes (in kt)

     972        n/a           1,058        n/a   

Revenue per ton (€ per ton)

     3,042        n/a           3,362        n/a   

Gross profit margin

     8     n/a           9     n/a   

Revenue

Revenue from continuing operations increased by 20%, or €599 million, to €3,556 million for the year ended December 31, 2011 from €2,957 million for the year ended December 31, 2010. As discussed in more detail in the “Key Performance Indicators” section, this increase in consolidated revenues was driven by higher volumes which increased by 9% or 86 kt in 2011 and contributed €288 million to revenue growth. We also encountered stronger pricing supported by higher LME prices which increased to an average of €1,720 per ton in

 

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2011 from €1,638 per ton in 2010 and also a more favorable mix of products. Consequently, our revenue per ton increased by 11% or €320 per ton to €3,362 per ton for the year ended December 31, 2011, from €3,042 per ton for the year ended December 31, 2010.

Revenues from our A&T, P&ARP and AS&I segments increased by €206 million, €252 million and €156 million, respectively. The 25% or €206 million increase in our A&T segment revenues can be attributed to an 11% or 21 kt increase in volumes coupled with LME price increases passed on to our end customers. Our volumes have increased due to a pick up in the aerospace sector and also increased demand for our transportation products. The A&T volume increases have contributed €99 million to the group revenue growth. These volume and price increases were offset by the impact of the weakening U.S. dollar as the average U.S. dollar to euro exchange rate declined to 1.3905 in 2011 from 1.33 in 2010. Revenues per ton were 11% higher in 2011.

Our P&ARP and AS&I segments increased volumes by 6%, or 33 kt, and 3% and 7kt, respectively with a 12% and 17% increase in revenues per ton again benefiting from strong demand and pricing.

Cost of Sales and Gross Profit

Cost of sales increased by 19%, or €520 million, to €3,235 million for the year ended December 31, 2011 from €2,715 million for the year ended December 31, 2010, due to an increase in volumes of 9% coupled with increasing LME prices specifically in the first half of 2011.

Raw materials and consumables expenses increased by 18%, or €324 million, to €2,161 million in 2011 from €1,837 million in 2010. This represents a 10% increase in cost of goods sold per ton to €2,043 per ton in 2011 from €1,850 in 2010.

Inflationary factors also contributed to the overall increase in raw materials as energy costs increased by 26% to €139 million in 2011 and repairs and maintenance costs by 7% or €6 million to €98 million in 2011. These increases were partly offset by the impact of cost reduction initiatives.

Gross profit margin improved to 9% for the year ended December 31, 2011 from 8% for the year ended December 31, 2010 primarily due to increases in volumes sold and increases in selling prices as we saw a general recovery in our end-markets. We also encountered productivity gains and the realization of cost savings which offset the negative impact of timing differences in LME price movements and the transfers out of inventory, which had a negative impact of €12 million.

Our gross profit margin was improved by these timing differences, or the metal price lag impact, as we encountered a €47 million positive impact in 2010. This positive impact was marginally offset by the ongoing labor negotiations at Ravenswood where a settlement was reached in August 2010 and €8 million costs were incurred in relation thereto.

Selling and Administrative Expenses

Selling and administrative expenses increased by 14%, or €26 million, to €216 million for the year ended December 31, 2011 from €190 million for the year ended December 31, 2010. Prior to the Acquisition, €17 million of general corporate expense allocations were allocated by the previous owner based on a combination of average headcount and capital employed. Post-Acquisition, as we transitioned to operating as a standalone group, we have incurred expenses in relation to the establishment of new central corporate functions as well as increased consulting fees associated with the set up of these functions. These costs represent €21 million in the year ended December 31, 2011.

Research and Development Expenses

Research and development expenses decreased by 38%, or €20 million, to €33 million for the year ended December 31, 2011 from €53 million for the year ended December 31, 2010. Research and development

 

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expenses incurred prior to the winning of a new project or launch of a new product have decreased due to management’s ongoing cost optimization measures implemented during 2010 and throughout 2011. Research and development expenses in the year ended December 31, 2010 also contained the expenses of the Predecessor’s facility in Neuhausen, which was not part of the Acquisition. Research and development expenses in the year ended December 31, 2011 amounted to €39 million net of a tax research credit of €6 million. Research and development expenses related to various projects, primarily in the A&T segment of €13 million and the P&ARP segment of €11 million.

Restructuring Costs

Restructuring expenses increased by 233%, or €14 million, to €20 million for the year ended December 31, 2011 from €6 million for the year ended December 31, 2010. The 2011 costs were related to restructuring programs put in place at the Ham and Singen facilities amounting to €14 million and €3 million, respectively, and at the corporate level amounting to €3 million. In 2010, restructuring costs were lower due to certain historical restructuring programs coming to completion.

Impairment Charges

No impairment charges were incurred in the year ended December 31, 2011 compared with €224 million for the year ended December 31, 2010. The impairment charges in 2010 relate to property, plant and equipment write-downs of €216 million, comprising €106 million in machinery and equipment, €54 million in land and buildings and €56 million in construction work in progress and an €8 million write-down to intangible assets recognized in the A&T operating segment.

Other Losses—Net

 

(in millions of Euros)

   Year ended
December 31,
2010
    Year ended
December 31,
2011
 

Realized gains on derivatives

     —         31   

Unrealized losses on derivatives at fair value through profit and loss – net

     (31     (144

Unrealized exchange gain/(losses) from the remeasurement of monetary assets and liabilities – net

     (7     4   

Other – net

     21        (2
  

 

 

   

 

 

 

Total other losses – net

     (17     (111
  

 

 

   

 

 

 

Other losses (net) were €111 million for the year ended December 31, 2011 compared with other losses (net) of €17 million for the year ended December 31, 2010. In the year ended December 31, 2011, we have entered into financial instruments with the purpose of minimizing our exposure to currency and metal price volatility. In 2011, we incurred €144 million of unrealized net losses on derivative instruments at fair value through profit and loss in comparison to €31 million in the year ended December 31, 2010 as a result of derivatives entered into to minimize exposure to foreign currency volatility on multiple year contracts and LME futures for aluminum spot price volatility. Offsetting this is €31 million of realized gains on derivatives on metal and foreign exchanges in the year ended December 31, 2011.

Other Expenses

In the year ended December 31, 2011, we recorded acquisition costs of €102 million in relation to the Acquisition and the costs of the transaction itself as well as costs of separation. These are exceptional non-recurring costs.

 

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Finance Costs (Net)

Finance costs (net) of €39 million were incurred in the year ended December 31, 2011, which represents an increase from €7 million for the year ended December 31, 2010. The increase is mainly attributed to the €31 million of interest expense on the Shareholder Loan and credit facilities and the factoring arrangements put in place at the time of the Acquisition to provide financing for Constellium.

Income Tax

An income tax benefit of €34 million was recognized for the year ended December 31, 2011, which represents a decrease from the income tax benefit of €44 million in December 31, 2010. The effective rate of tax was 17% in the two years ended December 31, 2010 and 2011.

Loss for the Year from Continuing Operations

Loss for the year from continuing operations decreased by 21%, or €43 million, to a loss of €166 million for the year ended December 31, 2011 from a loss of €209 million for the year ended December 31, 2010. The decrease is attributable to a reduction in impairment charges from €224 million to zero, offset by costs of Acquisition and separation and unrealized losses associated with derivatives in 2011.

Discontinued Operations

Losses from discontinued operations of €8 million were incurred in the year ended December 31, 2011, compared to an income of €2 million for the year ended December 31, 2010. This is attributable to restructuring and separation costs related to the disposal of the AIN business in 2011.

Segment Revenue

The following table sets forth the revenues for our operating segments for the periods presented:

 

    Predecessor combined
for  the year ended
December 31,
        Successor consolidated
for the year ended
December 31,
    Successor for the six months
ended June 30,
 
                    2010                           2011             2012                     2012                     2013          
    (millions of € and as a % of revenue) (Unaudited)  

A&T

    810        27         1,016        28     1,182        33     634        33     614        34

P&ARP

    1,373        46         1,625        46     1,554        43     809        42     789        43

AS&I

    754        26         910        26     861        24     456        24     422        23

Holdings and corporate

    20        1         5        —         13        —         12        1     2        —     
 

 

 

   

 

 

       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues from continuing operations

    2,957        100         3,556        100     3,610        100     1,911        100     1,827        100
 

 

 

   

 

 

     

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

A&T. Revenues in our A&T segment decreased by 3% or €20 million, to €614 million for the six months ended June 30, 2013 compared to €634 million for the six months ended June 30, 2012. Our volumes increased slightly by 3% or 3kt, to 122kt for the six months ended June 30, 2013 from 119 kt for the six months ended June 30, 2012. Shipments to our customers in our aerospace industry from our Issoire plant increased in the six months ended June 30, 2013, although shipments decreased in respect of alloys. The second quarter of the year saw a planned maintenance program at Ravenswood impact production negatively. Pricing remained relatively stable in relation to our Aerospace applications but declined in other applications as a result of the negative mix achieved in the U.S. coil business.

Revenues in our A&T segment increased by 16%, or €166 million, to €1,182 million for the year ended December 31, 2012 compared to €1,016 million for the year ended December 31, 2011.

 

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Our volumes increased by 4%, or 8kt, to 224kt for the year ended December 31, 2012 from 216 kt for the year ended December 31, 2011. Our volume increases can be attributed to increased aerospace demand produced at our Ravenswood facility and achievable due to our increased capacity following the operational turnaround of the facility. Offsetting this is a general softening of our transportation volumes, specifically in automotive products as the sector has suffered from oversupply in all geographic regions.

Revenues per ton increased by 12%, or €574 per ton, to €5,278 per ton for the year ended December 31, 2012 from €4,704 per ton for the year ended December 31, 2011. This was driven by improved pricing mix, new products and a stronger U.S. dollar and a better product mix, especially in aerospace although these positive factors are partially offset by lower aluminum prices and the lowered production capacity at Ravenswood while the CBA was being renegotiated.

Revenues in our A&T segment increased by 25%, or €206 million, to €1,016 million for the year ended December 31, 2011 from €810 million for the year ended December 31, 2010. This increase was primarily due to an increase in volumes combined with higher selling prices. 2011 volumes increased by 11% resulting in an increase in revenues of approximately €99 million. This increase is mainly attributable to an increase in our Aerospace business as a result of higher demand from our main aerospace customers. An increase in the selling prices contributed to revenue per ton increasing by 13% year over year, from €4,154 per ton in 2010 to €4,704 per ton in 2011. This is primarily attributed to a favorable mix of products sold and higher aluminum prices.

P&ARP. Revenues in our P&ARP segment decreased by 2% or €20 million, to €789 million for the six months ended June 30, 2013 from €809 million for the six months ended June 30, 2012. As volumes were constant at 312kt for the six months ended June 30, 2013, from 313kt for the six months ended June 30, 2012, the driver of revenue decreasing was falling LME prices.

Revenues in our P&ARP segment decreased by 4%, or €71 million, to €1,554 million for the year ended December 31, 2012 from €1,625 million for the year ended December 31, 2011. This decrease is the result of a marginal decrease of volumes by 2% to 606 kt for the year ended December 31, 2012, from 621 kt for the year ended December 31, 2011. Decreases in LME prices contributed to a marginal decrease of 2% in our prices to revenues per ton of €2,566 in 2012.

Volumes in our rigid packaging segment were stable over the year but our Automotive & Customized Solutions decreased marginally due to weak demand in the construction market. This was partially offset by a better product mix with volumes increasing in some of our higher value added product lines as our food can volumes increased by 11% compared to the year ended December 31, 2011 and improving margins.

Revenues in our P&ARP segment increased by 18% or €252 million to €1,625 million for the year ended December 31, 2011 from €1,373 million for the year ended December 31, 2010. Our volumes increased in addition to higher selling prices being attained. Increased volumes of 6% contributed to an increase in revenues of approximately €86 million and were due to record shipment volumes driven by increased demand in the can stock market in Europe, the winning of additional long-term contracts and favorable market conditions for most of the year. An increase in selling prices contributed to an increase in revenues per ton of 12% to €2,617 revenue per ton in 2011.

AS&I. Revenues in our AS&I segment decreased by 7% or €34 million, to €422 million for the six months ended June 30, 2013 from €456 million in the six months ended June 30, 2012. Our segment volumes decreased by 8% to 101kt for the six months ended June 30, 2013 from 110kt for the six months ended June 30, 2012. If volumes are adjusted to reflect the disposal of our two soft alloy plants in France, shipment volumes were in line with the same period in the prior year. Our automotive structures business remained strong, with an increase in volumes of 11% from the equivalent period in the prior year; offset by lower soft alloy volumes mainly on depressed building and solar markets.

 

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Revenues in our AS&I segment decreased by 5%, or €49 million, to €861 million for the year ended December 31, 2012 from €910 million in the year ended December 31, 2011. Our segment volume decreased by 6% to 206 kt for the year December 31, 2012 from 219kt for the year ended December 31, 2011 as our Soft Alloys products suffered from continued slowdowns in the construction industry specifically in France. This was partially offset by increased demand in Europe, North America and China for automotive products leading to a 19% increase in volumes shipped in our Automotive Structures.

Revenues per ton remained stable at €4,180 per ton for the year ended December 31, 2012, compared to €4,155 per ton for the year ended December 31, 2011 due to a more advantageous product mix associated with better conversion prices for our higher value added products. The impact of foreign exchange rates volatility on AS&I revenues was minimal and instead revenues continued to be impacted by aluminum prices which decreased by 13% over the period.

Revenues in our AS&I segment increased by 21% or €156 million to €910 million for the year ended December 31, 2011 from €754 million in the year ended December 31, 2010. This increase was primarily due to an increase in volumes combined with higher selling prices. Volumes increased by 3% resulting in an increase in revenues of approximately €29 million. This increase is primarily attributed to an increase in shipment volumes as a result of the ongoing strength in the hard alloy and rail markets and automotive sales in Germany. This was offset by weaker building and construction markets in France. Selling prices contributed to an increase in revenue per ton of 17% year over year, from €3,557 per ton in 2010 to €4,155 per ton in 2011. This was primarily attributed to a favorable mix of products sold and higher aluminum prices.

Holdings and Corporate. Revenues in our Holdings and Corporate segment decreased by €10 million to €2 million for the six months ended June 30, 2013 from €12 million in the six months ended June 30, 2012 due to a reduction in revenues generated from our forging business.

Revenues in our Holdings and Corporate segment increased by €8 million, to €13 million for the year ended December 31, 2012 from €5 million in the year ended December 31, 2011. Included in our Intersegment revenues are revenues generated from our forging businesses.

Revenues in our Holdings and Corporate segment decreased 75% or €15 million, to €5 million for the year ended December 31, 2011 from €20 million in the year ended December 31, 2010.

Key Performance Indicators

In considering the financial performance of the business, management analyzes the primary financial performance measure of Management Adjusted EBITDA in all of our business segments and Adjusted EBITDA as defined and required under the covenants contained in our financing facilities. Management Adjusted EBITDA and Adjusted EBITDA are not measures defined by IFRS. The most directly comparable IFRS measure to Management Adjusted EBITDA and Adjusted EBITDA is our profit or loss for the relevant period.

We believe Management Adjusted EBITDA and Adjusted EBITDA, as defined below, are useful to investors as they exclude items which do not impact our day-to-day operations and which management in many cases does not directly control or influence. Similar concepts of adjusted EBITDA are frequently used by securities analysts, investors and other interested parties in their evaluation of our company and in comparison to other companies, many of which present an adjusted EBITDA-related performance measure when reporting their results.

Management Adjusted EBITDA is defined as profit for the period from continuing operations before results from joint venture, net financial expenses, income taxes and depreciation, amortization and impairment as adjusted to exclude losses on disposal of property, plant and equipment, acquisition and separation costs, restructuring costs and unrealized gains or losses on derivatives and on foreign exchange differences.

 

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Adjusted EBITDA is defined as Management Adjusted EBITDA further adjusted for favorable (unfavorable) metal price lag, exceptional consulting costs, effects of purchase accounting adjustment, standalone costs and Apollo management fees, application of our post-Acquisition hedging policy, gain on forgiveness of related party loan, and exceptional employee bonuses in relation to cost saving implementation and targets.

Management Adjusted EBITDA and Adjusted EBITDA have limitations as analytical tools. They are not recognized terms under IFRS and therefore do not purport to be an alternative to operating profit as a measure of operating performance or to cash flows from operating activities as a measure of liquidity.

Management Adjusted EBITDA and Adjusted EBITDA are not necessarily comparable to similarly titled measures used by other companies. As a result, you should not consider these performance measures in isolation from, or as a substitute analysis for, our results of operations.

Management Adjusted EBITDA

The following tables show Constellium’s combined and consolidated Management Adjusted EBITDA for the years ended December 31, 2010, 2011 and 2012 and the six months ended June 30, 2013 and 2012:

 

    Predecessor
for the year ended
December 31,
        Successor
for the year ended
December 31,
    Successor
for the six months ended
June 30,
 
                2010                       2011     2012                 2012                          2013      
    (millions of € and as a % of segment revenue)    

(unaudited)

 

A&T

    35        4         26        3     92        8     56         9     65         11

P&ARP

    74        5         63        4     80        5     41         5     43         5

AS&I

    (4     (1 %)          20        2     40        5     23         5     27         6

Holdings and corporate

    (47     (235 %)          (6     (120 %)      (9     (69 %)      9         75     2         100
 

 

 

   

 

 

       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total Management Adjusted EBITDA

    58        2         103        3     203        6     129         7     137         7