Exhibit 99.2

 

Risks Related to Our Business

Widespread public health pandemics, including COVID-19, have had and could continue to have a material and adverse effect on our business, financial condition and results of operations.

Any public health pandemic and other disease outbreaks in countries where we, our customers or our suppliers operate have had and could continue to have a material and adverse effect on our business, financial conditions and results of operations. COVID-19 has affected our operations globally. As a result of this pandemic and resulting disruption in our customers’ production and operations, our sales have been negatively affected, which has adversely impacted our revenues and operating margins. We have adjusted operating levels at our manufacturing sites, including implementing temporary workforce reductions and other cost cutting measures, to match the demand from our customers. We cannot predict when all of our manufacturing sites will return to pre-COVID-19 levels, any conditions that may need to be implemented to facilitate a return to normal operations, and the effects and costs associated with any such conditions and changes to operating levels. Our operating results and financial condition may also be materially adversely affected by laws, regulations, orders or other governmental or regulatory actions addressing the current COVID-19 pandemic, or any future outbreaks, that place restrictions on, or require us to make changes to, our operations.

With respect to our suppliers, disruptions resulting from the COVID-19 pandemic has resulted and may result in cancelations or delays and increased transport times for delivery of materials to our facilities, which may affect our ability to timely manufacture and ship our products to customers. If such difficulties arise, we may need to seek alternate suppliers, which may be more expensive, may not be available or may result in delays in shipments to us and subsequently to our customers. Alternatively, suppliers may require that we take metal in excess of our needs based on our reduced operating rates, which could negatively affect our financial position. Decreases in our operating levels may also impact our hedging strategy which could adversely impact our financial results.

The nature and extent of COVID-19’s continuing impact on the global economy, our business, financial conditions and results of operations is beyond our control, and depends on various uncertain factors, including the duration and severity of the outbreak and the possibility of new outbreaks, the ability to develop a vaccine or other preventative measures, and the actions to contain or treat its impact, including quarantine orders, business restrictions and closures and other similar restrictions and limitations. The foregoing and other continued disruptions to our business as a result of the COVID-19 pandemic, as well as any global recession resulting from the impact of COVID-19, could materially adversely affect our business, financial condition and results of operations. As a result of the foregoing, we may need to raise additional capital in the future, however, there is no guarantee that financings will be available in the future to fund our obligations. Furthermore, the COVID-19 pandemic could heighten the risks summarized in certain of the other risk factors contained in our current Annual Report on Form 20-F, which is incorporated into this offering memorandum by reference.

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 unaudited condensed interim consolidated financial statements as of September 30, 2020 and for the nine months ended September 30, 2020 and 2019, which appear elsewhere in this offering memorandum. The following discussion is to be read in conjunction with the sections of our Annual Report on Form 20-F, which are incorporated by reference in this offering memorandum and our unaudited condensed interim consolidated financial statements and the notes thereto, which appear elsewhere in this offering memorandum.

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 offering memorandum. See in particular “Important Information and Cautionary Statement Regarding Forward-Looking Statements” and “Risk Factors.”

Company Overview

We are a global leader in the development, manufacture and sale of a broad range of highly engineered, value-added specialty rolled and extruded aluminium products to the packaging, aerospace, automotive, other transportation and industrial end-markets. As of September 30, 2020, we had approximately 12,000 employees, 28 production facilities, three administrative centers, and three R&D centers.

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 three segments to better serve our customer base.

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

Our Packaging & Automotive Rolled Products segment produces aluminium sheet and coils.

Approximately 78% of segment volume for the nine months ended September 30, 2020 was packaging rolled products, which primarily includes beverage and food can stock as well as closure stock and foil stock. Approximately 19% of the segment volume for this period was automotive rolled products and the balance of the segment volume was specialty and other thin-rolled products. Our Packaging & Automotive Rolled Products segment accounted for 54% of revenue and 59%¹ of Adjusted EBITDA for the nine months ended September 30, 2020.

Aerospace & Transportation Segment (“A&T”)

Our Aerospace & Transportation segment has market leadership positions in technologically advanced aluminium and specialty materials products with applications across the global aerospace, defense, transportation, and industrial sectors. We offer a wide range of products, including plate and sheet. Approximately 46% of the segment volume for the nine months ended September 30, 2020 was aerospace rolled products and approximately 54% was transportation, industry, defense and other rolled products. Our Aerospace & Transportation segment accounted for 22% of revenue and 26%¹ of Adjusted EBITDA for the nine months ended September 30, 2020.

 

1	The difference between the sum of reported segment Adjusted EBITDA and the Group Adjusted EBITDA is related to our Holdings and Corporate segment.

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

Our Automotive Structures & Industry segment produces technologically advanced structures for the automotive industry, (including crash management systems, body structures, side impact beams and battery enclosures), soft and hard alloy extrusions and large extruded profiles for automotive, railroad, energy, building and industrial applications. Approximately 46% of the segment volume for the nine months ended September 30, 2020 was automotive extruded products and approximately 54% was other extruded products. Our Automotive Structures & Industry segment accounted for 24% of revenue and 19%¹ of Adjusted EBITDA for the nine months ended September 30, 2020.

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

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

Economic Conditions and Markets

We are directly impacted by the economic conditions that affect our customers and the markets in which they operate. General economic conditions 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 prices 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.

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 resilient to these economic cycles in each of our three main end-markets of packaging, aerospace and automotive:

 

•

Can packaging tends not to be highly correlated to the general economic cycle. In addition, we believe canstock has an attractive long-term growth outlook due to ongoing trends in (i) customer preference for aluminium cans and increased focus on sustainability and (ii) increasing penetration of aluminium in canstock at the expense of tinplate in Europe.

 

1	The difference between the sum of reported segment Adjusted EBITDA and the Group Adjusted EBITDA is related to our Holdings and Corporate segment.

 

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•

We believe that the aerospace industry benefits from a combination of long-term growth drivers. These drivers include increasing passenger traffic and the fleet replacement towards newer and more fuel efficient aircrafts.

 

•

Although the automotive industry is a cyclical industry, its demand for aluminium has been increasing in recent years. This has been triggered by a light-weighting trend for new car models and electric vehicles, which drives substitution of heavier metals in favor of aluminium.

Impact of COVID-19

The outbreak of COVID-19 and measures to prevent its spread began to impact customer demand in Europe and in North America during March. Automotive OEMs in both North America and Europe curtailed their operations starting in mid-March and subsequently resumed production in late May or June. Aerospace OEMs reduced their build rates, which remained at depressed levels through 2020. In contrast, demand from our packaging customers has not been significantly impacted by the pandemic. Despite increases in infection rates in the fourth quarter of 2020, demand from our customers remained in line with our expectations and relatively consistent with the third quarter of 2020.

Across our segments, many of our relationships with our customers are governed by requirements contracts (that is, the quantities of materials we supply is based on our customers’ needs), such that reduced production by our customers has a direct impact on our revenues. As demand for our products and our resulting production levels declined, our operating margins were adversely impacted.

As our customers reduced or delayed production, we adjusted operating levels at the relevant manufacturing sites. Our plants have substantially adjusted to current levels of demand, and our employment levels have largely stabilized. Our packaging and automotive plants are running at high production levels. Our aerospace operations continue to run at levels far below the prior year. While the situation remains fluid, we continue to monitor the impact of the pandemic and anticipate continued temporary reductions in operating levels at some of our manufacturing facilities, particularly those focused on our aerospace customers.

Employee Safety

We are committed to ensuring the safety of our employees and have implemented a number of measures at our manufacturing sites to promote the well-being of employees, their families and the local community, including actions taken in response to governmental requirements.

Liquidity and Financial Condition

In response to the COVID-19 crisis, Constellium increased liquidity to €1,018 million at September 30, 2020, including adding a $166 million fully-committed Delayed-Draw Term Loan facility, €180 million in loans under the PGE French Facility and an uncommitted CHF 20 million loan under the Swiss Facilities. During the third quarter of 2020, we obtained €50 million in additional liquidity, through government-sponsored borrowing programs in Germany.

Mitigating Actions

We have taken a number of actions to offset the adverse financial impacts of the COVID-19 pandemic.

 

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These include:

 

•

reducing input purchases and discretionary spending, including through a committee approval process;

 

•

reducing labor costs, including through the use of partial time unemployment schemes, temporary layoffs and furloughs;

 

•

managing trade working capital;

 

•

targeted capital spending of €175 million in 2020 (down €96 million compared to 2019); and

 

•

utilizing governmental aid programs where available.

Management remains confident in its ability to navigate through this global crisis. The Company continues to evaluate the impact that this global pandemic may have on its future results of operations, cash flows, financial position and liquidity, and the foregoing preliminary views are based on currently available information. See “Risk Factors—Risks Related to Our Business—Widespread public health pandemics, including COVID-19, could materially adversely affect our business, financial condition and results of operations” for additional information regarding the potential effects of COVID-19.

Aluminium Consumption

The aluminium industry is cyclical and is affected by global economic conditions, industry competition and product development. Aluminium is increasingly seen as the material of choice in a number of applications, including packaging, aerospace and automotive. Aluminium 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.

Aluminium is also unique in that it recycles repeatedly without any material decline in performance or quality. The recycling of aluminium delivers energy and capital investment savings relative to the cost of producing both primary aluminium and many other competing materials. Due to these qualities, the penetration of aluminium into a wide variety of applications continues to increase. We believe that long-term growth in aluminium consumption generally, and demand for those products we produce specifically, will be supported by factors that include growing populations, greater purchasing power and increasing focus on sustainability and environmental issues.

Aluminium Prices

Aluminium prices are determined by worldwide forces of supply and demand and, as a result they are volatile. We operate a pass-through model and therefore, to the extent possible minimize aluminium price risk. Significant sustained increases in the price of aluminium, however, may over time affect the demand for our products.

The price we pay for aluminium includes regional premiums, such as the Rotterdam premium for metal purchased in Europe or the Midwest premium for metal purchased in the U.S. The regional premiums, which had historically been fairly stable, have been more volatile in recent years. Although our business model seeks to minimize the impact of aluminium price fluctuations on our cash flows, we are not always able to pass through the cost of regional premiums to our customers or adequately hedge the impact of regional premium differentials.

 

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We believe our cash flows are largely protected from variations in LME prices due to the fact that we hedge our sales based on their replacement cost, by matching the price paid for our aluminium purchases with the price received from our aluminium sales, at a given time, using hedges when necessary. As a result, when LME prices increase, we have limited additional cash requirements to finance the increased replacement cost of our inventory.

The average LME transaction price, Midwest Premium and Rotterdam Premium per ton of primary aluminium in the nine months ended September 30, 2020 and 2019 are presented below:

 

		For the nine months ended September 30,								% Change
(€ per ton)		2020				2019
Average LME transaction price			1,452				1,605				(10	)%
Average Midwest Premium			239				367				(35	)%
Average all-in aluminium price U.S.			1,691				1,972				(14	)%
Average LME transaction price			1,452				1,605				(10	)%
Average Rotterdam Premium			110				128				(14	)%
Average all-in aluminium price Europe			1,562				1,733				(10	)%

Product Price and Margin

Our products are typically priced based on three components: (i) LME, (ii) regional premiums and (iii) a conversion margin. We seek to minimize the impact of aluminium price fluctuations in order to protect our cash flows against the LME and regional premium price fluctuations with the following methods:

 

•

In cases where we are able to align the price and quantity of physical aluminium purchases with that of physical aluminium sales to customers, we enter back-to-back arrangements with our customers.

 

•

However, when we are unable to align the price and quantity of physical aluminium purchases with that of physical aluminium sales to our customers, 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 aluminium we process is owned by our customers and we bear no aluminium price risk.

Our risk management practices aim to reduce, but do not entirely eliminate, our exposure to changing primary aluminium and regional premium prices. Moreover, while we limit our exposure to unfavorable price changes, we also limit our ability to benefit from favorable price changes. As we do not apply hedge accounting for the derivative instruments entered into to hedge our exposure to changes in metal prices, mark-to-market movements for these instruments are recognized in “Other (losses)/gains—net.”

 

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Our results are also impacted by differences between changes in the prices of primary and scrap aluminium. As we price our product using the prevailing price of primary aluminium but purchase large amounts of scrap aluminium to manufacture our products, we benefit when primary aluminium price increases exceed scrap price increases. Conversely, when scrap price increases exceed primary aluminium price increases, our results are negatively impacted. The difference between the price of primary aluminium 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.

The conversion margin is the margin we earn over the cost of our metal inputs. We seek to maximize our conversion margins based on the value-added product capabilities we provide and the supply/demand dynamics in the market.

Volumes

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

Personnel Costs

Our operations are labor intensive and, as a result, our personnel costs represent 20% and 18% of our cost of sales, selling and administrative expenses and R&D expenses for the nine months ended September 30, 2020 and 2019, 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 the summer months, we have historically increased our temporary workforce to compensate for staff on vacation and increased volume of activity.

Currency

We are a global company with operations in France, the United States, Germany, Switzerland, the Czech Republic, Slovakia, Mexico, Canada, Spain and China. As a result, our revenue and earnings have exposure to a number of currencies, primarily the euro, the U.S. dollar and the Swiss Franc. As our presentation currency is the euro, and the functional currencies of the businesses located outside of the Eurozone are primarily the U.S. dollar and the Swiss franc, the results of the businesses located outside of the Eurozone must be translated each period to euros. Accordingly, fluctuations in the exchange rate of the functional currencies of our businesses located outside of the Eurozone against the euro impacts our results of operations.

We engage in significant hedging activity to attempt to mitigate the effects of foreign transaction currency fluctuations on our profitability. Transaction impacts arise when our businesses transact in a currency other than their own functional currency. As a result, we are exposed to foreign exchange risk on payments and receipts in multiple currencies. In Europe, a portion of our revenue are denominated in U.S. dollars while the majority of our costs incurred are denominated in local currencies. Where we have multiple-year sale agreements for the sale of

 

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fabricated metal products in U.S. dollars by euro-functional currency entities, we have entered into derivative contracts to forward sell U.S. dollars to match these future sales. With the exception of certain derivative instruments entered into to hedge the foreign currency risk associated with the cash flows of certain highly probable forecasted sales, which we have designated for hedge accounting, hedge accounting is not applied to such ongoing commercial transactions and therefore the mark-to-market impact is recorded in “Other gains/(losses)—net”.

Results of Operations for the nine months ended September 30, 2020 and 2019

 

		For the nine months ended September 30,
		2020								2019
		(€ in millions and as a % of revenues)
						%								%
Revenue			3,640				100	%			4,535				100	%
Cost of sales			(3,298	)			91	%			(4,064	)			90	%
Gross profit			342				9	%			471				10	%
Selling and administrative expenses			(178	)			5	%			(204	)			4	%
Research and development expenses			(29	)			1	%			(36	)			1	%
Restructuring			(13	)			0	%			(2	)			0	%
Other gains / (losses), net			(53	)			1	%			(29	)			1	%
Income from operations			69				2	%			200				4	%
Finance costs, net			(124	)			3	%			(135	)			3	%
Share of income of joint ventures			—				—				5				—
Income before income taxes			(55	)			2	%			70				2	%
Income tax benefit / (expense)			12				0	%			(28	)			1	%
Net income			(43	)			1	%			42				1	%
Shipment volumes (in kt)			1,057								1,221
Revenue per ton (€ per ton)			3,444								3,714

 

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Revenue

Revenue of €3,640 million for the nine months ended September 30, 2020 decreased by 20%, or €895 million, from €4,535 million for the nine months ended September 30, 2019 primarily due to lower shipments and lower metal prices partially offset by improved prices and mix. Sales volumes decreased by 14%, or 164 kt, to 1,057 kt for the nine months ended September 30, 2020 from 1,221 kt for the nine months ended September 30, 2019 due to lower shipments in all three segments.

Average sales price decreased by €270 per ton, from €3,714 to €3,444 reflecting lower metal prices.

Our revenue is discussed in more detail in the “—Segment Results” section.

Cost of Sales

Cost of sales decreased by 19%, or €766 million, to €3,298 million for the nine months ended September 30, 2020, from €4,064 million for the nine months ended September 30, 2019. This decrease primarily reflects a €642 million decrease in the total cost of raw material and consumables resulting from lower shipments and lower metal prices.

Selling and Administrative Expenses

Selling and administrative expenses decreased by €26 million to €178 million for the nine months ended September 30, 2020, compared to €204 million for the nine months ended September 30, 2019. The decrease reflected primarily the cost reduction initiatives implemented in response to the COVID-19 pandemic with the reduction in employee benefit expenses by €19 million and in professional fees by €10 million.

Research and Development Expenses

Research and development expenses decreased by €7 million, to €29 million in the nine months ended September 30, 2020, from €36 million in the nine months ended September 30, 2019. Research and development expenses are presented net of €9 million of research and development tax credits received in France for each of the nine- month periods ended September 30, 2020 and 2019. Research and development expenses, excluding tax credits received were €14 million for P&ARP, €11 million for A&T, €11 million for AS&I and €2 million for Holdings and Corporate (“H&C”) segments in the nine months ended September 30, 2020.

Research and development expenses, excluding tax credits received were €16 million for P&ARP, €15 million for A&T, €13 million for AS&I and €1 million for Holdings and Corporate (“H&C”) segments in the nine months ended September 30, 2019.

Restructuring

In the nine months ended September 30, 2020, restructuring costs amounted to €13 million and were primarily related to restructuring plans in the U.S. and in Europe.

 

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Other gains / (losses)—Net

 

		For the nine months ended September 30,
(€ in millions)		2020				2019
Realized losses on derivatives			(43	)			(39	)
Losses reclassified from OCI as a result of hedge accounting discontinuation			(5	)			—
Unrealized (losses) / gains on derivatives at fair value through profit and loss—net			(1	)			13
Unrealized exchange gains from remeasurement of monetary liabilities—net			1				—
Losses on pension plan amendments			(2	)			(1	)
Losses on disposal			(2	)			(2	)
Other—net			(1	)			—
Total other losses—net			(53	)			(29	)

Other losses—net amounted to €53 million for the nine months ended September 30, 2020 compared to losses of €29 million for the nine months ended September 30, 2019.

The company uses financial derivatives to hedge underlying commercial transactions. The realized losses recognized in Other gains / (losses)—net are offset by the commercial transactions accounted for in Cost of sales. In the nine months ended September 30, 2020, realized losses recognized upon the settlement of derivative instruments amounted to €43 million all of which were attributable to realized losses on metal derivatives. In the nine months ended September 30, 2019, realized losses recognized upon the settlement of derivative instruments amounted to €39 million of which realized losses on metal derivatives were €45 million and realized gains on foreign exchange derivatives were €6 million.

The Company uses financial derivatives to also hedge forecasted commercial transactions. These unrealized gains / (losses) recognized in Other gains / (losses)—net are offset by the change in the value of forecasted transactions which are not yet accounted for. Unrealized losses on derivative instruments amounted to €1 million in the nine months ended September 30, 2020 and were comprised of gains of €10 million related to metal derivatives and of losses of €11 million relating to foreign exchange derivatives. Unrealized gains on derivative instruments amounted to €13 million in the nine months ended September 30, 2019 and were comprised of a gain of €8 million related to metal derivatives and a gain of €5 million related to foreign exchange derivatives.

In addition, in the second quarter of 2020, we determined that a portion of the hedged forecasted sales for the remainder of 2020 and for 2021, to which hedge accounting is applied, was no longer expected to occur. As a result, the fair value of the related derivatives accumulated in equity was reclassified to the income statement and resulted in a €5 million loss.

 

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Finance Costs—net

Finance costs—net amounted to €124 million in the nine months ended September 30, 2020 compared to €135 million for the nine months ended September 30, 2019. This decrease was primarily driven by a decrease in factoring fees by €7 million and in interest on borrowings by €5 million.

In the nine months ended September 30, 2020, foreign exchange net gains from the revaluation of the portion of our U.S. dollar-denominated debt held by Euro functional currency entities amounted to €16 million and were offset by €16 million of losses on derivative instruments entered into to hedge this exposure.

In the nine months ended September 30, 2019, foreign exchange net losses from the revaluation of the portion of our U.S. dollar-denominated debt held by euro functional currency entities amounted to €15 million and were offset by €21 million of gains on derivative instruments entered into to hedge this exposure.

Income Tax

Income tax benefit for the nine months ended September 30, 2020 amounted to €12 million compared to an expense of €28 million for the nine months ended September 30, 2019.

Our effective tax rate represented 21% of our loss before income tax for the nine months ended September 30, 2020 and 40% of our income before tax for the nine months ended September 30, 2019.

Our projected blended statutory tax rate increased to 37% in the nine months ended September 30, 2020 from 28% for the nine months ended September 30, 2019 as a result of changes in the geographical mix of our pre-tax results.

The effective tax rate for the nine months ended September 30, 2020 applies to a pre-tax loss of €55 million and is lower than our projected blended statutory tax rate primarily as a result of the impact of discrete items.

Net Loss / Income

As a result of the above factors, our net loss was €43 million in the nine months ended September 30, 2020 compared to a net income of €42 million in the nine months ended September 30, 2019.

 

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SEGMENT RESULTS

Segment Revenue

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

 

		For the nine months ended September 30,
		2020								2019
		(€ in millions and as a % of revenues)
						%								%
P&ARP			1,989				54	%			2,438				53	%
A&T			811				22	%			1,112				24	%
AS&I			868				24	%			1,027				22	%
Holdings and Corporate			—				0	%			—				0	%
Inter-segment eliminations			(28	)			—				(42	)			—
Total revenue			3,640				100	%			4,535				100	%

P&ARP. Revenue of €1,989 billion decreased 18%, or €449 million, compared to €2,438 million in the first nine months of 2019, primarily due to lower shipments and lower revenue per ton. P&ARP shipments of 748 kt decreased 11% or 94 kt, compared to the first nine months of 2019 due to lower shipments across packaging, automotive and specialty products. Revenue per ton decreased by 8% to €2,659 per ton in the nine months ended September 30, 2020 from €2,895 per ton in the nine months ended September 30, 2019, driven by lower metal prices.

A&T. Revenue of €811 million decreased 27%, or €301 million, compared to €1,112 million in the first nine months of 2019 due to lower shipments and lower metal prices, partially offset by improved price and mix. A&T shipments of 140 kt decreased 25%, or 46 kt, compared to the first nine months of 2019 due to lower shipments of aerospace and transportation, industry, defense and other products. Revenue per ton decreased by 3% to €5,793 per ton in the nine months ended September 30, 2020 from €5,978 per ton in the nine months ended September 30, 2019, primarily reflecting lower metal prices, partially offset by improved prices and product mix from Aerospace rolled products.

AS&I. Revenue of €868 million decreased 15%, or €159 million compared to €1,027 million in the first nine months of 2019 due to lower shipments and lower metal prices. AS&I shipments of 169 kt decreased 13%, or 24 kt, compared to the first nine months of 2019 on lower shipments of automotive and industry products. Revenue per ton decreased by 3% to €5,136 per ton in the nine months ended September 30, 2020 from €5,321 per ton in the nine months ended September 30, 2019, reflecting lower metal prices.

 

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Adjusted EBITDA

Adjusted EBITDA is not a measure defined by IFRS. We believe the most directly comparable IFRS measure to Adjusted EBITDA is our net income or loss for the relevant period.

In considering the financial performance of the business, management analyzes the primary financial performance measure of Adjusted EBITDA in all of our business segments. Our Chief Operating Decision Maker (“CODM”) measures the profitability and financial performance of our operating segments based on Adjusted EBITDA. Adjusted EBITDA is defined as income/(loss) from continuing operations before income taxes, results from joint ventures, net finance costs, other expenses and depreciation and amortization as adjusted to exclude restructuring costs, impairment charges, unrealized gains or losses on derivatives and on foreign exchange differences on transactions that do not qualify for hedge accounting, metal price lag, share-based compensation expense, effects of certain purchase accounting adjustments, start-up and development costs or acquisition, integration and separation costs, certain incremental costs and other exceptional, unusual or generally non-recurring items.

We believe Adjusted EBITDA, as defined above, is useful to investors as it illustrates the underlying performance of continuing operations by excluding non-recurring and non-operating items. 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.

Adjusted EBITDA has limitations as an analytical tool. It is not a measure defined by IFRS and therefore does not purport to be an alternative to operating profit or net income as a measure of operating performance or to cash flows from operating activities as a measure of liquidity. Adjusted EBITDA is not necessarily comparable to similarly titled measures used by other companies. As a result, you should not consider Adjusted EBITDA in isolation from, or as a substitute analysis for, our results prepared in accordance with IFRS.

The following table presents our consolidated Adjusted EBITDA for the nine months ended September 30, 2020 and 2019.

 

		For the nine months ended September 30,
		2020								2019
		(millions of € and as a % of segment revenues)
						%								%
P&ARP			209				11	%			210				9	%
A&T			93				11	%			159				14	%
AS&I			66				8	%			85				8	%
Holdings and Corporate			(14	)			n.m.	(1)			(13	)			n.m.
Total Adjusted EBITDA			354				10	%			441				10	%

 

(1)	Not meaningful.

 

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Total Adjusted EBITDA for the nine months ended September 30, 2020 was €354 million, a 20% or €87 million decrease compared to €441 million of total Adjusted EBITDA for the nine months ended September 30, 2019. This decrease reflected stable results in the P&ARP segment and weaker results in the Aerospace and Transportation and the Automotive Structures and Industry segments.

The following table presents the primary drivers for changes in Adjusted EBITDA for the nine months ended September 30, 2019 to the nine months ended September 30, 2020 for each one of our three business segments:

 

		P&ARP				A&T				AS&I
		(millions of €)
Adjusted EBITDA for the nine months ended September 30, 2019			210				159				85
Volume			(61	)			(112	)			(35	)
Price and product mix			3				18				(2	)
Costs			58				28				19
Foreign exchange and other			(1	)			—				(1	)
Adjusted EBITDA for the nine months ended September 30, 2020			209				93				66

P&ARP. For the first nine months of 2020, Adjusted EBITDA for our P&ARP segment of €209 million was comparable to the first nine months of 2019 due to lower shipments, offset by strong cost control. P&ARP shipments of 748 kt decreased 11% compared to the first nine months of 2019 due to lower shipments across packaging, automotive and specialty products. Adjusted EBITDA per metric ton increased by 12% to €280 for the nine months ended September 30, 2020 from €250 for the nine months ended September 30, 2019.

A&T. For the first nine months of 2020, Adjusted EBITDA for our A&T segment of €93 million decreased 41% from €159 million in the first nine months of 2019 primarily due to lower shipments, partially offset by strong cost control and improved price and mix. A&T shipments of 140 kt decreased 25% compared to the first nine months of 2019 due to lower shipments of aerospace and transportation, industry, defense and other rolled products. Adjusted EBITDA per metric ton decreased by 22% to €666 from €854 in the same period of 2019.

AS&I. For the first nine months of 2020, Adjusted EBITDA for our AS&I segment of €66 million decreased 23% compared to the first nine months of 2019 primarily due to lower shipments, partially offset by strong cost control. AS&I shipments of 169 kt decreased 13% compared to the first nine months of 2019 as a result of lower shipments of automotive and industry products. Adjusted EBITDA per metric ton decreased 11% to €389 from €439 in the same period of 2019.

Holdings and Corporate. Our Holdings and Corporate segment generated Adjusted EBITDA losses of €14 million and €13 million for the nine-months ended September 30, 2020 and 2019, respectively.

 

-13-

The following table reconciles our net loss or income for each of the nine months ended September 30, 2020 and 2019 to our Adjusted EBITDA for the periods presented:

 

		For the nine months ended September 30,
(€ in millions)		2020				2019
Net (loss) / income			(43	)			42
Tax (income) / expense			(12	)			28
Finance costs—net			124				135
Share of income of joint ventures			—				(5	)
Depreciation and amortization			196				183
Impairment			14				—
Restructuring costs			13				2
Unrealized losses / (gains) on derivatives			1				(13	)
Unrealized exchange losses / (gains) from remeasurement of monetary assets and liabilities—net			(1	)			—
Losses on pension plan amendments			2				1
Share based compensation			11				12
Metal price lag(a)			33				40
Start-up and development costs(b)			5				8
Bowling Green one-time costs related to the acquisition(c)			—				6
Losses on disposal			2				2
Other(d)			9				—
Adjusted EBITDA			354				441

 

(a)

Metal price lag represents the financial impact of the timing difference between when aluminium prices included within Constellium Revenue are established and when aluminium purchase prices included in Cost of sales are established. The Group accounts for inventory using a weighted average price basis and this adjustment aims to remove the effect of volatility in LME prices. The calculation of the Group metal price lag adjustment is based on an internal standardized methodology applied at each of Constellium’s manufacturing sites and is primarily 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 cost of sales, based on the quantity sold in the period.

(b)	Start-up and development costs in the nine months ended September 30, 2020 and 2019 were related to new projects in our AS&I operating segment.

(c)	Bowling Green one-time costs related to the acquisition in the nine months ended September 30, 2019, was the non-cash reversal of the inventory step-up.

(d)

Other in the nine months ended September 30, 2020 includes i) €4 million of procurement penalties and termination fees incurred because of the Group’s inability to fulfill certain commitments due to the Covid-19 pandemic and ii) a €5 million loss resulting from the discontinuation of hedge accounting for certain forecasted sales that were determined to be no longer expected to occur in light of the Covid-19 pandemic impact.

 

-14-

LIQUIDITY AND CAPITAL RESOURCES

Our primary sources of cash flow have historically been cash flows from operating activities and funding or borrowings from external parties. Based on our current and anticipated levels of operations, and the condition in our markets and industry, we believe that our cash flows from operations, cash on hand, new debt issuances or refinancing of existing debt facilities, and availability under our factoring and revolving credit facilities will enable us to meet our working capital, capital expenditures, debt service and other funding requirements for the foreseeable future. However, our ability to fund working capital needs, debt payments and other obligations depends on our future operating performance and cash flows and many factors outside of our control, including the costs of raw materials, the state of the overall industry and financial and economic conditions and other factors. For a discussion of the impact of the COVID-19 pandemic on our liquidity and steps we have taken in response, see the paragraph titled “Impact of COVID-19” of this Management Discussion and Analysis.

 

•

Our level of indebtedness could limit cash flow available for our operations and capital expenditures and could adversely affect our net income, our ability to service our debt or obtain additional financing and our business relationships;

 

•

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.

 

•

Our cash flows and liquidity could be adversely affected as a result of the maturity mismatch between certain of our derivative instruments and the underlying exposure.

It is our policy to hedge all highly probable or committed foreign currency operating cash flows. As we have significant third party future receivables denominated in U.S. dollars, we generally enter into combinations of forward contracts with financial institutions, selling forward U.S. dollars against Euros. In addition, when we are unable to align the price and quantity of physical aluminium purchases with that of physical aluminium sales, we enter into derivative financial instruments to pass through the exposure to metal price fluctuations to financial institutions at the time the price is set. As the U.S. dollar appreciates compared to the Euro or the LME price for aluminium falls, the derivative contracts related to transactional hedging entered into with financial institution counterparties will have a negative mark-to-market.

We borrow in a combination of Euros and U.S. Dollars. When the external currency mix of our debt does not match exactly the mix of our assets, we use a combination of cross-currency interest rate swaps and cross-currency swaps to balance the risk. We have bought forward significant U.S. Dollars compared to the Euro for this purpose. As the U.S. Dollar depreciates against the Euro, the derivative contracts entered into with financial institutions will have a negative mark-to-market.

Our financial institution counterparties may require margin calls should our negative mark-to-market exceed a pre- agreed contractual limit. In order to protect the Company from the potential margin calls for significant market movements, we maintain additional cash or availability under our various borrowing facilities, we enter into derivatives with a large number of financial counterparties and we monitor potential margin requirements on a daily basis for adverse movements in the U.S. Dollar compared to the Euro and in aluminium prices.

 

-15-

As of September 30, 2020, we had €1,018 million of total liquidity, comprised of €432 million in cash and cash equivalents, €255 million of undrawn credit facilities under our Pan-U.S. ABL Facility, €142 million of undrawn credit facilities under our Delayed Draw Term Loans, €75 million of undrawn credit facilities under our French Inventory Facility, €50 million of undrawn credit facility under our new German facilities, €49 million available under our factoring arrangements, and €15 million under other credit facilities of which €4 million was with Bpifrance Financement, a related party (see Item 7 (Major Shareholders and Related Party Transactions) in our Annual Report on Form 20-F, which is incorporated by reference into this offering memorandum).

 

-16-

Cash Flows

The following table summarizes our operating, investing and financing activities for the nine months ended September 30, 2020 and 2019:

 

		For the nine months ended September 30,
		2020				2019
Net cash from/(used) in:
Operating activities			263				340
Investing activities			(133	)			(265	)
Financing activities			122				(90	)
Net increase / (decrease) in cash and cash equivalents, excluding the effect of exchange rate changes			252				(15	)

Net cash flows from operating activities

Net cash flows from operating activities decreased by €77 million, from an inflow of €340 million in the nine months ended September 30, 2019 to an inflow of €263 million in the nine months ended September 30, 2020. This decrease primarily reflects the change in cash flows from operating activities before working capital for €47 million and a €30 million decrease in changes from working capital. Factored receivables under non-recourse arrangements decreased by €76 million for the nine months ended September 30, 2020 compared to an increase of €19 million in the nine months ended September 30, 2019.

Net cash used in investing activities

Net cash flows used in investing activities amounted to €133 million for the nine months ended September 30, 2020, compared to €265 million for the nine months ended September 30, 2019.

Capital expenditures were €134 million for the nine months ended September 30, 2020 compared to €180 million for the nine months ended September 30, 2019 and related primarily to recurring investment in our manufacturing facilities and our growth projects.

Net cash flows used in investing activities for the nine months ended September 30, 2019 also reflected the acquisition of our partner’s 49% interest in the Bowling Green joint venture for €83 million.

Net cash from / (used in) financing activities

Net cash flows from financing activities were €122 million for the nine months ended September 30, 2020, compared to net cash flows used in financing activities of €90 million for the nine months ended September 30, 2019.

 

-17-

In the first nine months of 2020, Constellium raised $325 million of 5.625% Senior Notes due 2028, using a portion of the proceeds to redeem the remaining balance of the 4.625% Senior Notes due 2021, and entered into a €180 million loan partially guaranteed by the French State and a CHF 20 million facilities partially guaranteed by the Swiss Government. The first nine months of 2019 included a €54 million lease redemption associated with the acquisition of Bowling Green and a €100 million partial redemption of the 4.625% Senior Notes due 2021.

 

-18-

Capital Expenditures

The following table provides a breakdown of the historical capital expenditures by segment for the periods indicated:

 

		For the nine months ended September 30,
		2020				2019
		(€ in millions)
P&ARP			(54	)			(66	)
A&T			(33	)			(45	)
AS&I			(45	)			(67	)
Holdings & Corporate			(2	)			(2	)
Total capital expenditures			(134	)			(180	)

Our capital expenditures for the nine months ended September 30, 2020 and 2019 related primarily to asset- sustaining investments across all segments and selective growth projects mainly in the AS&I segment.

Covenant Compliance

We were in compliance with our covenants throughout the nine months ended September 30, 2020 and 2019 and as of September 30, 2020 and December 31, 2019.

Off-Balance Sheet Arrangements

As of September 30, 2020, except as otherwise disclosed in our unaudited condensed interim consolidated financial statements, we have no significant off-balance sheet arrangements (as defined in Instruction 2 to Item 5.E in Form 20-F).

Quantitative and Qualitative Disclosures about Market Risk

In addition to the risks inherent in our operations, we are exposed to a variety of financial risks, such as market risk (including foreign currency exchange, interest rate and commodity price risk), credit risk and liquidity risk, and further information can be found in Note 24 to our audited consolidated financial statements incorporated by reference in this offering memorandum.

Principal Accounting Policies, Critical Accounting Estimates and Key Judgments

Our principal accounting policies are set out in Note 2 to the audited consolidated financial statements, which are incorporated by reference in this offering memorandum and in Note 2.2 to our unaudited condensed interim consolidated financial statements included elsewhere in this offering memorandum.

 

-19-

INDEX TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Constellium SE Unaudited Interim Condensed Consolidated Financial Statements at September 30, 2020 and 2019, and for the nine months ended September 30, 2020 and 2019.

 

Consolidated Income Statement			2
Consolidated Statement of Comprehensive Income / (Loss)			3
Consolidated Statement of Financial Position			4
Consolidated Statement of Changes in Equity			5
Consolidated Statement of Cash Flows			6
Notes to the Consolidated Financial Statements			7

 

F-1

UNAUDITED INTERIM CONSOLIDATED INCOME STATEMENT

 

				Three months ended September 30,								Nine months ended September 30,
(in millions of Euros)		Notes		2020				2019				2020				2019
Revenue		3			1,172				1,461				3,640				4,535
Cost of sales					(1,052	)			(1,316	)			(3,298	)			(4,064	)
Gross profit					120				145				342				471
Selling and administrative expenses					(55	)			(66	)			(178	)			(204	)
Research and development expenses					(9	)			(12	)			(29	)			(36	)
Restructuring costs		20			(2	)			(1	)			(13	)			(2	)
Other gains and losses - net		5			10				(15	)			(53	)			(29	)
Income from operations					64				51				69				200
Finance costs - net		7			(37	)			(46	)			(124	)			(135	)
Share of income of joint-ventures					—				—				—				5
Income / (loss) before income tax					27				5				(55	)			70
Income tax (expense) / benefit		8			(7	)			(4	)			12				(28	)
Net income / (loss)					20				1				(43	)			42
Income / (loss) attributable to:
Equity holders of Constellium					19				—				(45	)			39
Non-controlling interests					1				1				2				3
Net income / (loss)					20				1				(43	)			42

Earnings per share attributable to the equity holders of Constellium

 

				Three months ended September 30,								Nine months ended September 30,
(in Euros per share)		Notes		2020				2019				2020				2019
Basic		9			0.13				0.00				(0.33	)			0.29
Diluted		9			0.13				0.00				(0.33	)			0.28

The accompanying Notes are an integral part of these Unaudited Interim Condensed Consolidated Financial Statements.

 

F-2

UNAUDITED INTERIM CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME / (LOSS)

 

				Three months ended September 30,								Nine months ended September 30,
(in millions of Euros)		Notes		2020				2019				2020				2019
Net income / (loss)					20				1				(43	)			42
Other comprehensive loss
Items that will not be reclassified subsequently to the Unaudited Interim Consolidated Income Statement
Remeasurement on post-employment benefit obligations					(12	)			(48	)			(53	)			(110	)
Income tax on remeasurement on post-employment benefit obligations					3				8				12				23
Items that may be reclassified subsequently to the Unaudited Interim Consolidated Income Statement
Cash flow hedges		18			12				(10	)			12				(15	)
Net investment hedges		18			—				—				—				4
Income tax on hedges					(4	)			3				(4	)			5
Currency translation differences					(8	)			5				(10	)			4
Other comprehensive loss					(9	)			(42	)			(43	)			(89	)
Total comprehensive income / (loss)					11				(41	)			(86	)			(47	)
Attributable to:
Equity holders of Constellium					10				(42	)			(88	)			(50	)
Non-controlling interests					1				1				2				3
Total comprehensive income / (loss)					11				(41	)			(86	)			(47	)

The accompanying Notes are an integral part of these Unaudited Interim Condensed Consolidated Financial Statements.

 

F-3

UNAUDITED INTERIM CONSOLIDATED STATEMENT OF FINANCIAL POSITION

 

(in millions of Euros)		Notes		At September 30, 2020				At December 31, 2019
Assets
Current assets
Cash and cash equivalents		10			432				184
Trade receivables and other		11			467				474
Inventories		12			607				670
Other financial assets		17			23				22
					1,529				1,350
Non-current assets
Property, plant and equipment		13			1,971				2,056
Goodwill		14			437				455
Intangible assets		14			64				70
Investments accounted for under the equity method					1				1
Deferred income tax assets					218				185
Trade receivables and other		11			67				60
Other financial assets		17			8				7
					2,766				2,834
Total Assets					4,295				4,184
Liabilities
Current liabilities
Trade payables and other		15			1,010				999
Borrowings		16			85				201
Other financial liabilities		17			43				35
Income tax payable					20				14
Provisions		20			27				23
					1,185				1,272
Non-current liabilities
Trade payables and other		15			29				21
Borrowings		16			2,371				2,160
Other financial liabilities		17			31				23
Pension and other post-employment benefit obligations		19			714				670
Provisions		20			98				99
Deferred income tax liabilities					27				24
					3,270				2,997
Total Liabilities					4,455				4,269
Equity
Share capital		22			3				3
Share premium		22			420				420
Retained deficit and other reserves					(596	)			(519	)
Equity attributable to equity holders of Constellium					(173	)			(96	)
Non controlling interests					13				11
Total Equity					(160	)			(85	)
Total Equity and Liabilities					4,295				4,184

The accompanying Notes are an integral part of these Unaudited Interim Condensed Consolidated Financial Statements.

 

F-4