Exhibit 99.1
UNAUDITED INTERIM CONSOLIDATED INCOME STATEMENT
(in millions of Euros) | Notes | Three months ended June 30, 2019 | Three months ended June 30, 2018 | Six months ended June 30, 2019 | Six months ended June 30, 2018 | |||||||||||||||
Revenue | 4 | 1,538 | 1,474 | 3,074 | 2,860 | |||||||||||||||
Cost of sales | (1,356 | ) | (1,300 | ) | (2,748 | ) | (2,549 | ) | ||||||||||||
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Gross profit | 182 | 174 | 326 | 311 | ||||||||||||||||
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Selling and administrative expenses | (70 | ) | (59 | ) | (138 | ) | (117 | ) | ||||||||||||
Research and development expenses | (12 | ) | (10 | ) | (24 | ) | (21 | ) | ||||||||||||
Restructuring costs | (1 | ) | — | (1 | ) | — | ||||||||||||||
Other gains / (losses) – net | 6 | (30 | ) | 24 | (14 | ) | (23 | ) | ||||||||||||
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Income from operations | 69 | 129 | 149 | 150 | ||||||||||||||||
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Finance costs – net | 8 | (43 | ) | (40 | ) | (89 | ) | (78 | ) | |||||||||||
Share of income / (loss) of joint-ventures | 9 | — | (9 | ) | 5 | (12 | ) | |||||||||||||
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Income before income tax | 26 | 80 | 65 | 60 | ||||||||||||||||
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Income tax expense | 10 | (9 | ) | (25 | ) | (24 | ) | (29 | ) | |||||||||||
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Net income | 17 | 55 | 41 | 31 | ||||||||||||||||
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Net income attributable to: | ||||||||||||||||||||
Equity holders of Constellium | 16 | 55 | 39 | 31 | ||||||||||||||||
Non-controlling interests | 1 | — | 2 | — | ||||||||||||||||
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Net income | 17 | 55 | 41 | 31 | ||||||||||||||||
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Earnings per share attributable to the equity holders of Constellium
(in Euros per share) | Notes | Three months ended June 30, 2019 | Three months ended June 30, 2018 | Six months ended June 30, 2019 | Six months ended June 30, 2018 | |||||||||||||||
Basic | 11 | 0.12 | 0.41 | 0.29 | 0.23 | |||||||||||||||
Diluted | 11 | 0.11 | 0.39 | 0.28 | 0.22 | |||||||||||||||
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The accompanying notes are an integral part of these Unaudited Condensed Interim Consolidated Financial Statements.
-1-
UNAUDITED INTERIM CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME / (LOSS)
(in millions of Euros) | Notes | Three months ended June 30, 2019 | Three months ended June 30, 2018 | Six months ended June 30, 2019 | Six months ended June 30, 2018 | |||||||||||||||
Net income | 17 | 55 | 41 | 31 | ||||||||||||||||
Other comprehensive (loss) / income: | ||||||||||||||||||||
Items that will not be reclassified subsequently to the consolidated income statement | ||||||||||||||||||||
Remeasurement on post-employment benefit obligations | 21 | (34 | ) | 2 | (62 | ) | 27 | |||||||||||||
Income tax on remeasurement on post-employment benefit obligations | 8 | (1 | ) | 15 | (7 | ) | ||||||||||||||
Items that may be reclassified subsequently to the consolidated income statement | ||||||||||||||||||||
Cash flow hedges | 20 | 2 | (23 | ) | (5 | ) | (14 | ) | ||||||||||||
Net investment hedges | 20 | 5 | — | 4 | — | |||||||||||||||
Income tax on hedges | — | 8 | 2 | 5 | ||||||||||||||||
Currency translation differences | (6 | ) | 4 | (1 | ) | 1 | ||||||||||||||
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Other comprehensive (loss) / income | (25 | ) | (10 | ) | (47 | ) | 12 | |||||||||||||
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Total comprehensive (loss) / income | (8 | ) | 45 | (6 | ) | 43 | ||||||||||||||
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Attributable to: | ||||||||||||||||||||
Equity holders of Constellium | (9 | ) | 45 | (8 | ) | 43 | ||||||||||||||
Non-controlling interests | 1 | — | 2 | — | ||||||||||||||||
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Total comprehensive (loss) / income | (8 | ) | 45 | (6 | ) | 43 | ||||||||||||||
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The accompanying notes are an integral part of these Unaudited Condensed Interim Consolidated Financial Statements.
-2-
UNAUDITED INTERIM CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(in millions of Euros) | Notes | At June 30, 2019 | At December 31, 2018 | |||||||||
Assets | ||||||||||||
Current assets | ||||||||||||
Cash and cash equivalents | 12 | 213 | 164 | |||||||||
Trade receivables and other | 13 | 630 | 587 | |||||||||
Inventories | 14 | 713 | 660 | |||||||||
Other financial assets | 19 | 19 | 30 | |||||||||
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1,575 | 1,441 | |||||||||||
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Non-current assets | ||||||||||||
Property, plant and equipment | 15 | 1,981 | 1,666 | |||||||||
Goodwill | 16 | 447 | 422 | |||||||||
Intangible assets | 16 | 68 | 70 | |||||||||
Investments accounted for under the equity method | 1 | 1 | ||||||||||
Deferred income tax assets | 155 | 163 | ||||||||||
Trade receivables and other | 13 | 67 | 64 | |||||||||
Other financial assets | 19 | 7 | 74 | |||||||||
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2,726 | 2,460 | |||||||||||
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Total Assets | 4,301 | 3,901 | ||||||||||
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Liabilities | ||||||||||||
Current liabilities | ||||||||||||
Trade payables and other | 17 | 1,120 | 968 | |||||||||
Borrowings | 18 | 162 | 57 | |||||||||
Other financial liabilities | 19 | 44 | 60 | |||||||||
Income tax payables | 9 | 8 | ||||||||||
Provisions | 22 | 22 | 46 | |||||||||
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1,357 | 1,139 | |||||||||||
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Non-current liabilities | ||||||||||||
Trade payables and other | 17 | 28 | 27 | |||||||||
Borrowings | 18 | 2,216 | 2,094 | |||||||||
Other financial liabilities | 19 | 25 | 29 | |||||||||
Pension and other post-employment benefit obligations | 21 | 672 | 610 | |||||||||
Provisions | 22 | 95 | 94 | |||||||||
Deferred income tax liabilities | 21 | 22 | ||||||||||
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3,057 | 2,876 | |||||||||||
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Total Liabilities | 4,414 | 4,015 | ||||||||||
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Equity | ||||||||||||
Share capital | 24 | 3 | 3 | |||||||||
Share premium | 24 | 420 | 420 | |||||||||
Retained deficit and other reserves | (546 | ) | (545 | ) | ||||||||
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Equity attributable to equity holders of Constellium | (123 | ) | (122 | ) | ||||||||
Non-controlling interests | 10 | 8 | ||||||||||
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Total Equity | (113 | ) | (114 | ) | ||||||||
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Total Equity and Liabilities | 4,301 | 3,901 | ||||||||||
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The accompanying notes are an integral part of these Unaudited Condensed Interim Consolidated Financial Statements.
-3-
UNAUDITED INTERIM CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(in millions of Euros) | Share capital | Share premium | Re- measurement | Cash flow and net investment hedges | Foreign currency translation reserve | Other reserves | Retained losses | Total Equity holders of Constellium | Non- controlling interests | Total equity | ||||||||||||||||||||||||||||||
At January 1, 2019 | 3 | 420 | (129 | ) | (8 | ) | 3 | 37 | (448 | ) | (122 | ) | 8 | (114 | ) | |||||||||||||||||||||||||
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Net income | — | — | — | — | — | — | 39 | 39 | 2 | 41 | ||||||||||||||||||||||||||||||
Other comprehensive (loss) / income | — | — | (47 | ) | 1 | (1 | ) | — | — | (47 | ) | — | (47 | ) | ||||||||||||||||||||||||||
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Total comprehensive (loss) / income | — | — | (47 | ) | 1 | (1 | ) | — | 39 | (8 | ) | 2 | (6 | ) | ||||||||||||||||||||||||||
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Transactions with equity holdersShare-based compensation | — | — | — | — | — | 7 | — | 7 | — | 7 | ||||||||||||||||||||||||||||||
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Transactions with non-controlling interests | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||
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At June 30, 2019 | 3 | 420 | (176 | ) | (7 | ) | 2 | 44 | (409 | ) | (123 | ) | 10 | (113 | ) | |||||||||||||||||||||||||
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(in millions of Euros) | Share capital | Share premium | Re- measurement | Cash flow and net investment hedges | Foreign currency translation reserve | Other reserves | Retained losses | Total Equity holders of Constellium | Non- controlling interests | Total equity | ||||||||||||||||||||||||||||||
At January 1, 2018 | 3 | 420 | (147 | ) | 13 | (7 | ) | 25 | (634 | ) | (327 | ) | 8 | (319 | ) | |||||||||||||||||||||||||
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Change in accounting policies | — | — | — | — | — | — | (2 | ) | (2 | ) | — | (2 | ) | |||||||||||||||||||||||||||
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At January 1, 2018 restated | 3 | 420 | (147 | ) | 13 | (7 | ) | 25 | (636 | ) | (329 | ) | 8 | (321 | ) | |||||||||||||||||||||||||
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Net income | — | — | — | — | — | — | 31 | 31 | — | 31 | ||||||||||||||||||||||||||||||
Other comprehensive income / (loss) | — | — | 20 | (9 | ) | 1 | — | — | 12 | — | 12 | |||||||||||||||||||||||||||||
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Total comprehensive income / (loss) | — | — | 20 | (9 | ) | 1 | — | 31 | 43 | — | 43 | |||||||||||||||||||||||||||||
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Transactions with equity holdersShare-based compensation | — | — | — | — | — | 6 | — | 6 | — | 6 | ||||||||||||||||||||||||||||||
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Transactions with non-controlling interests | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||
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At June 30, 2018 | 3 | 420 | (127 | ) | 4 | (6 | ) | 31 | (605 | ) | (280 | ) | 8 | (272 | ) | |||||||||||||||||||||||||
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(in millions of Euros) | Share capital | Share premium | Re- measurement | Cash flow and net investment hedges | Foreign currency translation reserve | Other reserves | Retained losses | Total Equity holders of Constellium | Non- controlling interests | Total equity | ||||||||||||||||||||||||||||||
At January 1, 2018 | 3 | 420 | (147 | ) | 13 | (7 | ) | 25 | (634 | ) | (327 | ) | 8 | (319 | ) | |||||||||||||||||||||||||
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Change in accounting policies | — | — | — | — | — | — | (2 | ) | (2 | ) | — | (2 | ) | |||||||||||||||||||||||||||
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At January 1, 2018 restated | 3 | 420 | (147 | ) | 13 | (7 | ) | 25 | (636 | ) | (329 | ) | 8 | (321 | ) | |||||||||||||||||||||||||
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Net income | — | — | — | — | — | — | 188 | 188 | 2 | 190 | ||||||||||||||||||||||||||||||
Other comprehensive income / (loss) | — | — | 18 | (21 | ) | 10 | — | — | 7 | — | 7 | |||||||||||||||||||||||||||||
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Total comprehensive income / (loss) | — | — | 18 | (21 | ) | 10 | — | 188 | 195 | 2 | 197 | |||||||||||||||||||||||||||||
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Transactions with equity holdersShare-based compensation | — | — | — | — | — | 12 | — | 12 | — | 12 | ||||||||||||||||||||||||||||||
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Transactions with non-controlling interests | — | — | — | — | — | — | — | — | (2 | ) | (2 | ) | ||||||||||||||||||||||||||||
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At December 31, 2018 | 3 | 420 | (129 | ) | (8 | ) | 3 | 37 | (448 | ) | (122 | ) | 8 | (114 | ) | |||||||||||||||||||||||||
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The accompanying notes are an integral part of these Unaudited Condensed Interim Consolidated Financial Statements.
-4-
UNAUDITED INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS
Six months | Six months | |||||||||||
ended | ended | |||||||||||
(in millions of Euros) | Notes | June 30, 2019 | June 30, 2018 | |||||||||
Net income | 41 | 31 | ||||||||||
Adjustments: | ||||||||||||
Depreciation and amortization | 15, 16 | 117 | 90 | |||||||||
Finance costs – net | 8 | 89 | 78 | |||||||||
Income tax expense | 10 | 24 | 29 | |||||||||
Share of (income) / loss of joint-ventures | 9 | (5 | ) | 12 | ||||||||
Unrealized (gains) / losses on derivatives – net and from remeasurement of monetary assets and liabilities – net | (17 | ) | 41 | |||||||||
Losses on disposal | 6 | 2 | 4 | |||||||||
Other – net | 6 | 5 | ||||||||||
Interest paid | (78 | ) | (60 | ) | ||||||||
Income tax paid | (11 | ) | (11 | ) | ||||||||
Change in trade working capital: | ||||||||||||
Inventories | 24 | (94 | ) | |||||||||
Trade receivables | (29 | ) | (196 | ) | ||||||||
Trade payables | 104 | 108 | ||||||||||
Margin calls | 5 | — | ||||||||||
Change in provisions and pension obligations | (15 | ) | (11 | ) | ||||||||
Other working capital | 3 | (32 | ) | |||||||||
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Net cash flows from / (used in) operating activities | 260 | (6 | ) | |||||||||
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Purchases of property, plant and equipment | 5 | (130 | ) | (97 | ) | |||||||
Acquisitions of subsidiaries, net of cash acquired | 3 | (83 | ) | — | ||||||||
Proceeds from disposals, net of cash | 1 | — | ||||||||||
Equity contributions and loans to joint-ventures | — | (13 | ) | |||||||||
Other investing activities | (4 | ) | 6 | |||||||||
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Net cash flows used in investing activities | (216 | ) | (104 | ) | ||||||||
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Proceeds from revolving credit facilities and other loans | 18 | 76 | 10 | |||||||||
Payment of lease liabilities | 18 | (70 | ) | (7 | ) | |||||||
Transactions withnon-controlling interests | (2 | ) | — | |||||||||
Other financing activities | — | 4 | ||||||||||
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Net cash flows from financing activities | 4 | 7 | ||||||||||
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Net increase / (decrease) in cash and cash equivalents | 48 | (103 | ) | |||||||||
Cash and cash equivalents – beginning of period | 164 | 269 | ||||||||||
Effect of exchange rate changes on cash and cash equivalents | 1 | — | ||||||||||
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Cash and cash equivalents – end of period | 12 | 213 | 166 | |||||||||
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The accompanying notes are an integral part of these Unaudited Condensed Interim Consolidated Financial Statements.
-5-
Notes to the Unaudited Condensed Interim Consolidated Financial Statements
NOTE 1 - GENERAL INFORMATION
Constellium is a global leader in the design and manufacture of a broad range of innovative specialty rolled and extruded aluminium products, serving primarily the packaging, aerospace and automotiveend-markets. The Group has a strategic footprint of manufacturing facilities located in North America, Europe and China and operates 26 production facilities, 3 administrative centers and 3 R&D centers. The Group has approximately 13,000 employees.
On June 28, 2019, the Company changed its legal form from Naamloze Vennootschap (N.V.) to Societas Europaea (SE) and its name from Constellium N.V. to Constellium SE.
Constellium is a public company with limited liability. The business address (head office) of Constellium SE is Tupolevlaan41-61, 1119 NW Schiphol-Rijk, the Netherlands.
Unless the context indicates otherwise, when we refer to “we”, “our”, “us”, “Constellium”, the “Group” and the “Company” in this document, we are referring to Constellium SE and its subsidiaries.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
2.1 Statement of compliance
The Unaudited Condensed Interim Consolidated Financial Statements present the Unaudited Interim Consolidated Income Statement, Statement of Comprehensive Income / (Loss) and Statement of Cash Flows for the six months ended June 30, 2019 and 2018; and the Unaudited Interim Consolidated Statement of Financial Position and Changes in Equity as at June 30, 2019 and December 31, 2018. They are prepared in accordance with IAS 34, ‘Interim Financial Reporting’ and with generally accepted accounting principles under International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).
The Unaudited Condensed Interim Consolidated Financial Statements do not include all the information and disclosures required in the Consolidated Financial Statements. They should be read in conjunction with the Group’s Consolidated Financial Statements for the year ended December 31, 2018, which were approved by the Board of Directors on March 11, 2019.
These Unaudited Condensed Interim Consolidated Financial Statements were approved by management on July 22, 2019.
2.2 Basis of preparation
In accordance with IAS 1, ‘Presentation of Financial Statements’, the Unaudited Condensed Interim Consolidated Financial Statements are prepared on the assumption that Constellium is a going concern and will continue in operation for the foreseeable future. The Group’s forecasts and projections, taking account of reasonably possible changes in trading performance, including an assessment of the current macroeconomic environment, indicate that the Group should be able to operate within the level of its current facilities and related covenants. Management considers that the going concern assumption is not invalidated by Constellium’s negative equity as at June 30, 2019.
The accounting policies adopted in the preparation of the Unaudited Condensed Interim Consolidated Financial Statements are consistent with those followed in the preparation of the Group’s Consolidated Financial Statements for the year ended December 31, 2018, except for the application of the effective tax rate in accordance with IAS 34 ‘Interim Financial Reporting’ and for the adoption of new standards effective as of January 1, 2019.
2.3 Application of new and revised IFRS
The Group has applied, for the first time, IFRS 16 -Leases and IFRIC 23 -Uncertainty over Income Tax treatment. As required by IAS 34, the nature and effect of these changes are disclosed below.
Several other amendments and interpretations apply for the first time in 2019, but do not have any impact on the Unaudited Condensed Interim Consolidated Financial Statements of the Group. The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.
-6-
IFRS 16 Leases
IFRS 16 -Leases deals with principles for the recognition, measurement, presentation and disclosures of leases. The standard provides an accounting model, requiring a lessee to recognize assets and liabilities for eligible leases.
Right-of-use assets
The Group recognizesright-of-use assets at the commencement date of the lease.Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and are adjusted for any remeasurement of lease liabilities. The cost ofright-of-use assets includes the amount of lease liabilities recognized, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. Unless the Group is reasonably certain to obtain ownership of the leased asset at the end of the lease term, the recognizedright-of-use assets are depreciated on a straight-line basis over the shorter of its estimated useful life and the lease term.Right-of-use assets are subject to impairment.
Lease liabilities
At the commencement date of the lease, the Group recognizes a lease liability measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments less any lease incentive receivables, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Group and payments of penalties for terminating a lease, if the lease term reflects the Group exercising the option to terminate. The variable lease payments that do not depend on an index or a rate are recognized as expense in the period in which the event or condition that triggers the payment occurs.
In calculating the present value of lease payments, the Group uses the incremental borrowing rate at the lease commencement date if the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced by the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in thein-substance fixed lease payments or a change in the assessment to purchase the underlying asset.
Short-term leases and leases oflow-value assets
The Group applies the short-term lease recognition exemption to leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option. The Group also applies thelow-value asset recognition exemption to leases of assets with a value below €5,000. Lease payments on short-term leases andlow-value asset leases are recognized as expense on a straight-line basis over the lease term.
The standard replaced IAS 17 -Leases and is effective for accounting periods beginning on or after January 1, 2019. The Group adopted IFRS 16 retrospectively with the cumulative effect of initially applying the standard recognized at the initial date of application. The Group elected to apply the practical expedients forlow-value assets, short-term leases and lease andnon-lease components as a single component. In addition, the Group elected for the relief provision of IFRS 16 and did not apply IFRS 16 to contracts that were not previously identified as containing a lease under IAS 17 and IFRIC 4.
The Group recognizedright-of-use assets for €102 million and corresponding lease liabilities previously accounted for as operating leases for €102 million on January 1, 2019, excluding initial direct costs, based on an average incremental borrowing rate of 7.6% and no cumulative effect adjustment to the opening balance of retained earnings was recognized.
Carrying amount | Carrying amount | |||||||||||
(in millions of Euros) | December 31, 2018 | IFRS 16 impact | January 1, 2019 | |||||||||
Property, plant and equipment | 1,666 | 102 | 1,768 | |||||||||
Borrowings | (2,151 | ) | (102 | ) | (2,253 | ) |
As of December 31, 2018, commitments for leases previously accounted for as operating leases amounted to €133 million. The difference compared to the lease liabilities recognized as of January 1, 2019 is primarily explained by the impact of discounting and the recognition of short-term leases andlow-value leases on a straight-line basis as expense, partially offset by adjustments as a result of extension options.
IFRIC 23 Uncertainty over Income Tax treatment
This interpretation provides guidance on how to determine an entity’s taxable result where there is uncertainty over whether tax positions taken by an entity will be accepted by the tax authority. The recognition criteria shall be based on the assessment of whether the tax authority will accept a tax treatment, on amore-likely-than-not basis, assuming that the tax authority has full knowledge of all relevant information. Uncertain tax positions recognized shall be measured using either (i) the most likely amount between two possible outcomes or (ii) the weighted average amount of several possible outcomes (expected value), depending on which is thought to give a better prediction of the resolution of the uncertainty.
-7-
The Group adopted IFRIC 23 using the cumulative effect method of adoption at the date of initial application. There was no cumulative effect adjustment to the opening balance of retained earnings as of January 1, 2019.
The adoption of IFRIC 23 resulted in the reclassification of €20 million from Provisions to Income tax payable and reduction of Deferred income tax assets and current tax receivables.
2.4 Presentation of the operating performance of each operating segment and of the Group
In accordance with IFRS 8 -Operating Segments, operating segments are based upon the product lines, markets and industries served, and are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker (“CODM”). The CODM, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Chief Executive Officer.
Constellium’s CODM measures the profitability and financial performance of its operating segments based on Adjusted EBITDA as it illustrates the underlying performance of continuing operations by excluding certainnon-recurring andnon-operating items. 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 generallynon-recurring items.
2.5 Principles governing the preparation of the Unaudited Condensed Interim Consolidated Financial Statements
The following table summarizes the principal exchange rates used for the preparation of the Unaudited Condensed Interim Consolidated Financial Statements of the Group:
Six months ended | Six months ended | At December 31, | ||||||||||||||||||
June 30, 2019 | At June 30, 2019 | June 30, 2018 | 2018 | |||||||||||||||||
Foreign exchange rate for 1 Euro | Average rate | Closing rate | Average rate | Closing rate | ||||||||||||||||
U.S. Dollars | USD | 1.1297 | 1.1380 | 1.2097 | 1.1450 | |||||||||||||||
Swiss Francs | CHF | 1.1294 | 1.1105 | 1.1696 | 1.1269 | |||||||||||||||
Czech Koruna | CZK | 25.6842 | 25.4470 | 25.4992 | 25.7240 | |||||||||||||||
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Presentation of financial statements
The Unaudited Condensed Interim Consolidated Financial Statements are presented in millions of Euros, except Earnings per share in Euros. Certain reclassifications may have been made to prior year amounts to conform to the current year presentation.
Seasonality of operations
Due to the seasonal nature of the Group’s operations, the Group would typically expect higher revenues and operating profits in the first half of the year compared to the second half.
2.6 Judgments in applying accounting policies and key sources of estimation uncertainty
The preparation of the Unaudited Condensed Interim Consolidated Financial Statements requires the Group to make estimates, judgments and assumptions that may affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities in the Unaudited Condensed Interim Consolidated Financial Statements.
Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
The resulting accounting estimates will, by definition, rarely be equal to the related actual results. Actual results may differ significantly from these estimates, the effect of which is recognized in the period in which the facts that give rise to the revision become known.
In preparing these Unaudited Condensed Interim Consolidated Financial Statements, the significant judgments made by management in applying the Group’s accounting policies and the key sources of estimation uncertainty were those applied to the Consolidated Financial Statements at, and for the year ended December 31, 2018. In addition, in accordance with IAS 34, the Group applied, in the preparation of these Unaudited Condensed Interim Consolidated Financial Statements, a projected tax rate for the full year of 2019.
-8-
NOTE 3 - ACQUISITION OF CONSTELLIUM BOWLING GREEN
The acquisition of 49% of Constellium-UACJ ABS LLC was completed on January 10, 2019, strengthening our position in the North American Auto Body Sheet market. The entity was renamed Constellium Bowling Green and is fully consolidated in 2019.
Constellium is estimating, on a preliminary basis, the provisional fair values as of January 10, 2019 of the assets acquired and liabilities assumed. These estimated fair values are subject to change, for a maximum12-month period from the acquisition date, based upon management’s final determination of the assets acquired and liabilities assumed.
The following table reflects the goodwill arising as a result of the preliminary allocation of purchase price to the Bowling Green assets acquired and liabilities assumed as of January 10, 2019:
Estimated Fair | ||||
(in millions of Euros) | Value | |||
Cash and cash equivalents | 4 | |||
Trade receivables and other | 49 | |||
Inventories | 74 | |||
Property, plant and equipment | 165 | |||
Deferred tax assets | 1 | |||
Trade payables and other | (43 | ) | ||
Borrowings | (75 | ) | ||
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Net asset acquired at fair value | 175 | |||
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Preliminary Goodwill | 22 | |||
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Total Consideration | 197 | |||
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Total consideration includes €87 million of cash consideration paid for the 49% stake in Constellium-UACJ ABS LLC, €72 million for the fair value of Constellium’s previously held interest in Constellium-UACJ ABS LLC and €38 million of preexisting trade receivables with Constellium-UACJ ABS LLC.
Property, plant and equipment, Inventories, Provisions and Borrowings have been remeasured at fair value. The €22 million of goodwill is the result of expected synergies and will be amortized over 15 years for tax purposes.
Considering the industries served, its major customers and product lines, Bowling Green and its related assets and liabilities are included in the Packaging and Automotive Rolled Products (P&ARP) operating segment.
Acquisition costs were recognized as expenses in Other gains / (losses) – net in the Unaudited Interim Consolidated Income Statement (€1 million in 2019).
-9-
NOTE 4 - REVENUE
Disaggregation of revenue
The following table presents our revenue by product line:
Three months | Three months | Six months | Six months | |||||||||||||
ended | ended | ended | ended | |||||||||||||
(in millions of Euros) | June 30, 2019 | June 30, 2018 | June 30, 2019 | June 30, 2018 | ||||||||||||
Packaging rolled products | 568 | 589 | 1,116 | 1,125 | ||||||||||||
Automotive rolled products | 209 | 163 | 439 | 318 | ||||||||||||
Specialty and other thin-rolled products | 42 | 47 | 90 | 92 | ||||||||||||
Aerospace rolled products | 224 | 197 | 429 | 376 | ||||||||||||
Transportation, Industry and other rolled products | 148 | 148 | 310 | 300 | ||||||||||||
Automotive extruded products | 199 | 178 | 387 | 347 | ||||||||||||
Other extruded products | 148 | 148 | 303 | 296 | ||||||||||||
Other | — | 4 | — | 6 | ||||||||||||
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Total Revenue | 1,538 | 1,474 | 3,074 | 2,860 | ||||||||||||
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The following table presents our revenue by destination of shipment:
Three months | Three months | Six months | Six months | |||||||||||||
ended | ended | ended | ended | |||||||||||||
(in millions of Euros) | June 30, 2019 | June 30, 2018 | June 30, 2019 | June 30, 2018 | ||||||||||||
France | 154 | 152 | 306 | 302 | ||||||||||||
Germany | 339 | 349 | 678 | 700 | ||||||||||||
United Kingdom | 49 | 39 | 99 | 83 | ||||||||||||
Switzerland | 18 | 26 | 38 | 43 | ||||||||||||
Other Europe | 286 | 270 | 555 | 514 | ||||||||||||
United States | 600 | 485 | 1,164 | 928 | ||||||||||||
Canada | 9 | 28 | 27 | 49 | ||||||||||||
Asia and Other Pacific | 68 | 76 | 137 | 143 | ||||||||||||
All Other | 15 | 49 | 70 | 98 | ||||||||||||
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Total Revenue | 1,538 | 1,474 | 3,074 | 2,860 | ||||||||||||
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Revenue is recognized at a point in time, except for certain products representing less than 1% of total revenue with no alternative use for which we have a right to payment.
NOTE 5 - OPERATING SEGMENT INFORMATION
Management has defined Constellium’s operating segments based upon the product lines, markets and industries it serves, and prepares and reports operating segment information to Constellium’s chief operating decision maker (CODM) (see NOTE 2 – Summary of Significant Accounting Policies) on that basis.
5.1 Segment Revenue
Three months ended | Three months ended | Six months ended | Six months ended | |||||||||||||||||||||||||||||||||||||||||||||
June 30, 2019 | June 30, 2018 | June 30, 2019 | June 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||
Inter | Inter | Inter | Inter | |||||||||||||||||||||||||||||||||||||||||||||
Segment | segment | External | Segment | segment | External | Segment | segment | External | Segment | segment | External | |||||||||||||||||||||||||||||||||||||
(in millions of Euros) | revenue | elimination | revenue | revenue | elimination | revenue | revenue | elimination | revenue | revenue | elimination | revenue | ||||||||||||||||||||||||||||||||||||
P&ARP | 821 | (2 | ) | 819 | 801 | (2 | ) | 799 | 1,649 | (4 | ) | 1,645 | 1,539 | (4 | ) | 1,535 | ||||||||||||||||||||||||||||||||
A&T | 383 | (11 | ) | 372 | 356 | (11 | ) | 345 | 761 | (22 | ) | 739 | 699 | (23 | ) | 676 | ||||||||||||||||||||||||||||||||
AS&I | 347 | — | 347 | 327 | (1 | ) | 326 | 691 | (1 | ) | 690 | 644 | (1 | ) | 643 | |||||||||||||||||||||||||||||||||
Holdings & Corporate(A) | — | — | — | 4 | — | 4 | — | — | — | 6 | — | 6 | ||||||||||||||||||||||||||||||||||||
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Total | 1,551 | (13 | ) | 1,538 | 1,488 | (14 | ) | 1,474 | 3,101 | (27 | ) | 3,074 | 2,888 | (28 | ) | 2,860 | ||||||||||||||||||||||||||||||||
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(A) | In 2018, Holdings & Corporate segment included revenues from supplying metal to third parties. |
-10-
5.2 Segment Adjusted EBITDA and reconciliation of Adjusted EBITDA to Net Income
Three months | Three months | Six months | Six months | |||||||||||||||||
ended | ended | ended | ended | |||||||||||||||||
(in millions of Euros) | Notes | June 30, 2019 | June 30, 2018 | June 30, 2019 | June 30, 2018 | |||||||||||||||
P&ARP | 79 | 75 | 138 | 127 | ||||||||||||||||
A&T | 64 | 47 | 116 | 83 | ||||||||||||||||
AS&I | 30 | 39 | 59 | 75 | ||||||||||||||||
Holdings & Corporate | (6 | ) | (6 | ) | (11 | ) | (9 | ) | ||||||||||||
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Adjusted EBITDA | 167 | 155 | 302 | 276 | ||||||||||||||||
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Metal price lag(A) | (13 | ) | 20 | (31 | ) | 24 | ||||||||||||||
Start-up and development costs(B) | (3 | ) | (5 | ) | (5 | ) | (9 | ) | ||||||||||||
Bowling Greenone-time costs related to the acquisition(C) | — | — | (6 | ) | — | |||||||||||||||
Share-based compensation costs | (4 | ) | (3 | ) | (7 | ) | (6 | ) | ||||||||||||
Depreciation and amortization | 15, 16 | (60 | ) | (46 | ) | (117 | ) | (90 | ) | |||||||||||
Restructuring costs | (1 | ) | — | (1 | ) | — | ||||||||||||||
Unrealized (losses) / gains on derivatives | 6 | (14 | ) | 11 | 17 | (43 | ) | |||||||||||||
Unrealized exchange (losses) / gains from the remeasurement of monetary assets and liabilities – net | 6 | (1 | ) | — | — | 1 | ||||||||||||||
Losses on disposals | 6 | (1 | ) | (3 | ) | (2 | ) | (4 | ) | |||||||||||
Other | (1 | ) | — | (1 | ) | 1 | ||||||||||||||
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Income from operations | 69 | 129 | 149 | 150 | ||||||||||||||||
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Finance costs - net | 8 | (43 | ) | (40 | ) | (89 | ) | (78 | ) | |||||||||||
Share of income / (loss) of joint-ventures | — | (9 | ) | 5 | (12 | ) | ||||||||||||||
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Income before income tax | 26 | 80 | 65 | 60 | ||||||||||||||||
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Income tax expense | 10 | (9 | ) | (25 | ) | (24 | ) | (29 | ) | |||||||||||
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Net income | 17 | 55 | 41 | 31 | ||||||||||||||||
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(A) | Metal price lag represents the financial impact of the timing difference between when aluminium prices included within Constellium Revenues 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 calculated 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) | For the six months ended June 30, 2019 and 2018,start-up and development costs include €5 million and €9 million respectively, related to new projects in our AS&I operating segment. |
(C) | For the six months ended June 30, 2019, Bowling Greenone-time costs related to the acquisition include thenon-cash reversal of the inventorystep-up. |
5.3 Segment capital expenditures
Three months | Three months | Six months | Six months | |||||||||||||
ended | ended | ended | ended | |||||||||||||
(in millions of Euros) | June 30, 2019 | June 30, 2018 | June 30, 2019 | June 30, 2018 | ||||||||||||
P&ARP | (23 | ) | (17 | ) | (44 | ) | (30 | ) | ||||||||
A&T | (16 | ) | (10 | ) | (29 | ) | (23 | ) | ||||||||
AS&I | (31 | ) | (22 | ) | (56 | ) | (42 | ) | ||||||||
Holdings & Corporate | (1 | ) | (1 | ) | (1 | ) | (2 | ) | ||||||||
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Capital expenditures | (71 | ) | (50 | ) | (130 | ) | (97 | ) | ||||||||
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-11-
5.4 Segment assets
Segment assets are comprised of total assets of Constellium by segment, less deferred income tax assets, cash and cash equivalents and other financial assets.
(in millions of Euros) | At June 30, 2019 | At December 31, 2018 | ||||||
P&ARP | 2,008 | 1,791 | ||||||
A&T | 861 | 831 | ||||||
AS&I | 694 | 544 | ||||||
Holdings & Corporate | 344 | 304 | ||||||
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Segment assets | 3,907 | 3,470 | ||||||
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Deferred income tax assets | 155 | 163 | ||||||
Cash and cash equivalents | 213 | 164 | ||||||
Other financial assets | 26 | 104 | ||||||
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Total Assets | 4,301 | 3,901 | ||||||
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NOTE 6 - OTHER GAINS / (LOSSES) – NET
(in millions of Euros) | Notes | Three months ended June 30, 2019 | Three months ended June 30, 2018 | Six months ended June 30, 2019 | Six months ended June 30, 2018 | |||||||||||||||
Realized (losses) / gains on derivatives(A) | (14 | ) | 15 | (28 | ) | 22 | ||||||||||||||
Unrealized (losses) / gains on derivatives at fair value through profit and loss – net(A) | 5 | (14 | ) | 11 | 17 | (43 | ) | |||||||||||||
Unrealized exchange (losses) / gains from the remeasurement of monetary assets and liabilities – net | 5 | (1 | ) | — | — | 1 | ||||||||||||||
Losses on disposal | 5 | (1 | ) | (3 | ) | (2 | ) | (4 | ) | |||||||||||
Other | — | 1 | (1 | ) | 1 | |||||||||||||||
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Total other gains / (losses) – net | (30 | ) | 24 | (14 | ) | (23 | ) | |||||||||||||
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(A) | Realized gains and losses are related to derivatives entered into with the purpose of mitigating exposure to volatility in foreign currencies and commodity prices. Unrealized gains and losses are related to derivatives that do not qualify for hedge accounting. |
NOTE 7 - CURRENCY GAINS / (LOSSES)
Currency gains and losses, which are included in Income from operations, are as follows:
(in millions of Euros) | Notes | Three months ended June 30, 2019 | Three months ended June 30, 2018 | Six months ended June 30, 2019 | Six months ended June 30, 2018 | |||||||||||||||
Included in Revenue | 20 | (1 | ) | 1 | (2 | ) | 3 | |||||||||||||
Included in Cost of sales | — | 2 | — | — | ||||||||||||||||
Included in Other (losses) / gains – net | (1 | ) | 3 | 4 | 3 | |||||||||||||||
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Total | (2 | ) | 6 | 2 | 6 | |||||||||||||||
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Realized exchange (losses) / gains on foreign currency derivatives – net | 20 | — | (1 | ) | 1 | 1 | ||||||||||||||
Unrealized (losses) / gains on foreign currency derivatives – net | 20 | (1 | ) | 4 | 1 | 3 | ||||||||||||||
Exchanges (losses) / gains from the remeasurement of monetary assets and liabilities – net | (1 | ) | 3 | — | 2 | |||||||||||||||
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Total | (2 | ) | 6 | 2 | 6 | |||||||||||||||
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See NOTE 19 - Financial Instruments and NOTE 20 - Financial Risk Management for further information regarding the Company’s foreign currency derivatives and hedging activities.
-12-
NOTE 8 - FINANCE COSTS – NET
(in millions of Euros) | Three months ended June 30, 2019 | Three months ended June 30, 2018 | Six months ended June 30, 2019 | Six months ended June 30, 2018 | ||||||||||||
Interest received | — | 1 | — | 3 | ||||||||||||
Finance income | — | 1 | — | 3 | ||||||||||||
Interest expense on borrowings(A) | (30 | ) | (30 | ) | (62 | ) | (58 | ) | ||||||||
Expenses on factoring arrangements | (5 | ) | (5 | ) | (10 | ) | (9 | ) | ||||||||
Interest expense on lease liabilities | (4 | ) | (1 | ) | (7 | ) | (2 | ) | ||||||||
Realized and unrealized (losses) / gains on debt derivatives at fair value(B) | (4 | ) | 23 | 5 | 16 | |||||||||||
Realized and unrealized exchange gains / (losses) on financing activities – net(B) | 6 | (22 | ) | — | (11 | ) | ||||||||||
Interest cost on pension and other benefits | (4 | ) | (4 | ) | (8 | ) | (8 | ) | ||||||||
Other finance expenses(C) | (2 | ) | (2 | ) | (8 | ) | (11 | ) | ||||||||
Capitalized borrowing costs(D) | — | — | 1 | 2 | ||||||||||||
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Finance expense | (43 | ) | (41 | ) | (89 | ) | (81 | ) | ||||||||
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Finance costs – net | (43 | ) | (40 | ) | (89 | ) | (78 | ) | ||||||||
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(A) | For the six months ended June 30, 2019, the Group incurred mainly (i) €58 million of interest related to Constellium SE Senior Notes and (ii) €4 million of interest expense and fees related to our North American ABL Facility(“Pan-US ABL”). For the six months ended June 30, 2018, the Group incurred (i) €56 million of interest related to Constellium SE Senior Notes; and (ii) €2 million of interest expense and fees related to thePan-US ABL Facility. |
(B) | The Group hedges the dollar exposure relating to the principal of its Constellium SE U.S. Dollar Senior Notes, for the portion that has not been used to finance directly or indirectly U.S. Dollar functional currency entities. Changes in the fair value of these hedging derivatives are recognized within Finance costs—net in the Unaudited Interim Consolidated Income Statement and largely offset the unrealized results related to Constellium SE U.S. Dollar Senior Notes revaluation. |
(C) | For the six months ended June 30, 2018, other finance expenses include a €6 million net loss resulting from the modification of our loan to Constellium-UACJ ABS LLC in February 2018. |
(D) | Borrowing costs directly attributable to the construction of assets are capitalized. The capitalization rate used for the six months ended June 30, 2019 was 6% (6% for the six months ended June 30, 2018). |
NOTE 9 - SHARE OF INCOME / (LOSS) OF JOINT VENTURES
The acquisition of 49% of Constellium-UACJ ABS LLC was completed on January 10, 2019 and the entity is fully consolidated since the acquisition date. The remeasurement of the 51% previously held equity interest in Constellium-UACJ ABS LLC at the acquisition date resulted in the recognition of a €5 million profit presented in Share of income / (loss) of joint ventures in the Unaudited Interim Consolidated Income Statement.
At June 30, 2018, Constellium-UACJ ABS LLC was accounted for under the Equity method. The information presented hereafter reflects the amounts included in the Unaudited Interim Consolidated Income Statement for the three months and six months ended June 30, 2018 of the relevant entity in accordance with the Group accounting principles and not the Company’s share of those amounts:
(in millions of Euros) | Three months ended June 30, 2018 | Six months ended June 30, 2018 | ||||||
Revenue | 72 | 118 | ||||||
Cost of sales | (82 | ) | (141 | ) | ||||
Selling and administrative expenses | (2 | ) | (5 | ) | ||||
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Loss from operations | (12 | ) | (28 | ) | ||||
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Finance costs(A) | (5 | ) | 4 | |||||
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Net loss | (17 | ) | (24 | ) | ||||
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(A) | Finance costs include a €12 million gain related to the shareholders’ loan modification for the six months ended June 30, 2018. |
-13-
NOTE 10 - INCOME TAX
Income tax expense is recognized based on the best estimate of the weighted average annual income tax rate expected for the full year. The tax rate applied as at June 30, 2019 is impacted bynon-recurring transactions and is subject to country mix effect.
NOTE 11 - EARNINGS PER SHARE
Three months | Three months | Six months | Six months | |||||||||||||
ended | ended | ended | ended | |||||||||||||
(in millions of Euros) | June 30, 2019 | June 30, 2018 | June 30, 2019 | June 30, 2018 | ||||||||||||
Earnings attributable to equity holders of the parent used to calculate basic and diluted earnings per share | 16 | 55 | 39 | 31 | ||||||||||||
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Number of shares attributable to equity holders of Constellium
Three months | Three months | Six months | Six months | |||||||||||||
ended | ended | ended | ended | |||||||||||||
(number of shares) | June 30, 2019 | June 30, 2018 | June 30, 2019 | June 30, 2018 | ||||||||||||
Weighted average number of ordinary shares used to calculate basic earnings per share | 136,700,491 | 134,562,177 | 136,344,030 | 134,517,869 | ||||||||||||
Effect of other dilutive potential ordinary shares(A) | 3,620,938 | 4,471,455 | 4,005,235 | 4,515,005 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Weighted average number of ordinary shares used to calculate diluted earnings per share | 140,321,429 | 139,033,632 | 140,349,265 | 139,032,874 | ||||||||||||
|
|
|
|
|
|
|
|
(A) | Dilutive potential new ordinary shares to be issued are part of Share-based compensation plans. |
Earnings per share attributable to the equity holders of Constellium
Three months | Three months | Six months | Six months | |||||||||||||
ended | ended | ended | ended | |||||||||||||
(in Euro per share) | June 30, 2019 | June 30, 2018 | June 30, 2019 | June 30, 2018 | ||||||||||||
Basic | 0.12 | 0.41 | 0.29 | 0.23 | ||||||||||||
Diluted | 0.11 | 0.39 | 0.28 | 0.22 | ||||||||||||
|
|
|
|
|
|
|
|
NOTE 12 - CASH AND CASH EQUIVALENTS
At June 30, | At December 31, | |||||||
(in millions of Euros) | 2019 | 2018 | ||||||
Cash in bank and on hand | 213 | 164 | ||||||
|
|
|
| |||||
Total Cash and cash equivalents | 213 | 164 | ||||||
|
|
|
|
At June 30, 2019, cash in bank and on hand includes a total of €21 million held by subsidiaries that operate in countries where capital control restrictions prevent the balances from being immediately available for general use by the other entities within the Group (€18 million at December 31, 2018).
-14-
NOTE 13 - TRADE RECEIVABLES AND OTHER
Trade receivables and other are comprised of the following:
At June 30, 2019 | At December 31, 2018 | |||||||||||||||
(in millions of Euros) | Non-current | Current | Non-current | Current | ||||||||||||
Trade receivables – gross | — | 523 | — | 483 | ||||||||||||
Impairment | — | (2 | ) | — | (2 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Trade receivables – net | — | 521 | — | 481 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Income tax receivables | 27 | 44 | 28 | 43 | ||||||||||||
Other taxes | — | 26 | — | 33 | ||||||||||||
Contract assets | 30 | 1 | 28 | 2 | ||||||||||||
Prepaid expenses | — | 16 | 1 | 12 | ||||||||||||
Other | 10 | 22 | 7 | 16 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Other receivables | 67 | 109 | 64 | 106 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Trade receivables and Other | 67 | 630 | 64 | 587 | ||||||||||||
|
|
|
|
|
|
|
|
13.1 | Contract assets |
At June 30, 2019 | At December 31, 2018 | |||||||||||||||
(in millions of Euros) | Non-current | Current | Non-current | Current | ||||||||||||
Unbilled tooling costs | 29 | — | 26 | — | ||||||||||||
Other | 1 | 1 | 2 | 2 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Contract assets | 30 | 1 | 28 | 2 | ||||||||||||
|
|
|
|
|
|
|
|
13.2 Aging
The aging of total trade receivables - net is as follows:
At June 30, | At December 31, | |||||||
(in millions of Euros) | 2019 | 2018 | ||||||
Not past due | 499 | 453 | ||||||
1 - 30 days past due | 19 | 23 | ||||||
31 - 60 days past due | 1 | 2 | ||||||
61 - 90 days past due | 1 | 2 | ||||||
Greater than 91 days past due | 1 | 1 | ||||||
|
|
|
| |||||
Total Trade receivables - net | 521 | 481 | ||||||
|
|
|
|
Impairment allowance
Revisions to the impairment allowance arising from changes in estimates are included as either an additional allowance or recoveries. An allowance of €0.1 million was recognized during the six months ended June 30, 2019 (€0.4 million allowance reversed during the six months ended June 30, 2018).
None of the other amounts included in Other receivables were deemed to be impaired.
The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivable shown above. The Group does not hold any collateral from its customers or debtors as security.
13.3 Currency concentration
The composition of the carrying amounts of total Trade receivables—net by currency is shown in Euro equivalents as follows:
At June 30, | At December 31, | |||||||
(in millions of Euros) | 2019 | 2018 | ||||||
Euro | 230 | 177 | ||||||
U.S. Dollar | 271 | 284 | ||||||
Swiss franc | 7 | 4 | ||||||
Other currencies | 13 | 16 | ||||||
|
|
|
| |||||
Total Trade receivables – net | 521 | 481 | ||||||
|
|
|
|
-15-
13.4 Factoring arrangements
The Group factors trade receivables in France by entering into factoring agreements with a third party for a maximum capacity of €235 million. This agreement matures on October 29, 2021.
The Group factors trade receivables in Germany, Switzerland and the Czech Republic by entering into factoring agreements with a third party for a maximum capacity of €150 million. This agreement matures on October 29, 2021. In addition, the Group sells receivables from one of its German customers under an uncommitted factoring facility whereby receivables sold are confirmed by the customer.
Constellium Automotive USA entered into a factoring agreement that provides for the sale of specific trade receivables up to a maximum capacity of $33 million. This agreement matures on December 11, 2019.
Muscle Shoals entered into a factoring agreement that provides for the sale of specific trade receivables up to a maximum capacity of $375 million. The agreement matures on January 24, 2020.
Under the Group’s factoring agreements, most of the trade receivables are sold without recourse. Where the Group has transferred substantially all the risks and rewards of ownership of the receivables, the receivables are derecognized. Some remaining receivables do not qualify for derecognition under IFRS 9 -Financial Instruments, as the Group retains substantially all the associated risks and rewards.
Under the agreements, at June 30, 2019, the total carrying amount of the original assets factored is €631 million (December 31, 2018: €601 million) of which:
• | €471 million (December 31, 2018: €446 million) have been derecognized from the Unaudited Interim Consolidated Statement of Financial Position as the Group transferred substantially all of the associated risks and rewards to the factor; |
• | €160 million (December 31, 2018: €155 million) were recognized on the Unaudited Interim Consolidated Statement of Financial Position. |
There was no debt due to the factor relating to trade receivables sold at June 30, 2019 and December 31, 2018.
Covenants
The factoring arrangements contain certain customary affirmative and negative covenants, including some relating to the administration and collection of the assigned receivables, the terms of the invoices and the exchange of information, but do not contain maintenance financial covenants.
The commitment of the factor to buy receivables under the Muscle Shoals factoring agreement is subject to maintaining certain credit ratings.
The Group was in compliance with all applicable covenants at June 30, 2019 and December 31, 2018.
NOTE 14 - INVENTORIES
At June 30, | At December 31, | |||||||
(in millions of Euros) | 2019 | 2018 | ||||||
Finished goods | 186 | 165 | ||||||
Work in progress | 346 | 347 | ||||||
Raw materials | 137 | 112 | ||||||
Stores and supplies | 75 | 67 | ||||||
Inventories write-down | (31 | ) | (31 | ) | ||||
|
|
|
| |||||
Total Inventories | 713 | 660 | ||||||
|
|
|
|
Constellium records inventories at the lower of cost and net realizable value. Any change in the net realizable value adjustment on inventories is included in Cost of sales in the Unaudited Interim Consolidated Income Statement.
-16-
NOTE 15 - PROPERTY, PLANT AND EQUIPMENT
Land and | Machinery and | Construction | ||||||||||||||||||||||||||
(in millions of Euros) | Note | Property Rights | Buildings | Equipment | Work in Progress | Other | Total | |||||||||||||||||||||
Net balance at December 31, 2018 | 18 | 217 | 1,227 | 194 | 10 | 1,666 | ||||||||||||||||||||||
IFRS 16 application | — | 82 | 17 | — | 3 | 102 | ||||||||||||||||||||||
Net balance at January 1, 2019 | 18 | 299 | 1,244 | 194 | 13 | 1,768 | ||||||||||||||||||||||
Property, plant and equipment acquired through business combination | 3 | — | 40 | 120 | 4 | 1 | 165 | |||||||||||||||||||||
Additions | — | 14 | 40 | 99 | 1 | 154 | ||||||||||||||||||||||
Disposals | — | — | (2 | ) | — | — | (2 | ) | ||||||||||||||||||||
Depreciation expense | — | (12 | ) | (95 | ) | — | (5 | ) | (112 | ) | ||||||||||||||||||
Transfer during the period | — | 4 | 65 | (72 | ) | 2 | (1 | ) | ||||||||||||||||||||
Effects of changes in foreign exchange rates | — | 2 | 6 | 1 | — | 9 | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Net balance at June 30, 2019 | 18 | 347 | 1,378 | 226 | 12 | 1,981 | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Cost | 34 | 492 | 2,236 | 232 | 40 | 3,034 | ||||||||||||||||||||||
Less accumulated depreciation and impairment | (16 | ) | (145 | ) | (858 | ) | (6 | ) | (28 | ) | (1,053 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Net balance at June 30, 2019 | 18 | 347 | 1,378 | 226 | 12 | 1,981 | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Right-of-use assets
Right of use assets have been included within the same line item as that within which the corresponding underlying assets would be presented if they were owned.
Machinery and | ||||||||||||||||
(in millions of Euros) | Buildings | Equipment | Other | Total | ||||||||||||
Net balance at December 31, 2018 | 24 | 53 | — | 77 | ||||||||||||
IFRS 16 application | 82 | 17 | 3 | 102 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net balance at January 1, 2019(A) | 106 | 70 | 3 | 179 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Additions | 13 | 13 | 1 | 27 | ||||||||||||
Disposals | — | — | — | — | ||||||||||||
Depreciation expense | (5 | ) | (8 | ) | (1 | ) | (14 | ) | ||||||||
Effects of changes in foreign exchange rates | 1 | — | — | 1 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net balance at June 30, 2019 | 115 | 75 | 3 | 193 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Cost | 127 | 109 | 4 | 240 | ||||||||||||
Less accumulated depreciation and impairment | (12 | ) | (34 | ) | (1 | ) | (47 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Net balance at June 30, 2019 | 115 | 75 | 3 | 193 | ||||||||||||
|
|
|
|
|
|
|
|
(A) | The IFRS 16 application included assets acquired through finance leases reclassified asright-of-use assets of €77 million and operating leases recognized asright-of-use assets of €102 million as of January 1, 2019. |
The total expense relating to short-term leases, low value leases and variable leases still recognized as operating expenses was €7 million for the six months ended June 30, 2019.
NOTE 16 - INTANGIBLE ASSETS (INCLUDING GOODWILL)
Total intangible | ||||||||||||||||||||||||||||||||
Computer | Customer | Work in | assets (excluding | |||||||||||||||||||||||||||||
(in millions of Euros) | Notes | Goodwill | Technology | Software | relationships | Progress | Other | goodwill) | ||||||||||||||||||||||||
Net balance at January 1, 2019 | 422 | 22 | 18 | 15 | 13 | 2 | 70 | |||||||||||||||||||||||||
Intangible assets acquired through | 3 | 22 | — | — | — | — | — | — | ||||||||||||||||||||||||
business combination | ||||||||||||||||||||||||||||||||
Additions | — | — | — | — | 1 | — | 1 | |||||||||||||||||||||||||
Amortization expense | — | (2 | ) | (3 | ) | — | — | — | (5 | ) | ||||||||||||||||||||||
Transfer during the period | — | — | 1 | — | — | — | 1 | |||||||||||||||||||||||||
Effects of changes in foreign exchange rates | 3 | 1 | — | — | — | — | 1 | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Net balance at June 30, 2019 | 447 | 21 | 16 | 15 | 14 | 2 | 68 | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Cost | 447 | 85 | 67 | 40 | 14 | 2 | 208 | |||||||||||||||||||||||||
Less accumulated amortization and impairment | — | (64 | ) | (51 | ) | (25 | ) | — | — | (140 | ) | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Net balance at June 30, 2019 | 447 | 21 | 16 | 15 | 14 | 2 | 68 | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-17-
NOTE 17 - TRADE PAYABLES AND OTHER
At June 30, 2019 | At December 31, 2018 | |||||||||||||||
(in millions of Euros) | Non-current | Current | Non-current | Current | ||||||||||||
Trade payables | — | 838 | — | 685 | ||||||||||||
Fixed asset payables | — | 29 | — | 30 | ||||||||||||
Employees’ entitlements | — | 162 | — | 160 | ||||||||||||
Taxes payable other than income tax | — | 25 | — | 16 | ||||||||||||
Contract liabilities | 11 | 59 | 9 | 68 | ||||||||||||
Other payables | 17 | 7 | 18 | 9 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Other | 28 | 282 | 27 | 283 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Trade payables and Other | 28 | 1,120 | 27 | 968 | ||||||||||||
|
|
|
|
|
|
|
|
Contract liabilities
At June 30, 2019 | At December 31, 2018 | |||||||||||||||
(in millions of Euros) | Non-current | Current | Non-current | Current | ||||||||||||
Deferred tooling revenue | 5 | — | — | — | ||||||||||||
Advance payment from customers | 4 | 6 | 7 | 9 | ||||||||||||
Unrecognized variable consideration(A) | 2 | 52 | 2 | 57 | ||||||||||||
Prepayment | — | 1 | — | 2 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Contract liabilities | 11 | 59 | 9 | 68 | ||||||||||||
|
|
|
|
|
|
|
|
(A) | Unrecognized variable consideration consists of expected volume rebates, discounts, incentives, refunds penalties and price concessions. |
For the six months ended June 30, 2019, €25 million was recognized in Revenue that related to contract liabilities as of December 31, 2018. Revenue of €30 million generated in the six months ended June 30, 2019 was deferred.
NOTE 18 - BORROWINGS
18.1 Analysis by nature
At December 31, | ||||||||||||||||||||||||||||||||
(in millions of Euros) | At June 30, 2019 | 2018 | ||||||||||||||||||||||||||||||
Nominal | Nominal | |||||||||||||||||||||||||||||||
Value | Nominal | Effective | Value | (Arrangement | Accrued | Carrying | Carrying | |||||||||||||||||||||||||
in Currency | rate | rate | In Euros | fees) | interests | value | value | |||||||||||||||||||||||||
SecuredPan-U.S. ABL(A) | $ | 106 | Floating | 4.43 | % | 93 | — | — | 93 | — | ||||||||||||||||||||||
(due 2022) | ||||||||||||||||||||||||||||||||
Secured Inventory Based Facility(B) | — | Floating | — | — | — | — | — | — | ||||||||||||||||||||||||
(due 2021) | ||||||||||||||||||||||||||||||||
Senior Unsecured Notes | ||||||||||||||||||||||||||||||||
Constellium SE | $ | 400 | 5.75 | % | 6.26 | % | 352 | (3 | ) | 2 | 351 | 348 | ||||||||||||||||||||
(Issued May 2014, due 2024) | ||||||||||||||||||||||||||||||||
Constellium SE | € | 300 | 4.63 | % | 5.16 | % | 300 | (2 | ) | 2 | 300 | 300 | ||||||||||||||||||||
(Issued May 2014, due 2021) | ||||||||||||||||||||||||||||||||
Constellium SE | $ | 650 | 6.63 | % | 7.13 | % | 571 | (11 | ) | 13 | 573 | 568 | ||||||||||||||||||||
(Issued February 2017, due 2025) | ||||||||||||||||||||||||||||||||
Constellium SE | $ | 500 | 5.88 | % | 6.26 | % | 439 | (7 | ) | 10 | 442 | 440 | ||||||||||||||||||||
(Issued November 2017, due 2026) | ||||||||||||||||||||||||||||||||
Constellium SE | € | 400 | 4.25 | % | 4.57 | % | 400 | (6 | ) | 6 | 400 | 399 | ||||||||||||||||||||
(Issued November 2017, due 2026) | ||||||||||||||||||||||||||||||||
Unsecured Revolving Credit Facility(C) | — | Floating | — | — | — | — | — | — | ||||||||||||||||||||||||
(due 2021) | ||||||||||||||||||||||||||||||||
Lease liabilities | — | — | — | 187 | — | — | 187 | 73 | ||||||||||||||||||||||||
Other loans(D) | — | — | — | 31 | — | 1 | 32 | 23 | ||||||||||||||||||||||||
|
|
| �� |
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total Borrowings | — | — | — | 2,373 | (29 | ) | 34 | 2,378 | 2,151 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Of whichnon-current | 2,216 | 2,094 | ||||||||||||||||||||||||||||||
Of which current | 162 | 57 |
-18-
Constellium SE Senior Notes are guaranteed by certain subsidiaries.
(A) | On February 20, 2019, thePan-U.S. ABL was amended to include Bowling Green and increased to $350 million. The credit facility was increased to $400 million on May 10, 2019. |
(B) | On March 15, 2019, the secured Inventory Based Facility maturity was extended to 2021. |
(C) | The Unsecured Revolving Credit Facility has a 7 million borrowing base and is provided by BPI France, a related party. |
(D) | Other loans include €11 million of financial liabilities relating to sale and lease-backs of assets that were considered, in substance, as financing arrangements. |
18.2 Movements in borrowings
(in millions of Euros) | Note | Period ended June 30, 2019 | Year ended December 31, 2018 | |||||||||
At December 31, prior period | 2,151 | 2,127 | ||||||||||
IFRS 16 application | 2 | 102 | — | |||||||||
|
|
|
| |||||||||
At January 1 | 2,253 | 2,127 | ||||||||||
|
|
|
| |||||||||
Cash flows | ||||||||||||
Proceeds / (Repayments) from Revolving Credit Facilities and other loans | 76 | (68 | ) | |||||||||
Payment of lease liabilities | (70 | ) | (15 | ) | ||||||||
Non-cash changes | ||||||||||||
Borrowings assumed through business combination | 3 | 75 | — | |||||||||
New leases and other loans | 23 | 33 | 28 | |||||||||
Movement in interests accrued | 1 | 12 | ||||||||||
Deferred arrangement fees | 2 | 2 | ||||||||||
Effects of changes in foreign exchange rates | 8 | 65 | ||||||||||
|
|
|
| |||||||||
At the end of the period | 2,378 | 2,151 | ||||||||||
|
|
|
|
18.3 Currency concentration
The composition of the carrying amounts of total borrowings in Euro equivalents is denominated in the currencies shown below:
(in millions of Euros) | At June 30, 2019 | At December 31, 2018 | ||||||
U.S. Dollar | 1,541 | 1,408 | ||||||
Euro | 811 | 726 | ||||||
Other currencies | 26 | 17 | ||||||
|
|
|
| |||||
Total borrowings | 2,378 | 2,151 | ||||||
|
|
|
|
18.4 Covenants
The Group was in compliance with all applicable debt covenants at and for the six months ended June 30, 2019 and for the year ended December 31, 2018.
Constellium SE Senior Notes
The indentures for our outstanding Senior Notes contain customary terms and conditions, including amongst other things, limitations on incurring or guaranteeing additional indebtedness, on paying dividends, on making other restricted payments, on creating restrictions on dividends and other payments to us from certain of our subsidiaries, on incurring certain liens, on selling assets and subsidiary stock, and on merging.
Pan-U.S. ABL Facility
This facility contains a fixed charge coverage ratio covenant and EBITDA contribution ratio. Evaluation of compliance is only required if the excess availability falls below 10% of the aggregate revolving loan commitment. It also contains customary affirmative and negative covenants, but no maintenance covenants.
-19-
NOTE 19 - FINANCIAL INSTRUMENTS
19.1 Financial assets and liabilities by categories
At June 30, 2019 | At December 31, 2018 | |||||||||||||||||||||||||||||||||||
(in millions of Euros) | Notes | At amortized cost | At Fair Value through Profit and loss | At Fair Value through OCI | Total | At amortized cost | At Fair Value through Profit and loss | At Fair Value through OCI | Total | |||||||||||||||||||||||||||
Cash and cash equivalents | 12 | 213 | — | — | 213 | 164 | — | — | 164 | |||||||||||||||||||||||||||
Trade receivables | 13 | — | — | 521 | 521 | — | — | 481 | 481 | |||||||||||||||||||||||||||
Other financial assets | — | 26 | — | 26 | 74 | 30 | — | 104 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Total financial assets | 213 | 26 | 521 | 760 | 238 | 30 | 481 | 749 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2019 | At December 31, 2018 | |||||||||||||||||||||||||||||||||||
(in millions of Euros) | Notes | At amortized cost | At Fair Value through Profit and loss | At Fair Value through OCI | Total | At amortized cost | At Fair Value through Profit and loss | At Fair Value through OCI | Total | |||||||||||||||||||||||||||
Trade payables and fixed assets payables | 17 | 867 | — | — | 867 | 715 | — | — | 715 | |||||||||||||||||||||||||||
Borrowings | 18 | 2,378 | — | — | 2,378 | 2,151 | — | — | 2,151 | |||||||||||||||||||||||||||
Other financial liabilities | — | 58 | 11 | 69 | — | 79 | 10 | 89 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Total financial liabilities | 3,245 | 58 | 11 | 3,314 | 2,866 | 79 | 10 | 2,955 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The table below details Other financial assets and Other financial liabilities positions:
At June 30, 2019 | At December 31, 2018 | |||||||||||||||||||||||
(in millions of Euros) | Non-current | Current | Total | Non-current | Current | Total | ||||||||||||||||||
Derivatives | 7 | 19 | 26 | 7 | 23 | 30 | ||||||||||||||||||
Aluminium and premium future contracts | 2 | 4 | 6 | 2 | 7 | 9 | ||||||||||||||||||
Energy future contracts | — | — | — | — | — | — | ||||||||||||||||||
Other future contracts | — | — | — | — | — | — | ||||||||||||||||||
Currency commercial contracts | 5 | 12 | 17 | 3 | 12 | 15 | ||||||||||||||||||
Currency net debt derivatives | — | 3 | 3 | 2 | 4 | 6 | ||||||||||||||||||
Loans(A) | — | — | — | 67 | 2 | 69 | ||||||||||||||||||
Margin call | — | — | — | — | 5 | 5 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Other financial assets | 7 | 19 | 26 | 74 | 30 | 104 | ||||||||||||||||||
|
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|
|
|
|
|
|
|
|
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Derivatives | 25 | 44 | 69 | 29 | 60 | 89 | ||||||||||||||||||
Aluminium and premium future contracts | 5 | 22 | 27 | 6 | 38 | 44 | ||||||||||||||||||
Energy future contracts | — | — | — | — | — | — | ||||||||||||||||||
Other future contracts | 3 | 3 | 6 | 5 | 3 | 8 | ||||||||||||||||||
Currency commercial contracts | 10 | 14 | 24 | 7 | 12 | 19 | ||||||||||||||||||
Net investment hedge | — | — | — | — | 4 | 4 | ||||||||||||||||||
Currency net debt derivatives | 7 | 5 | 12 | 11 | 3 | 14 | ||||||||||||||||||
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Other financial liabilities | 25 | 44 | 69 | 29 | 60 | 89 | ||||||||||||||||||
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(A) Corresponds to a loan facility to Constellium-UACJ ABS LLC at December 31, 2018
19.2 Fair values
All derivatives are presented at fair value in the Unaudited Interim Consolidated Statement of Financial Position.
The carrying value of the Group’s borrowings at maturity is the redemption value.
The fair value of Constellium SE Senior Notes issued in May 2014, February 2017 and November 2017 account for 102%, 104% and 103% respectively of the nominal value and amount to €664 million, €596 million and €866 million, respectively, at June 30, 2019. The fair value was classified as a Level 1 measurement under the fair value hierarchy provided by IFRS 13 –Fair ValueMeasurement.
The fair values of the other financial assets and liabilities approximate their carrying values, as a result of their liquidity or short maturity.
-20-
19.3 Valuation hierarchy
The following table provides an analysis of derivatives measured at fair value, grouped into levels based on the degree to which the fair value is observable:
• | Level 1 valuation is based on quoted prices (unadjusted) in active markets for identical financial instruments. It includes aluminium, copper and zinc futures that are traded on the LME. |
• | Level 2 valuation is based on inputs other than quoted prices included within Level 1 that are observable for the assets or liabilities, either directly (i.e. prices) or indirectly (i.e. derived from prices). It includes foreign exchange derivatives. |
• | Level 3 valuation is based on inputs for the asset or liability that are not based on observable market data (unobservable inputs). Trade receivables are classified as a Level 3 measurement under the fair value hierarchy. |
At June 30, 2019 | At December 31, 2018 | |||||||||||||||||||||||||||||||
(in millions of Euros) | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||||
Other financial assets - derivatives | 5 | 21 | — | 26 | 9 | 21 | — | 30 | ||||||||||||||||||||||||
Other financial liabilities - derivatives | 32 | 37 | — | 69 | 50 | 39 | — | 89 |
There was no material transfer of derivatives into or out of Level 1, Level 2 or Level 3 during the six months ended June 30, 2019 and the year ended December 31, 2018.
NOTE 20 - FINANCIAL RISK MANAGEMENT
The Group’s financial risk management strategy focuses on minimizing the cash flow impacts of volatility in foreign currency exchange rates, metal prices and interest rates, while maintaining the financial flexibility the Group requires in order to successfully execute the Group’s business strategies.
Due to Constellium’s capital structure and the nature of its operations, the Group is exposed to the following financial risks: (i) market risk (including foreign exchange risk, commodity price risk and interest rate risk); (ii) credit risk and (iii) liquidity and capital management risk.
20.1 Market risk
In 2016, the Group agreed with a major customer for the sale of fabricated metal products in U.S. Dollars to be supplied from a Euro functional currency entity. In line with its hedging policy, the Group entered into significant foreign exchange derivatives that match related highly probable future conversion sales by selling U.S. Dollars against Euros. The Group designated these derivatives for hedge accounting, with total nominal amount of $296 million as of June 30, 2019 ($369 million as of December 31, 2018) and maturities ranging from 2019 to 2022.
For hedges that do not qualify for hedge accounting, anymark-to-market movements are recognized in Other gains / (losses) – net.
-21-
The table below details the effect of foreign currency derivatives in the Unaudited Interim Income Statement and the Unaudited Interim Statement of Comprehensive Income / (Loss):
Three months | Three months | Six months | Six months | |||||||||||||||||
ended June 30, | ended June 30, | ended June 30, | ended June 30, | |||||||||||||||||
(In millions of Euros) | Notes | 2019 | 2018 | 2019 | 2018 | |||||||||||||||
Derivatives that do not qualify for hedge accounting | ||||||||||||||||||||
Included in Other gains / (losses) – net | ||||||||||||||||||||
Realized gains / (losses) on foreign currency derivatives – net | 7 | 2 | (1 | ) | 4 | (2 | ) | |||||||||||||
Unrealized (losses) / gains on foreign currency derivatives – net(A) | 7 | (1 | ) | 5 | 1 | 4 | ||||||||||||||
Derivatives that qualify for hedge accounting | ||||||||||||||||||||
Included in Revenue | ||||||||||||||||||||
Realized (losses) / gains on foreign currency derivatives – net | 7 | (1 | ) | 2 | (2 | ) | 4 | |||||||||||||
Unrealized (losses) on foreign currency derivatives – net | 7 | — | (1 | ) | — | (1 | ) | |||||||||||||
Included in Other gains / (losses) – net | ||||||||||||||||||||
Realized losses on foreign currency derivatives – net | 7 | (1 | ) | (2 | ) | (1 | ) | (1 | ) | |||||||||||
Unrealized gains / (losses) on foreign currency derivatives – net | 7 | — | — | — | — | |||||||||||||||
Included in other comprehensive income / (loss) | ||||||||||||||||||||
Unrealized gains / (losses) on foreign currency derivatives – net | 1 | (22 | ) | (7 | ) | (11 | ) | |||||||||||||
Gains / (Losses) reclassified from cash flow hedge reserve to Consolidated Income Statement | 1 | (1 | ) | 2 | (3 | ) |
(A) Gains or losses on the hedging instruments are expected to offset losses or gains on the underlying hedged forecasted sales that will be reflected in future periods when these sales are recognized.
20.2 Translation exposures
Foreign exchange impacts related to the translation to Euro of net investments in foreign subsidiaries, and related revenues and expenses are not hedged as the Group operates in these various countries on permanent basis, except as described below.
In June 2018, the Group entered into forward contracts with nominal amount of CHF174 million to hedge the currency risk associated with the translation of the net assets of its Swiss operations into the Group’s presentation currency. The Group designated these derivatives as a net investment hedge. The realized loss of the net investment hedge is included in Currency translation differences within Other comprehensive income for €2.8 million.
20.3 Liquidity and capital risk management
The liquidity requirements of the overall Company are funded by drawing on available credit facilities, while the internal management of liquidity is optimized by means of cash pooling agreements and/or intercompany loans and deposits between the Company’s operating entities and central Treasury.
At June 30, 2019, the borrowing base for thePan-U.S. ABL facility and the French inventory facility were $374 million and €78 million, respectively. After deduction of amounts drawn and letters of credit, the Group had €314 million of outstanding availability under these secured revolving credit facilities.
At June 30, 2019, liquidity was €588 million, comprised of €213 million of cash and cash equivalents and €375 million of available undrawn facilities, including the €314 million described above.
-22-
NOTE 21 - PENSIONS AND OTHER POST-EMPLOYMENT BENEFIT OBLIGATIONS
21.1 Actuarial assumptions
Pension and other post-employment benefit obligations were updated based on the discount rates applicable at June 30, 2019.
At June 30, | At December 31, | |||||||
2019 | 2018 | |||||||
Switzerland | 0.30% | 0.80% | ||||||
U.S. | ||||||||
Hourly pension | 3.60% - 3.70% | 4.40% - 4.45% | ||||||
Salaried pension | 3.70% | 4.45% | ||||||
OPEB | 3.65% - 3.85% | 4.40% - 4.55% | ||||||
Other benefits | 3.40% - 3.65% | 4.25% - 4.40% | ||||||
France | ||||||||
Retirements | 0.85% | 1.65% | ||||||
Other benefits | 0.65% | 1.35% | ||||||
Germany | 0.90% | 1.70% |
21.2 Amounts recognized in the Unaudited Interim Consolidated Statement of Financial Position
At June 30, 2019 | At December 31, 2018 | |||||||||||||||||||||||
Pension | Other | Pension | Other | |||||||||||||||||||||
(in millions of Euros) | Benefits | Benefits | Total | Benefits | Benefits | Total | ||||||||||||||||||
Present value of funded obligation | 745 | — | 745 | 674 | — | 674 | ||||||||||||||||||
Fair value of plan assets | (419 | ) | — | (419 | ) | (380 | ) | — | (380 | ) | ||||||||||||||
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Deficit of funded plans | 326 | — | 326 | 294 | — | 294 | ||||||||||||||||||
Present value of unfunded obligation | 131 | 215 | 346 | 115 | 201 | 316 | ||||||||||||||||||
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Net liability arising from defined benefit obligation | 457 | 215 | 672 | 409 | 201 | 610 | ||||||||||||||||||
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21.3 Amounts recognized in the Unaudited Interim Consolidated Income Statement
Three months ended June 30, 2019 | Three months ended June 30, 2018 | |||||||||||||||||||||||
Pension | Other | Pension | Other | |||||||||||||||||||||
(in millions of Euros) | Benefits | Benefits | Total | Benefits | Benefits | Total | ||||||||||||||||||
Service cost | ||||||||||||||||||||||||
Current service cost | (5 | ) | (1 | ) | (6 | ) | (3 | ) | (2 | ) | (5 | ) | ||||||||||||
Net interest | (2 | ) | (2 | ) | (4 | ) | (2 | ) | (2 | ) | (4 | ) | ||||||||||||
Immediate recognition of gains / (losses) arising over the period | — | (2 | ) | (2 | ) | — | — | — | ||||||||||||||||
Administrative expenses | — | — | — | (1 | ) | — | (1 | ) | ||||||||||||||||
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Total | (7 | ) | (5 | ) | (12 | ) | (6 | ) | (4 | ) | (10 | ) | ||||||||||||
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Six months ended June 30, 2019 | Six months ended June 30, 2018 | |||||||||||||||||||||||
Pension | Other | Pension | Other | |||||||||||||||||||||
(in millions of Euros) | Benefits | Benefits | Total | Benefits | Benefits | Total | ||||||||||||||||||
Service cost | ||||||||||||||||||||||||
Current service cost | (9 | ) | (3 | ) | (12 | ) | (8 | ) | (3 | ) | (11 | ) | ||||||||||||
Net interest | (4 | ) | (4 | ) | (8 | ) | (4 | ) | (4 | ) | (8 | ) | ||||||||||||
Immediate recognition of gains / (losses) arising over the period | — | (2 | ) | (2 | ) | — | — | — | ||||||||||||||||
Administrative expenses | (1 | ) | — | (1 | ) | (1 | ) | — | (1 | ) | ||||||||||||||
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Total | (14 | ) | (9 | ) | (23 | ) | (13 | ) | (7 | ) | (20 | ) | ||||||||||||
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-23-
21.4 Movement in net defined benefit obligations
At June 30, 2019 | ||||||||||||||||||||
Defined benefit obligations | ||||||||||||||||||||
Pension | Other | Plan | Net defined | |||||||||||||||||
(in millions of Euros) | benefits | benefits | Total | Assets | benefit liability | |||||||||||||||
At January 1, 2019 | 789 | 201 | 990 | (380 | ) | 610 | ||||||||||||||
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Included in the Consolidated Income Statement | ||||||||||||||||||||
Current service cost | 9 | 3 | 12 | — | 12 | |||||||||||||||
Interest cost / (income) | 9 | 4 | 13 | (5 | ) | 8 | ||||||||||||||
Immediate recognition of gains / (losses) arising over the period | — | 2 | 2 | — | 2 | |||||||||||||||
Administration expenses | — | — | — | 1 | 1 | |||||||||||||||
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Included in the Statement of Comprehensive Income / (Loss) | ||||||||||||||||||||
Remeasurement due to: | ||||||||||||||||||||
- actual return less interest on plan assets | — | — | — | (32 | ) | (32 | ) | |||||||||||||
- changes in financial assumptions | 77 | 16 | 93 | — | 93 | |||||||||||||||
- changes in demographic assumptions | — | — | — | — | — | |||||||||||||||
- experience losses | — | (1 | ) | (1 | ) | — | (1 | ) | ||||||||||||
Effects of changes in foreign exchange rates | 6 | 1 | 7 | (4 | ) | 3 | ||||||||||||||
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Included in the Consolidated Statement of Cash Flows | ||||||||||||||||||||
Benefits paid | (16 | ) | (11 | ) | (27 | ) | 15 | (12 | ) | |||||||||||
Contributions by the Group | — | — | — | (12 | ) | (12 | ) | |||||||||||||
Contributions by the plan participants | 2 | — | 2 | (2 | ) | — | ||||||||||||||
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At June 30, 2019 | 876 | 215 | 1,091 | (419 | ) | 672 | ||||||||||||||
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21.5 OPEB amendments
In the third quarter of 2018, the Group announced a plan to transfer certain participants in the Constellium Rolled Products Ravenswood Retiree Medical and Life Insurance Plan (“the Plan”) from a company sponsored program to a third-party health network that provides similar benefits at a lower cost.
The United Steelworkers Local Union 5668 is contesting the changes to the Plan and filed a lawsuit against Constellium Rolled Products Ravenswood, LLC in a federal district court in West Virginia (the “Court”) seeking to enjoin the Plan changes and to compel arbitration. The Court issued an order in December 2018 enjoining the Company from implementing the changes to the Plan pending resolution in arbitration.
The Group believes it has a strong legal position and that it is probable that it will ultimately prevail and be able to implement the Plan changes.
21.6 Net defined benefit obligations by country
At June 30, 2019 | At December 31, 2018 | |||||||||||||||||||||||
Defined benefit | Plan | Net defined | Defined benefit | Plan | Net defined | |||||||||||||||||||
(in millions of Euros) | obligations | assets | benefit liability | obligations | assets | benefit liability | ||||||||||||||||||
France | 169 | (3 | ) | 166 | 151 | (3 | ) | 148 | ||||||||||||||||
Germany | 148 | (1 | ) | 147 | 136 | (1 | ) | 135 | ||||||||||||||||
Switzerland | 280 | (194 | ) | 86 | 251 | (178 | ) | 73 | ||||||||||||||||
United States | 493 | (221 | ) | 272 | 451 | (198 | ) | 253 | ||||||||||||||||
Other countries | 1 | — | 1 | 1 | — | 1 | ||||||||||||||||||
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Total | 1,091 | (419 | ) | 672 | 990 | (380 | ) | 610 | ||||||||||||||||
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-24-
NOTE 22 - PROVISIONS
Close down and | ||||||||||||||||||||
environmental | Restructuring | Legal claims and | ||||||||||||||||||
(in millions of Euros) | Notes | remediation costs | costs | other costs | Total | |||||||||||||||
At January 1, 2019 | 83 | 3 | 54 | 140 | ||||||||||||||||
IFRIC 23 application | 2 | — | — | (20 | ) | (20 | ) | |||||||||||||
Allowance | — | — | 1 | 1 | ||||||||||||||||
Amounts used | — | — | (4 | ) | (4 | ) | ||||||||||||||
Unused amounts reversed | — | — | (3 | ) | (3 | ) | ||||||||||||||
Unwinding of discounts | 3 | — | — | 3 | ||||||||||||||||
Effects of changes in foreign exchange rates | — | — | — | — | ||||||||||||||||
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At June 30, 2019 | 86 | 3 | 28 | 117 | ||||||||||||||||
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Current | 5 | 2 | 15 | 22 | ||||||||||||||||
Non-Current | 81 | 1 | 13 | 95 | ||||||||||||||||
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Total Provisions | 86 | 3 | 28 | 117 | ||||||||||||||||
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Legal claims and other costs
At June 30, | At December 31, | |||||||
(in millions of Euros) | 2019 | 2018 | ||||||
Litigation(A) | 19 | 45 | ||||||
Disease claims | 4 | 4 | ||||||
Other | 5 | 5 | ||||||
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Total Provisions for legal claims and other costs | 28 | 54 | ||||||
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(A) | Decrease in provisions for litigation is mainly explained by the €20 million reclassification upon the adoption of IFRIC 23. |
Contingencies
The Group is involved, and may become involved, in various lawsuits, claims and proceedings relating to customer claims, product liability, and other commercial matters. The Group records provisions for pending litigation matters when it determines that it is probable that an outflow of resources will be required to settle the obligation, and such amounts can be reasonably estimated. In some proceedings, the issues raised are or can be highly complex and subject to significant uncertainties and amounts claimed are and can be substantial. As a result, the probability of loss and an estimation of damages are and can be difficult to ascertain. In exceptional cases, when the Group considers that disclosures relating to provisions and contingencies may prejudice its position, disclosures are limited to the general nature of the dispute
The Group is currently subject to an arbitration by a customer claiming that Constellium supplied defective products as a result of which the customer alleges it has suffered significant damages. The Group considers that the claim is without merit on both technical and legal grounds and is vigorously defending the action. For this matter and in respect of others which the Group considers are without merit, while it is possible that an unfavorable outcome may result, after assessing the information available, the Group has concluded that it is not probable that a loss has been incurred.
NOTE 23 -NON-CASH INVESTING & FINANCING TRANSACTIONS
Property, plant and equipment acquired through leases or financed by third parties amounted to €33 million and €1 million for the six months ended June 30, 2019 and 2018. These leases and financings are excluded from the Unaudited Interim Statement of Cash Flow as they arenon-cash transactions.
Fair values of vested Restricted Stock Units and Performance Stock Units amounted to €4 million and €3 million for the six months ended June 30, 2019 and June 30, 2018, respectively. They are excluded from the Unaudited Interim Statement of Cash flows asnon-cash financing activities.
-25-
NOTE 24 - SHARE CAPITAL
At June 30, 2019, authorized share capital amounts to €8 million and is divided into 400,000,000 Class A ordinary shares, each with a nominal value of €0.02. All shares have the right to one vote.
in millions of Euros | ||||||||||||
Number of | ||||||||||||
shares | Share capital | Share premium | ||||||||||
At January 1, 2019 | 135,999,394 | 3 | 420 | |||||||||
New shares issued(A) | 817,627 | — | — | |||||||||
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At June 30, 2019 | 136,817,021 | 3 | 420 | |||||||||
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(A) | Constellium SE issued and granted Class A ordinary shares to certain employees related to share-based compensation plans. |
NOTE 25 - SHARE-BASED COMPENSATION
Description of the plans
Performance-Based Restricted Stock Units (equity-settled)
In April 2019, the Company granted Restricted Stock Units (RSUs) and Performance Stock Units (PSUs) to selected employees. These units will vest after three years from the grant date if the following conditions are met:
• | A vesting condition under which the beneficiaries must be continuously employed by the Company through the end of the vesting period (3 years), and |
• | In respect of the PSUs, a performance condition, depending on the Total Stockholder Return (TSR) performance of Constellium shares over the vesting period compared to the TSR of specified indices. PSUs will ultimately vest based on a vesting multiplier which ranges from 0 to 2. |
The following table lists the inputs to the model used for the PSUs granted in April 2019:
Fair value at grant date (in Euros) | 10.44 | |||
Share price at grant date (in Euros) | 7.10 | |||
Dividend yield | — | |||
Expected volatility | 52 | % | ||
Risk-free interest rate (U.S. government bond yield) | 2.29 | % | ||
Model used | Monte Carlo |
The fair value of the RSUs awarded is the quoted market price of Constellium shares at grant date.
Expense recognized during the year
In accordance with IFRS 2, share-based compensation is recognized as an expense over the vesting period. The estimate of this expense is based upon the fair value of a Class A potential ordinary share at grant date. The total expense related to the potential ordinary shares amounted to €7 million and €6 million for the six months ended June 30, 2019 and June 30, 2018, respectively.
Movement of potential shares
The following table illustrates the number and movements in shares during the period:
Performance | Restricted | Equity Awards | Total | |||||||||||||
Based Shares | shares | Plan | Potential shares | |||||||||||||
At January 1, 2019 | 3,085,164 | 1,312,524 | 57,913 | 4,455,601 | ||||||||||||
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Granted(A) | 1,028,342 | 899,926 | 46,370 | 1,974,638 | ||||||||||||
Over-performance(B) | 21,802 | — | — | 21,802 | ||||||||||||
Vested | (807,665 | ) | (6,000 | ) | (42,559 | ) | (856,224 | ) | ||||||||
Forfeited(C) | (78,806 | ) | (20,737 | ) | — | (99,543 | ) | |||||||||
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| |||||||||
At June 30, 2019 | 3,248,837 | 2,185,713 | 61,724 | 5,496,274 | ||||||||||||
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(A) | For PSUs, the number of potential shares granted is presented using a vesting multiplier of 100%. |
(B) | When the achievement of TSR performance exceeds the vesting multiplier of 100%, the additional potential shares are presented as over-performance shares. |
(C) | For potential shares related to PSUs, 78,806 were forfeited following the departure of certain beneficiaries and none were forfeited in relation to thenon-fulfilment of performance conditions. |
-26-
NOTE 26 - SUBSEQUENT EVENTS
On July 9, 2019, Constellium SE called for redemption €100 million of the €300 million outstanding aggregate principal amount of the 4.625% Senior Notes due 2021. The redemption price for the Notes is 100% of the aggregate principal amount of the Notes redeemed, plus accrued and unpaid interest, if any, to the redemption date. The Company expects the redemption date for the Notes being redeemed to occur on August 8, 2019.
-27-