UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 20-F
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| REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
OR
| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the fiscal year ended December 31 , 2023
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
OR
| SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
Commission File Number 001-35931
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(Exact Name of Registrant as Specified in its Charter)
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Constellium SE
(Translation of Registrant’s name into English)
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(Jurisdiction of incorporation or organization)
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| (Head Office) | |||||
| (Address of principal executive offices) | |||||
Chief Securities Counsel | ||
Tel: ( | ||
(Name, telephone, e-mail and/or facsimile number and address of company contact person)
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Securities registered or to be registered pursuant to Section 12(b) of the Act.
| Title of each class | Trading Symbol | Name of each exchange on which registered | ||||||||||||
Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
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Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report: 146,819,884 Ordinary Shares, Nominal Value €0.02 per share
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. x Yes ☐ No
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. ☐ Yes x No
Note—Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
x Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer”, "accelerated filer", and "emerging growth company" in Rule 12b-2 of the Exchange Act.
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
| U.S. GAAP ☐ | Other ☐ | |||||||||||||
as issued by the International Accounting Standards Board x | ||||||||||||||
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow: Item 17 ☐ Item 18 ☐
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes x No
| PCAOB ID: | Auditor Name: | Auditor Location: | ||||||||||||
TABLE OF CONTENTS
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Item 12. Description of Securities Other than Equity Securities | |||||
| F-1 | |||||
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SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS
This annual report on Form 20-F (this “Annual Report”) of Constellium SE (“Constellium SE” or “the Company”, and when referred to together with its subsidiaries, "the Group" or "Constellium") contains “forward-looking statements” with respect to our business, results of operations and financial condition, and our expectations or beliefs concerning future events and conditions. You can identify certain forward-looking statements because they contain words such as, but not limited to, “believes,” “expects,” “may,” “should,” “approximately,” “anticipates,” “estimates,” “intends,” “plans,” “targets,” “likely,” “will,” “would,” “could” and similar expressions (or the negative of these terminologies or expressions). All forward-looking statements involve risks and uncertainties. Many risks and uncertainties are inherent in our industry and markets. Others are more specific to our business and operations. The occurrence of the events described and the achievement of the expected results depend on many events, some or all of which are not predictable or within our control. Actual results may differ materially from the forward-looking statements contained in this Annual Report.
Important factors that could cause actual results to differ materially from those expressed or implied by the forward-looking statements are disclosed under “Item 3. Key Information—D. Risk Factors” and elsewhere in this Annual Report, including, without limitation, in conjunction with the forward-looking statements included in this Annual Report. All forward-looking statements in this Annual Report and subsequent written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the cautionary statements. Some of the factors that we believe could materially affect our results include:
•We may not be able to compete successfully in the highly competitive markets in which we operate, and new competitors could emerge, which could negatively impact our share of industry sales, sales volumes and selling prices.
•Aluminium may become less competitive with alternative materials, which could reduce our sales volumes, or lower our selling prices.
•A significant portion of our revenue is derived from international operations, which exposes us to certain risks inherent in doing business globally.
•The price volatility of energy costs may adversely affect our profitability.
•If we are unable to substantially pass through to our customers the cost of price increases of our raw materials, which may be subject to volatility, our profitability could be adversely affected.
•Widespread public health pandemics, such as COVID-19, or any major disruption, could have a material and adverse effect on our business, financial condition and results of operations.
•The cyclical and seasonal nature of the metals industry, our end-use markets and our customers’ industries could adversely affect our financial condition and results of operations.
•We may be unable to execute and timely complete our expected capital investments, or may be unable to achieve the anticipated benefits of such investments.
•We may be affected by global climate change or by legal, regulatory, or market responses to such change, and our efforts to meet ESG targets or standards or to enhance the sustainability of our businesses may not meet the expectations of our stakeholders or regulators.
•Disruptions or failures in our IT systems, or failure to protect our IT systems against cyber-attacks or information security breaches, could have a material adverse effect on our business and financial results.
•Our failure to meet customer manufacturing and quality requirements, standards and demand, or changing market conditions could have a material adverse impact on our business, reputation and financial results.
•We are dependent on a limited number of customers for a substantial portion of our sales and a failure to successfully renew or renegotiate our agreements with such customers may adversely affect our results of operations, financial condition and cash flows.
•We are dependent on a limited number of suppliers for a substantial portion of our aluminium supply and a failure to successfully renew or renegotiate our agreements with our suppliers, or supply interruptions, may adversely affect our results of operations, financial condition and cash flows.
•The loss of certain members of our senior management team or other key employees may have a material adverse effect on our operating results.
•Our level of indebtedness could limit cash flow available for our operations and capital expenditures and could adversely affect our net income, our ability to service our debt or obtain additional financing, and our business relationships.
•We are a foreign private issuer under the U.S. securities laws and within the meaning of the New York Stock Exchange (“NYSE”) rules. As a result, we qualify for and rely on exemptions from certain corporate governance requirements and may rely on other exemptions available to us in the future.
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•Any inability of the Company to continue to benefit from French provisions applicable to registered intermediaries (“intermédiaires inscrits”) could adversely affect the rights of shareholders.
•The other factors presented under “Item 3. Key Information-D. Risk Factors.”
We caution you that the foregoing list may not contain all of the factors that are important to you. In addition, in light of these risks and uncertainties, the matters referred to in the forward-looking statements contained in this Annual Report may not in fact occur. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as required by law.
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PART I
Item 1. Identity of Directors, Senior Management and Advisers
Not applicable.
Item 2. Offer Statistics and Expected Timetable
Not applicable.
Item 3. Key Information
| A. | Selected Financial Data | ||||
Reserved.
| B. | Capitalization and Indebtedness | ||||
Not applicable.
| C. | Reasons for the Offer and Use of Proceeds | ||||
Not applicable.
| D. | Risk Factors | ||||
You should carefully consider the risks and uncertainties described below and the other information in this Annual Report. Our business, financial condition or results of operations could be materially and adversely affected if any of these risks occurs, and as a result, the market price of our outstanding securities could decline. This Annual Report also contains forward-looking statements that involve risks and uncertainties. See “Special Note About Forward-Looking Statements.” Our actual results could differ materially and adversely from those anticipated in these forward-looking statements as a result of certain factors.
BUSINESS AND OPERATIONAL RISKS
We may not be able to compete successfully in the highly competitive markets in which we operate, and new competitors could emerge, which could negatively impact our market share, sales volumes and selling prices.
We are engaged in a highly competitive industry and compete in the production and sale of rolled and extruded aluminium products with a number of other producers, some of which are larger and have greater financial and technical resources than we do. As a result, these competitors may have an advantage over us in their abilities to research and develop technology, pursue acquisitions, investments and other business opportunities, market and sell their products and services, capitalize on market opportunities, enter new markets, and withstand business interruptions, pricing reductions, or adverse industry or economic conditions. In addition, producers with a lower cost basis may, in certain circumstances, have a competitive advantage. Further, a current or new competitor may add or build new capacity, which could increase competitive pressure in our markets. New competitors could emerge within aluminium, steel, or other materials, that may seek to compete in our industry. Emerging or transitioning markets in regions with abundant natural resources, low-cost labor and energy, and lower environmental and other standards may pose a significant competitive threat to our business. Moreover, technological innovation is important to our customers who require us to lead or keep pace with new innovations to address their needs. If we do not compete successfully, our market share, sales volumes and financial position, results of operations and cash flows may be negatively impacted.
Aluminium may become less competitive with alternative materials, which could reduce our sales volumes, or lower our selling prices.
Our offerings compete with products made from other materials, such as steel, glass, plastics, and composite materials, for various applications. Higher aluminium prices relative to alternative materials tend to make aluminium products less
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competitive. Environmental and other regulations may also make our products less competitive as compared to materials that are subject to fewer regulations. Customers in our end-markets use and continue to evaluate the further use of alternative materials to aluminium in order to reduce the weight and increase the efficiency of their products. The willingness of customers to accept substitutions for aluminium, could materially adversely affect our financial position, results of operations and cash flows.
A significant portion of our revenue is derived from international operations, which exposes us to certain risks inherent in doing business globally.
We are a global company with our head office in Paris, France, with operations in France, the United States, Germany, Switzerland, the Czech Republic, Slovakia, China, Spain, Canada, and Mexico, and we sell our products primarily across Europe, North America, and Asia. Economic downturns in regional and global economies, or a prolonged recession in our principal industry segments, have had a negative impact on our operations in the past by reducing overall demand of our products, and could have a negative impact on our future financial condition or results of operations. Similarly, geopolitical tensions, instability, conflicts, and wars, such as the Russian war on Ukraine and the conflict in the Middle East and surrounding areas, terrorist acts and tensions between states can affect the normal and peaceful course of international relations, and can have an adverse impact on the economy and our financial condition.
We generally are subject to financial, political, economic, regulatory and business risks in connection with our global operations, including:
•changes in international governmental regulations, and other foreign trade restrictions and laws, including those relating to taxes, employment and repatriation of earnings;
•compliance with sanction regimes and export control laws of multiple jurisdictions;
•currency restrictions, currency exchange rate and interest rate fluctuations;
•the potential for nationalization of enterprises or government policies favoring local production;
•renegotiation or nullification of existing agreements;
•high rates of, excessive, sustained or prolonged inflation;
•differing protections for intellectual property and their enforcement;
•divergent environmental laws and regulations;
•significant supply/demand imbalances impacting our industry;
•public health crises, epidemics and pandemics, such as COVID-19;
•uncertain social, political, regulatory, or trade conditions and instability (e.g. U.K. Brexit, U.S. duties, tariffs, sanctions, embargoes and trade negotiations) and potential retaliatory measures by any negatively impacted countries;
•geopolitical tensions, international conflict, terrorist attacks, armed conflict and wars; and
•sustained economic downturns, volatility, and instability, regionally and globally.
The occurrence of any of these events could cause our costs to rise, limit growth opportunities, have a negative effect on our operations and financial results, as well as on our ability to plan for future periods. Similarly, if any of our customers or suppliers are similarly impacted, we could be indirectly impacted and our operations and financial results could be adversely affected. In addition, any of the above events may be heightened due to the ongoing Russian war on Ukraine as well as the conflict in the Middle East, and resulting armed and international conflicts and geopolitical tensions. The duration and consequences of such conflicts and wars are uncertain and unpredictable, and we may not be able to adequately foresee events that could disrupt, and have a negative impact on our operations. Moreover, the continuation of these armed conflicts is likely to contribute to further instability in the global economy, financial markets, and supply chains.
The price volatility of energy costs may adversely affect our profitability.
Our operations use natural gas and electricity, which represent a large component of our cost of sales, after metal, labor costs, and depreciation. We typically purchase the majority of our natural gas and electricity requirements on a forward basis under fixed price commitments or long-term contracts with suppliers which provides increased visibility on costs. However, the volatility in costs of fuel, principally natural gas, and other utility services used by our manufacturing facilities affects operating costs. Fuel and utility prices are affected by factors outside our control, such as supply and demand in both local and regional markets as well as governmental regulation, imposition of taxes on energy and costs associated with CO2 emissions, which costs could be significantly impacted during times of economic and political instability, and excessive inflation. The price
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exposure of our energy requirements has been negatively impacted since late 2021 when the energy crisis in Europe began, has been further affected by the Russian war on Ukraine and related reductions in natural gas flows from Russia to Europe, and is expected to continue in the future. We are a significant purchaser of energy, existing and future regulations relating to the emissions by our energy suppliers could result in materially increased energy costs for our operations, particularly during periods of excessive or prolonged inflation, which we may be unable to pass through to our customers. Although we have secured a large part of our near-term natural gas and electricity supply under fixed price commitments or annual or multi-year contracts with suppliers, future increases in fuel and utility prices, prolonged periods of excessive inflation, and/or disruptions in energy supply, as we have experienced, may have an adverse effect on our financial condition, results of operations and cash flows.
If we are unable to substantially pass through to our customers the cost of price increases of our raw materials, which may be subject to volatility, our profitability could be adversely affected.
Prices for the raw materials we require are subject to continuous volatility and may increase from time to time. The overall price of primary aluminium consists of several components: (1) the underlying base metal component, which is typically based on quoted prices from the London Metal Exchange (“LME”); (2) the regional premium, which represents an incremental price over the base LME component that is associated with the physical delivery of metal to a particular region (e.g., the Midwest premium for metal sold in the United States or the Rotterdam premium for metal sold in Europe); and (3) the product premium, which represents a separate incremental price for receiving physical metal in a particular shape (e.g., billet, slab, rod, etc.), alloy, or purity. Each of these three components has its own drivers of variability. The LME price is typically driven by macroeconomic factors, including the global supply and demand of aluminium. Regional premiums tend to vary based on the supply and demand for metal in a particular region, changes in tariffs and associated warehousing and transportation costs. Product premiums generally are a function of supply and demand as well as production and raw material costs for a given primary aluminium shape and alloy combination in a particular region. Raw materials used in our products include alloying elements, such as magnesium, manganese, silicon, zinc, or copper. Prices for these alloying elements are subject to constant volatility and, may increase significantly from time to time.
Sustained high raw material prices, increases in raw material prices, the inability to meaningfully hedge our exposure to such prices, or the inability to pass through any fluctuation in regional premiums, product premiums or other raw material costs to our customers, could have a material adverse effect on our business, financial condition, and results of operations and cash flow. In addition, although our sales are generally made on a “margin over metal (aluminium) price” basis, if aluminium prices increase, we may not be able to pass on the entire increase to our customers. There could also be a time lag between when changes in metal prices under our purchase contracts are effective and the point when we can implement corresponding changes under our sales contracts with our customers. As a result, we may be exposed to the effects of fluctuations in raw material prices, including aluminium, due to this time lag. Further, although most of our contracts allow us to substantially pass through aluminium prices to our customers, we have certain contracts that are based on fixed pricing, where pass-through is not available. Similarly, in certain contracts we may have ineffective pass-through mechanisms related to regional premium fluctuation and fluctuations in raw material cost, such as alloying elements. We attempt to mitigate these risks through hedging and by improving the pass-through mechanisms, but we may not be able to successfully reduce or eliminate all of the resulting impact, including higher operating costs, which could have a material adverse effect on our financial results and cash flows.
Widespread public health pandemics, such as COVID-19, or any major disruption, could have a material and adverse effect on our business, financial condition, and results of operations.
Any public health pandemic, such as COVID-19, and any other disease outbreak in countries where we, our customers or our suppliers operate could have a material and adverse effect on our business, financial condition, and operations locally and globally. As a result of COVD-19, we experienced disruptions in production and operations at both our facilities and those of our customers and suppliers, our sales and operating margins were negatively affected, which adversely impacted our revenues and operating margins. Related disruptions such as cancellations, delays and increased transport times for delivery of materials to our facilities, negatively impacted our ability to timely manufacture and ship our products to customers. Any similar pandemic, other health crisis or related continuous disruption, may adversely impact our supply chain and operations in the affected areas and could have a material impact on our business, financial condition and results of operations.
The cyclical and seasonal nature of the metals industry, our end-use markets and our customers’ industries could adversely affect our financial condition and results of operations.
Our end-markets are cyclical and tend to directly correlate with changes in general and local economic conditions. These conditions include the level of economic growth, affordable energy sources, employment levels, the availability of financing, interest rates, consumer confidence and housing demand. We are particularly sensitive to cyclicality in the aerospace,
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automotive, defense, industrial and transportation end-markets. During recessions or periods of low growth, these industries typically experience major cutbacks in production, resulting in decreased demand for aluminium products. This leads to significant fluctuations in demand and pricing for our products and services. Because our operations are capital intensive and we generally have high fixed costs and may not be able to reduce costs and production capacity on a sufficiently rapid basis, our near-term profitability may be significantly affected by decreased processing volumes. Customer demand is also affected by holiday seasons, seasonal slowdowns, weather conditions, economic downturns, and other factors beyond our control. In addition, customer demand can be negatively affected during periods of destocking when inventory levels in the supply chain are higher than normal and our customers and other participants in the supply chain consume their inventory in order to reduce inventory levels. Accordingly, cyclical fluctuations and seasonality, reduced demand and pricing pressures may significantly reduce our profitability and materially adversely affect our financial condition, results of operations and cash flows.
We may be unable to execute and timely complete our expected capital investments or may be unable to achieve the anticipated benefits of such investments.
Our operations are capital intensive. We may not generate sufficient operating cash flows and our external financing sources may not be available in sufficient amounts to enable us to make anticipated capital expenditures, or to complete them on a timely basis. If we are unable to, or determine not to, complete our expected investments, or such investments are delayed, we will not realize the anticipated benefits of such investments. In addition, if we are unable to make investments for upgrades and repairs or purchase new plants and equipment, our financial condition and results of operations could be materially adversely affected by higher maintenance costs, lower sales volumes due to the impact of reduced product quality, operational disruptions, reduced production capacity, and other competitive factors. Customer demand for our products produced on new investments may be slow to materialize, and new equipment may not perform to our expectations. These factors could adversely affect our results of operations.
We may fail to implement or execute our business strategy, successfully develop, and implement new technology initiatives and other strategic investments.
Our future financial performance and success depend in large part on our ability to successfully implement and execute our business strategy, including investing in high-return opportunities in our core markets, focusing on higher-margin, technologically advanced products, differentiating our products, expanding our strategic relationships with customers, containing our costs, and executing on our manufacturing productivity improvement programs. Any inability to execute on our strategy could reduce our expected earnings and could adversely affect our operations overall.
In addition, being at the forefront of technological development is important to remain competitive. We have invested in, and are involved with, a number of technology and process initiatives. Several technical aspects of certain of these initiatives are still unproven and the eventual commercial outcomes and feasibility cannot be assessed with any certainty. Even if we are successful with these initiatives, we may not be able to bring them to market as planned before our competitors or at all, and the initiatives may end up costing more than expected. As a result, the costs, and benefits from our investments in new technologies and the impact on our financial results may vary from present expectations. Further, we have undertaken and may continue to undertake strategic growth, streamlining and productivity initiatives and investments to improve performance. We cannot assure you that these initiatives will be completed or that they will have their intended benefits. Capital investments in debottlenecking or other organic growth initiatives may not produce the returns we anticipate.
We may be affected by global climate change or by legal, regulatory, or market responses to such change, and our efforts to meet ESG targets or standards or to enhance the sustainability of our businesses may not meet the expectations of our stakeholders or regulators.
From time to time, our business may be impacted by severe weather conditions, natural disasters, resulting outages, supply or logistics disruptions and shortages, which can be further impacted by ongoing global climate change, and which can adversely impact our operations and financial condition. In addition, climate change is now a focus globally and has led to new and proposed legislative and regulatory initiatives. New or revised laws and regulations in this area could directly and indirectly affect us, our customers, and suppliers, including by increasing the costs of production or impacting demand for certain products, which could result in an adverse effect on our financial condition, results of operations and cash flows. Compliance with any new or more stringent laws or regulations or stricter interpretations of existing laws, could require additional expenditures by us or our customers or suppliers. We rely on natural gas, electricity, fuel oil and transport fuel to operate our facilities. We are also subject to environmental reviews, investigations, and remediation by relevant governmental authorities from time to time. Any scrutiny or increased costs of these energy sources in response to new laws and regulatory requirements could be passed through to us, our customers, and suppliers, which could also have a negative impact on our financial condition and profitability.
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In addition, some of our shareholders, investors, customers, or those considering such a relationship with us, may evaluate our business or other practices according to a variety of environmental, social, and governance (“ESG”) targets and standards and expectations. Further, we define our own corporate purpose, in part, by the sustainability of our practices and our impact on all our stakeholders. As a result, our efforts to conduct our business in accordance with some or all these expectations may involve trade-offs and may not satisfy all stakeholders. Our policies and processes to evaluate and manage ESG targets and standards in coordination with other business priorities may not prove completely effective. As a result, we may face regulatory, investor, media, or public scrutiny that may adversely affect our business, our results of operations, or our financial condition.
Disruptions or failures in our IT systems, or failure to protect our IT systems against cyber-attacks or information security breaches, could have a material adverse effect on our business and financial results.
We rely on our IT systems to effectively manage and operate our business, including such processes as data collection, accounting, financial reporting, communications, supply chain, order entry and fulfillment, other business processes, and in operating our equipment. The failure of our IT systems to perform efficiently could disrupt our business and could result in transaction errors, processing inefficiencies, limited equipment utilization, the loss of sales, customers, or intellectual property, causing our business and financial results to suffer. A failure in, or breach of, our IT systems as a result of cyber-attacks or information security breaches could disrupt our business, result in the disclosure or misuse of confidential or proprietary information, damage our reputation, increase our costs or cause losses. As cyber threats continue to evolve, we frequently adjust our security measures and procedures to allow us to investigate and promptly remediate any information security issues. Information security risks continue to grow with the ongoing proliferation of new technologies and the sophistication and high level of activity of perpetrators of cyber-attacks, particularly during periods of domestic and international conflict, and geopolitical tension. Moreover, with remote working remaining an option as a result of the COVID-19 pandemic, we continue to have a dependency on remote equipment and connectivity infrastructure to access critical business systems that may be subject to failure, disruption, or unavailability, and which increases our exposure to security breaches. Any of these events could negatively impact our operations. We did not have any significant security incidents or intrusions in 2023 that adversely impacted our systems or business.
We continuously evaluate our IT systems and security processes, including conducting third party security assessments. We continue to make investments and adopt measures designed to enhance our protection, detection, response, and recovery capabilities, and to mitigate potential risks to our technology, products, services, and operations from potential cyber-attacks. However, given the unpredictability, nature, and scope of cyber-attacks, it is possible that potential vulnerabilities could go undetected for an extended period. We, and our suppliers, could potentially be subject to operational disruption to our respective information systems, which could cause production downtime, operational delays or outages, other adverse impacts on our operations or ability to provide products and services to our customers, the compromise of confidential or otherwise protected information, misappropriation, destruction or corruption of data (including customer and order data), security breaches, other manipulation or improper use of our or third-party systems, networks or products. Any of the aforementioned events could lead to financial losses from remedial actions, loss of business or potential liability, and/or damage our reputation, which could have a material adverse effect on our competitive position, results of operations, cash flows or financial condition.
Our failure to meet customer manufacturing and quality requirements, standards, and demand, or changing market conditions could have a material adverse impact on our business, reputation, and financial results.
Product manufacturing in our business is a highly complex process. Our customers specify quality, performance, and reliability standards that we must meet. If our products do not meet these standards or are defective, we may be required to replace or rework the products. We have experienced product quality, performance or reliability problems and defects from time to time and similar defects or failures may occur in the future.
Some additional factors that could adversely impact our ability to meet our customer requirements and demand, or changing market conditions include:
•making substantial capital investments to repair, maintain, upgrade, and expand our facilities and equipment. Notwithstanding our ongoing plans and investments to increase our capacity, we may not be able to expand our production capacity quickly enough to meet our customer requirements;
•unplanned business interruptions caused by events such as explosions, fires, inclement weather, natural disasters, pandemics, economic and political instability and unrest, wars, accidents, equipment failure and breakdown, IT systems and process failures, electrical blackouts or outages, transportation and, global and regional supply interruptions. Any such disruption at one or more of our manufacturing facilities could cause substantial losses or delays in our production capacity, increase our operating costs, and have a negative financial impact on the Company
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and our customers. Business and operational interruptions may also harm our reputation among actual and potential customers, and the reputation of our customers;
•qualification of our products by our customers which can be lengthy and unpredictable as many of these customers have extensive sourcing and qualification processes, and require substantial time and financial resources, with no certainty of success or recovery of our related expenses and investments. Failure to qualify or re-qualify our products may result in us losing such customers or customer contracts; and
•implementing manufacturing processes in new locations, or for new equipment or newly introduced products, may experience difficulties, including operational and manufacturing disruptions, delays, or other complications, which could adversely affect our ability to timely launch or ramp-up productions and serve our customers.
If these or any other similar manufacturing or quality failures occur, they could result in losses or product recalls, customer penalties, contract cancellation and product liability exposure. Further, they could adversely affect product demand, result in negative publicity, damage our reputation, and could lead to loss of customer confidence in our products, which could have a material adverse impact on our business, financial position, and results of operations.
We are dependent on a limited number of customers for a substantial portion of our sales and a failure to successfully renew or renegotiate our agreements with such customers may adversely affect our results of operations, financial condition, and cash flows.
Our business is exposed to customer concentration risk. A significant downturn in the business, credit or financial condition of our largest customers could expose us to the risk of default on contractual agreements.
Some of our customer contracts and related arrangements are subject to renewal, renegotiation, or re-pricing at periodic intervals or upon changes in competitive and regulatory supply conditions, provide termination rights to our customers, or may have provisions that may become less favorable to us over time. If we fail to successfully renew or renegotiate these contracts or arrangements, negotiate improved terms, or if we are not successful in replacing business lost from such customers, then our results of operations, financial condition and cash flows could be materially adversely affected. Similarly, any material deterioration in, or termination of, these customer relationships could result in a reduction or loss in sales volume or revenue which could materially adversely affect our results of operations, financial condition, and cash flows.
Relatedly, we have dedicated facilities serving certain of our customers which subjects us to the inherent risk of increased dependence on such customers with respect to these facilities. In such cases, the loss of such a customer, or the reduction of that customer’s business at these facilities, or the deterioration of such customer’s credit or financial condition, could materially adversely affect our financial condition and results of operations, and we may be unable to timely replace, or replace at all, lost order volumes and revenue.
The ability of large customers to exert leverage in the market to reduce the pricing for our aluminium products, could materially adversely affect our financial position, results of operations and sash flows. In addition, customers in our end-markets, including the packaging, automotive, and aerospace sectors, may consolidate and grow in a manner that could affect their relationships with us. For example, if our customers become larger and more concentrated, they could exert financial pressure on all suppliers, including us. Accordingly, our ability to maintain or raise prices in the future may be limited, including during periods of raw material and other cost increases. If we are forced to reduce or maintain prices or reduce volumes of production during periods of increased costs, or if we lose customers because of consolidation, pricing or other methods of competition, our financial position, results of operations and cash flows may be adversely affected. If as a result of consolidation in our industry, our competitors are able to exert financial pressure on suppliers, obtain more favorable terms or otherwise take actions that could increase their competitive strengths, our competitive position may be materially adversely affected.
We are dependent on a limited number of suppliers for a substantial portion of our aluminium supply and a failure to successfully renew or renegotiate our agreements with our suppliers, or supply interruptions, may adversely affect our results of operations, financial condition, and cash flows.
Our ability to produce competitively priced aluminium products depends on our ability to procure competitively priced aluminium in a timely manner and in sufficient quantities to meet our production needs. We have supply arrangements with a limited number of suppliers for aluminium. Increasing aluminium demand levels and reduced availability have caused regional supply constraints in the industry, and further increases in demand and capacity limitations could exacerbate these issues, particularly during periods of economic and political instability and conflict. We maintain annual and multi-year contracts for a majority of our supply requirements and depend on spot purchases for the remainder of such requirements. There can be no
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assurance that we will be able to renew or obtain replacements for such contracts when they expire on favorable terms, or at all. Additionally, if any of our key suppliers is unable to deliver sufficient quantities on a timely basis, our production may be disrupted, and we could be forced to purchase primary metal or other raw materials from alternative sources, which may not be available in sufficient quantities or may only be available on terms that are less favorable to us and could also impact our overall sustainability targets. An interruption in key supplies required for our operations could have a material adverse effect on our ability to produce and deliver products on a timely or cost-efficient basis and therefore on our financial condition, results of operations and cash flows. Moreover, a significant downturn in the business or financial condition of our significant suppliers exposes us to the risk of default by the supplier on our contractual agreements.
We depend on aluminium scrap for our operations and acquire our scrap inventory from numerous sources. Our suppliers generally are not bound by long-term contracts and have no obligation to sell aluminium scrap to us. As an example, a decrease in the supply of used beverage containers (UBCs) could negatively impact our supply of aluminium. In addition, when using recycled material, we benefit from the difference between the price of primary aluminium and aluminium scrap. Consequently, if this difference narrows for a considerable period of time or if an adequate supply of aluminium scrap is not available to us, we would be unable to recycle metals at desired volumes and our results of operations, financial condition and cash flows could be materially adversely affected.
In addition, we depend on certain alloying elements for our operations and the production of such alloying elements is highly concentrated in certain countries. The suppliers of alloying elements are not bound by long-term contracts and have no obligation to sell products to us. The availability and price exposure of alloying elements has been negatively impacted since late 2020 and this could continue in the future. This is also driven by government policy changes in countries like China, for example, where these alloying elements are produced. Consequently, if prices increase for a considerable period of time or if an adequate supply of alloying elements is not available to us, we would be unable to produce aluminium at desired volumes and our results of operations, financial condition and cash flows could be materially adversely affected.
We may be exposed to fraud, misconduct, corruption, or other illegal activity which could harm our reputation and our financial results.
We may be exposed to fraud, misconduct, corruption or other illegal activity by our employees, independent contractors, consultants, commercial partners, and vendors. Despite the internal controls and the policies and procedures we have developed and implemented to ensure strict compliance with anti-bribery, anti-money laundering, anti-corruption and other laws, violations or misconduct by these parties could include intentional, reckless, and negligent conduct, which can be difficult to detect, and such policies and procedures may not be effective in all instances to prevent these actions. In addition, regulators and enforcement agencies continue to devote greater resources to the enforcement of the Foreign Corrupt Practices Act, Loi Sapin II, and other anti-money laundering laws and anti-corruption laws.
Any determination of fraud or violation of laws in any jurisdictions in which we do business, could subject us to, among other things, civil and criminal penalties, material fines, profit disgorgement, injunctions, securities litigation, and reputational damage, any of which could adversely affect our business, financial position or results of operations.
The loss of certain members of our senior management team or other key employees may have a material adverse effect on our operating results.
Our success depends, in part, on the efforts of our senior management and other key employees. These individuals, including our Chief Executive Officer, Chief Operating Officer, and Chief Financial Officer, possess sales, marketing, engineering, technical, manufacturing, financial and administrative skills that are critical to the operation of our business. If we lose or suffer an extended interruption in the services of one or more of our senior officers or other key employees, or the cost of labor significantly increases, our ability to operate and expand our business, improve our operations, develop new products, and, as a result, our financial condition, and results of operations, may be adversely affected. Moreover, the hiring of qualified individuals is highly competitive in our industry, which is exacerbated by continuing labor shortages, and we may not be able to attract and retain qualified personnel to replace or succeed members of our senior management or other key employees. Further, the failure to retain or provide adequate succession plans for key personnel could adversely affect our operations and competitiveness.
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We could experience labor disputes and work stoppages, or be unable to renegotiate collective bargaining agreements, which could disrupt our business and have a negative impact on our financial condition and results of operations.
A significant number of our employees are represented by unions or equivalent bodies or are covered by collective bargaining or similar agreements that are subject to periodic renegotiation. Although we believe that we will be able to successfully negotiate new collective bargaining agreements when the current agreements expire, these negotiations may not prove successful, and may result in a significant increase in the cost of labor or may break down and result in the disruption or cessation of our operations. In addition, from time to time, we may experience labor disputes and work stoppages at our facilities generally, and at times in connection with collective bargaining agreement negotiations. Reasons for stoppages include disapproval of governmental measures, solidarity with a dismissed employee, wage claims, protests against working conditions and/or strikes. These disruptions can have a duration ranging from hours to weeks. Existing collective bargaining agreements may not prevent a strike or work stoppage at our facilities. Any such stoppages or disturbances may adversely affect our financial condition and results of operations by limiting plant production, sales volumes, profitability, and operating costs.
We could be required to make unexpected contributions to our defined benefit pension plans as a result of adverse changes in interest rates and the capital markets.
We have substantial pension and other post-employment benefit obligations. Most of our pension obligations relate to defined benefit pension plans for our employees in the United States, Switzerland, France and Germany, and lump sum indemnities payable to our employees in France and Germany upon retirement or termination. Our estimates of liabilities and expenses for pensions and other post-retirement benefits incorporate a number of assumptions, including interest rates used to discount future benefits. Our liquidity or shareholders’ equity in a particular period could be materially adversely affected by capital market returns that are less than their assumed long-term rate of return or a decline in the rate used to discount future benefits. Our pension plan assets consist primarily of funds invested in diversified portfolios. If the assets of our pension plans do not achieve assumed investment returns for any period, such deficiency could result in one or more charges against shareholders’ equity for that period. In addition, changing economic conditions, poor pension investment returns or other factors may require us to make unexpected cash contributions to the pension plans in the future, preventing the use of such cash for other purposes.
In addition, one of our facilities in the United States participates in various “multi-employer” pension plans administered by labor unions representing some of our employees. In the ordinary course of our renegotiation of collective bargaining agreements with labor unions that maintain these plans, we could decide to discontinue participation in a plan, and potentially be faced with significant withdrawal liability. Further, if any of the other plan sponsors were to fail to meet their obligations, we could be exposed to increased liability. Any of these potential increased liabilities could have an adverse effect on our results of operations or financial condition.
FINANCIAL RISKS
Our level of indebtedness could limit cash flow available for our operations and capital expenditures and could adversely affect our net income, our ability to service our debt or obtain additional financing, and our business relationships.
We have a significant amount of indebtedness. To service such debt, we require a significant amount of cash. We believe that the cash provided by our operations or future borrowings will be sufficient to provide for our cash requirements for the foreseeable future. However, our ability to satisfy our obligations depends on our future operating performance and financial results, which are subject, in part, to factors beyond our control, including interest rates and general economic, financial, and business conditions. We cannot assure you that our business will generate sufficient cash flow from operations or that future borrowings will be available to us in an amount sufficient to enable us to pay our indebtedness or to fund our other liquidity needs.
In addition, our level of indebtedness could adversely affect our operations by:
•reducing the availability of our cash flow to fund working capital, capital expenditures, research and development efforts and other general corporate purposes;
•adversely affect the terms under which suppliers provide goods and services to us;
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•limit our flexibility in planning for, or reacting to, changes in our business and the markets in which we compete, including limiting our ability to make strategic acquisitions; and
•place us at a competitive disadvantage compared to our competitors that have less debt.
If we are unable to meet our debt service obligations and pay our expenses, we may be forced to reduce or delay business activities and capital expenditures, sell assets, obtain additional debt or equity capital, restructure, or refinance all or a portion of our debt before maturity or take other measures. Such measures may materially adversely affect our business. If these alternative measures are unsuccessful, we could default on our obligations, which could result in the acceleration of our outstanding debt obligations and could have a material adverse effect on our business, results of operations and financial condition.
A failure to comply with our debt covenants could result in an event of default. If we default under our indebtedness, we may not be able to borrow additional amounts, and our lenders could elect to declare all outstanding borrowings, plus accrued and unpaid interest, and fees, to be due and payable, or take other remedial actions. Our indebtedness also contains cross-default provisions, which means that if an event of default occurs under certain material indebtedness, such event of default could trigger an event of default under our other indebtedness. If our debt payments were to be accelerated, we cannot assure you that our assets would be sufficient to repay such debt in full and our lenders could consequently foreclose on our pledged assets.
In addition, a deterioration in our financial position or a downgrade of our credit ratings could adversely affect our financing levels, limit access to the capital or credit markets or our liquidity facilities, or otherwise adversely affect the availability of other new financing on favorable terms or at all, result in more restrictive covenants in agreements governing the terms of any future indebtedness that we incur, increase our borrowing costs, or otherwise impair our business, financial condition and results of operations. Such deterioration or downgrade of our credit ratings could also have an adverse effect on our business relationships with customers, suppliers and hedging counterparties.
Our results of operations, cash flows and liquidity could be adversely affected if we are unable to execute on our hedging policy, if counterparties to our derivative instruments fail to honor their agreements or if we are unable to enter into certain derivative instruments.
We purchase and sell forwards, futures and, from time to time, options contracts as part of our efforts to reduce our exposure to changes in currency exchange rates, aluminium prices and other raw materials and energy prices. If we are unable to enter into such derivative instruments to manage those risks due to the cost or availability of such instruments or other factors, or if we are not successful in passing through the costs of our risk management activities, our results of operations, cash flows and liquidity could be adversely affected. Our ability to realize the benefit of our hedging program is dependent upon many factors, including factors that are beyond our control. For example, our foreign exchange hedges are scheduled to mature on the expected payment date by the customer; therefore, if the customer fails to pay an invoice on time and does not warn us in advance, we may be unable to reschedule the maturity date of the foreign exchange hedge, which could result in an outflow of foreign currency that will not be offset until the customer makes the payment. We may realize a gain or a loss in unwinding such hedges. In addition, our metal-price hedging program depends on our ability to match our monthly exposure to sold and purchased metal, which can be made difficult by seasonal variations in metal demand, unplanned changes in metal delivery dates by either us, our suppliers, or by our customers and other disruptions to our inventories. We may also be exposed to losses if the counterparties to our derivative instruments fail to honor their agreements.
With the exception of hedges on certain long-term aerospace contracts, we do not apply hedge accounting to our forwards, futures, or option contracts. Unrealized gains and losses on our derivative financial instruments that do not qualify for hedge accounting are reported in our consolidated results of operations, or in the case of hedges relating to our indebtedness, in Finance cost - net. The inclusion of such unrealized gains and losses in earnings may produce significant period-over-period earnings volatility that is not necessarily reflective of our underlying operating performance. In addition, in certain scenarios when market price movements result in a decline in value of our current derivatives position, our mark-to-market expense may exceed our credit line and counterparties may request the posting of cash collateral which, in turn, can be a significant demand on our liquidity.
At certain times, hedging instruments may simply be unavailable or not available on terms acceptable to us. In addition, current legislation increases the regulatory oversight of over-the-counter derivatives markets and derivative transactions. The companies and transactions that are subject to these regulations may change. If future regulations subject us to additional capital or margin requirements or other restrictions on our trading and commodity positions, this could have an adverse effect on our financial condition and results of operations.
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Changes in income tax rates or income tax laws, additional income tax liabilities due to unfavorable resolution of tax audits, and challenges to our tax position could have a material adverse impact on our financial results.
We operate in multiple tax jurisdictions and believe that we file our tax returns in compliance with the tax laws and regulations of these jurisdictions. Various factors determine our effective tax rate and/or the amount we are required to pay, including changes in or interpretations of tax laws and regulations in any given jurisdiction or global- and EU-based initiatives (some such tax laws and regulations aim, among other things, to address tax avoidance by multinational companies), changes in geographical allocation of income and expense, the ability to use net operating loss and other tax attributes, and the evaluation of deferred tax assets that requires significant judgment. Any resulting changes to our effective tax rate could materially adversely affect our financial position, liquidity, results of operations and cash flows.
In addition, due to the size and nature of our business, we are subject to ongoing reviews by tax authorities on various tax matters, including challenges to positions we assert on our income tax and withholding tax returns. We accrue income tax liabilities and tax contingencies based upon our best estimate of the taxes ultimately expected to be paid after considering our knowledge of all relevant facts and circumstances, existing tax laws and regulations and how the tax authorities and courts view certain issues. Such amounts are included in income taxes payable or deferred income tax liabilities, as appropriate, and updated over time. Any material adverse review could impact our financial position and results of operations.
LEGAL, GOVERNANCE AND COMPLIANCE RISKS
Significant legal proceedings and investigations, proprietary claims, regulatory and compliance costs, including on environmental matters, could increase our operating costs and adversely affect our financial condition and results of operations.
We may from time to time be involved in, or be the subject of, disputes, proceedings and investigations with respect to a variety of matters, including matters related to personal injury, product liability and warranty claims, intellectual property rights or defending claims of infringement, employees, taxes, contracts, anti-competitive or anti-corruption practices as well as other disputes and proceedings that arise in the ordinary course of our business. It could be costly to address these claims or any related investigations, whether meritorious or not, and if found liable, we could be required to pay substantial monetary damages. Legal proceedings and investigations could also divert management’s attention as well as operational resources, adversely affecting our financial position, results of operations, cash flows, and reputation.
We believe that our intellectual property has significant value and is important to the marketing of our products and maintaining our competitive advantage. Although we attempt to protect our intellectual property rights through a combination of patent, trademark, trade secret and copyright laws, as well as through confidentiality and nondisclosure agreements and other measures, these measures may not be adequate to fully protect our rights. For example, we have a presence in China, which historically has afforded less protection to intellectual property rights than the United States or Europe. Our failure to obtain or maintain adequate protection of our intellectual property rights for any reason could have a material adverse effect on our business, results of operations and financial condition, we therefore may incur significant costs protecting such rights.
Our operations are subject to international, national, state, and local laws and regulations in the jurisdictions where we do business, which govern, among other things, air emissions, wastewater discharges, the handling, storage and disposal of hazardous substances and wastes, the remediation of contaminated sites, and employee health and safety. As of December 31, 2023, we had close down and environmental remediation costs provisions of €86 million. Future environmental regulations, requirements or more aggressive enforcement of existing regulations could impose stricter compliance requirements on us and on the industries in which we operate, such as legislative efforts to limit greenhouse gas emissions, including carbon dioxide. If we are unable to comply with these laws and regulations, we could incur substantial costs, including fines and civil or criminal sanctions, or costs associated with upgrades to our facilities or changes in our manufacturing processes in order to achieve and maintain compliance.
We are a foreign private issuer under the U.S. securities laws and within the meaning of the New York Stock Exchange (“NYSE”) rules. As a result, we qualify for and rely on exemptions from certain corporate governance requirements and may rely on other exemptions available to us in the future.
As a “foreign private issuer,” as defined in Rule 405 under the Securities Act of 1933, as amended (the “Securities Act”), we are permitted to follow our home country practice in lieu of certain corporate governance requirements of the NYSE. Foreign private issuers are also exempt from certain U.S. securities law requirements applicable to U.S. domestic issuers,
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including the requirement to file quarterly reports on Form 10-Q, requirements relating to the solicitation of proxies for shareholder meetings under Section 14 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Section 16 filings.
So long as we qualify as a foreign private issuer, you may not have the same protections applicable to companies that are subject to all of the NYSE corporate governance requirements.
If we were to lose or relinquish our status as a foreign private issuer, our regulatory and compliance costs could be significantly more than the costs we currently incur. We would be required to file periodic reports and registration statements on U.S. domestic issuer forms with the U.S. Securities and Exchange Commission (the “SEC”), including proxy statements pursuant to Section 14 of the Exchange Act, which are more detailed and extensive than the forms available to a foreign private issuer, and on a more abbreviated timetable than is applicable to our current SEC filings. In addition, our directors and executive officers would become subject to insider short-swing profit disclosure and recovery rules under Section 16 of the Exchange Act, and we would lose our ability to rely upon exemptions from certain NYSE corporate governance requirements as described above. Any of these changes would likely increase our regulatory and compliance costs and expenses, which could have a material adverse effect on our business, financial condition, and results of operations.
Any shareholder acquiring 30% or more of our voting rights may be required to make a mandatory takeover bid or be subject to claims for damages.
According to the Company’s Articles of Association, any person, acting alone or in concert within the meaning of Article L. 233-10 of the French Commercial Code, who comes into possession, other than following a voluntary takeover bid, directly or indirectly, of more than 30% of the capital or voting rights of the Company, shall launch a takeover bid on all the shares and securities granting access to the shares or voting rights, and on terms that comply with applicable U.S. securities laws, and SEC and NYSE rules and regulations. The same requirement applies to persons, acting alone or in concert, who directly or indirectly own a number between 30% and half of the total number of equity securities or voting rights of the Company and who, in less than twelve consecutive months, increase the holding, in capital or voting rights, by at least 1% of the total number of equity securities or voting rights of the Company.
The rights of our shareholders may be different from the rights of shareholders of U.S. companies and provisions of our organizational documents and applicable law may impede or discourage a takeover, which could deprive our investors of the opportunity to receive a premium for their ordinary shares or to make changes in our Board.
Our corporate affairs are governed by the Company’s Articles of Association and by the laws governing companies incorporated in France. The rights of shareholders and the responsibilities of members of our Board may be different from the rights and obligations of shareholders in companies governed by the laws of U.S. jurisdictions. In the performance of its duties, our Board is required by French law to consider the interests of the Company, its shareholders, its employees, and other stakeholders, in all cases with due consideration to the principles of reasonableness and fairness. It is possible that some of these parties could have interests that are different from, or in addition to, your interests as a shareholder.
If a third party is liable to a French company, under French law, shareholders generally do not have the right to bring a derivative action on behalf of a company or to bring an action on their own behalf to recover damages sustained as a result of a decrease in value, or loss of an increase in value, of their stock. Only in the event that the cause of liability of such third party to the company also constitutes a tortious act directly against such shareholder causing him direct, personal, and definite harm, may such shareholder have an individual right of action against such third party on its own behalf to recover damages.
The French Consumer Code provides for the possibility to initiate class actions (actions en représentation conjointe); however, such class action is not applicable to acts which can affect the rights of shareholders. Approved associations of shareholders or investors are allowed to bring claims in respect of wrongful acts harming the “collective interest” of the investors or of certain categories of investors. Such associations may request that the court orders the responsible person to comply with the legal provisions to end the irregularity or eliminate its effects. They may seek indemnification in the name of individual investors who have suffered individual damages if mandated by at least two such investors.
The provisions of French corporate law and the Articles of Association have the effect of concentrating control over certain corporate decisions and transactions in the hands of our Board. As a result, holders of our shares may have more difficulty in protecting their interests in the face of actions by members of the Board than if we were incorporated in the United States.
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In addition, several provisions of the Articles of Association and the laws of France may discourage, delay or prevent a merger, consolidation or acquisition that shareholders may consider favorable, such as the obligation to disclose the crossing of ownership thresholds or the possibility for our Board to issue equity securities, including during a takeover bid. Under French law, our general meeting of shareholders may empower our Board to issue shares, or warrants to subscribe new shares, and restrict or exclude preemptive rights on those shares. These provisions could impede the ability of our shareholders to benefit from a change in control and, as a result, may materially adversely affect the market price of our ordinary shares and your ability to realize any potential change of control premium. French law does not grant appraisal rights to a company’s shareholders who wish to challenge the consideration to be paid upon a domestic legal merger or demerger of a company.
United States civil liabilities may not be enforceable against the Company.
We are incorporated under the laws of France and a substantial portion of our assets are located, and a majority of our directors and officers reside, outside the United States. As a result, it may be difficult for investors to effect service of process within the United States upon the Company or other persons residing outside the United States. It may also be difficult to enforce judgments obtained against persons in U.S. courts in any action, including under the civil liability provisions of U.S. federal securities laws, outside the United States or to enforce rights under U.S. federal securities laws in foreign courts.
There is no treaty between the United States and France for the mutual recognition and enforcement of judgments (other than arbitration awards) in civil and commercial matters. Therefore, a final judgment for the payment of money rendered by any U.S. court based on civil liability would not be enforceable in France unless recognized by French courts. Moreover, an SEC decision ordering the payment of a fine would not be enforceable in France.
If a U.S. judgment is not recognized in France, the parties would have to re-litigate their dispute before a French court, provided such court has jurisdiction over the dispute. Accordingly, there can be no assurance that U.S. investors will be able to enforce any civil judgments obtained in U.S. courts, including under U.S. federal securities laws, against the Company or our directors, our officers or certain experts who are residents of France or other foreign countries. In addition, there is doubt as to whether a French court would impose civil liability on the Company, our directors, our officers or certain of our experts in an action based on U.S. federal securities laws even if brought in a French court of competent jurisdiction.
Any inability of the Company to continue to benefit from French provisions applicable to registered intermediaries (“intermédiaires inscrits”) could adversely affect the rights of shareholders.
Article 198 of the Pacte Act, that came into full force and effect on June 10, 2019, amended the French Commercial Code in a way that allows us to maintain our current shareholder ownership structure in the United States. The French Commercial Code (as amended by the Pacte Act) allows an intermediary to be registered for the account of holders of shares of companies which are admitted to trading solely on a market in a non-EU country that is considered equivalent to a regulated market pursuant to paragraph (a) of Article 25(4) of Directive EC2014/65/EU (which, pursuant to the European Commission decision dated December 13, 2017, includes the NYSE).
We use a French registered intermediary for the account of our beneficial owners (the “French Intermediary”). If the French Intermediary fails to comply with the French provisions applicable to registered intermediaries (intermédiaires inscrits), and if we are unable to find an appropriate substitute, or if the European Commission no longer considered the NYSE as equivalent to a regulated market as described above, we might not be able to comply with existing French laws regarding the holding of shares in the “au porteur” (bearer) form, and shares would have to be held in “au nominatif” (registered) form. In such case, the Company would need to maintain at all times a register with the name of (and number of shares held by) each shareholder, which could adversely affect the rights of our shareholders, including potentially the right to exercise their voting rights as Company shareholders as only shareholders registered on such register would be entitled to vote.
Transactions in our ordinary shares could be subject to the European financial transaction tax, if adopted.
On February 14, 2013, the European Commission adopted a proposal for a directive on a common financial transaction tax (the “FTT”) to be implemented under the enhanced cooperation procedure by several EU Member States (Austria, Belgium, France, Germany, Greece, Italy, Portugal, Slovenia, Slovakia, and Spain).
Following the lack of consensus in the negotiations on the directive proposal of 2013, these Member States have agreed to continue the negotiations under a new proposal (the “European FTT”) based on the French financial transaction tax, which would concern the listed shares of European companies whose stock market capitalization exceeds €1 billion as of December 1 of the year preceding the taxation year. According to this proposal, the applicable tax rate would be a minimum of 0.2%, and primary market transactions would be exempt. This new proposal may be amended before its adoption, the timing of which
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remains uncertain. Other EU Member States may decide to participate in, and any of the EU Member States mentioned above may decide to withdraw from, this new proposal.
The European FTT could, if introduced in its current form, apply to certain dealings in our ordinary shares (including secondary market transactions) in certain circumstances. The mechanism by which the tax would be applied and collected is not yet known, but if the proposed European FTT or any similar tax is adopted, transactions in our ordinary shares would be subject to higher costs, and the liquidity of the market for our ordinary shares may be diminished.
If dividends were paid by our Company, it is uncertain whether our shareholders would actually obtain the elimination or reduction of the French domestic dividend withholding tax to which they would be entitled.
General comments on the French withholding tax treatment of dividends paid on our ordinary shares are set out under section “Item 10. Additional Information - E - Taxation — Material French Tax Consequences -French dividend withholding tax” herein. In accordance with domestic or double tax treaty provisions, shareholders may be entitled to an elimination or reduction of the default French withholding tax, on dividends distributed by the Company (i.e., 15%, 25% respectively, or 75% in the case where the dividends are paid in non-cooperative States or territories within the meaning of article 238-0 A 1, 2 and 2 bis-1° of the French tax code), subject to the French paying agent of the dividends being provided with the required information and documentation relating to the tax status of the shareholders. Numerous intermediaries would be involved in the process of transmitting the relevant information and documentation from our shareholders to the French paying agent in case of distribution of dividends by the Company. As a result, this process may potentially jeopardize the ability for our shareholders to obtain the elimination or reduction of the French withholding tax to which they are entitled.
The French Ruling could be revoked if the description and legal analysis of the holding structure of the shares of the Company after the completion of its transfer from the Netherlands to France was inaccurate.
The various confirmations obtained from the French tax authorities on October 11, 2019 (the “French Ruling”) (set forth under section “Item 10. Additional Information - E - Taxation” below) are based on the description and legal analysis of the holding structure of the shares of the Company made by the Company to the French tax authorities in its ruling request. If the French tax authorities were to consider that the description or legal analysis in the ruling request with regards to the holding structure of the shares of the Company is inaccurate, notably to the extent that such description and analysis are based on U.S. securities law notions that are foreign to French law, the French tax authorities could decide to revoke the French ruling and such decision could have adverse tax consequences to our shareholders.
Purchases of our ordinary shares could be subject to the French financial transaction tax if the NYSE were to be formally recognized as a foreign regulated market by the French Financial Market Authority or the applicable provisions of the French tax code were amended.
Pursuant to Article 235 ter ZD of the French tax code, purchases of equity instruments or similar securities of a French company listed on a regulated market of the EU or on a foreign regulated market formally recognized as such by the French Financial Market Authority (the “AMF”) are subject to a 0.3% French tax on financial transactions provided that the issuer’s market capitalization exceeds 1 billion euros as of December 1 of the year preceding the taxation year (See “Item 10. Additional Information - E - Taxation - French Financial Transaction Tax and Registration Duties on Disposition of our Shares”). On the date hereof, the NYSE is not formally recognized as a foreign regulated market by the AMF.
If the NYSE were to be formally recognized as a foreign regulated market by the AMF in the future, or if Article 235 ter ZD of the French tax code were amended to include the NYSE as a foreign regulated market, the French financial transaction tax could be due on purchases of ordinary shares of the Company.
Item 4. Information on the Company
| A. | History and Development of the Company | ||||
Constellium Holdco B.V. (formerly known as Omega Holdco B.V.) was incorporated as a Dutch private limited liability company on May 14, 2010 (incorporated and governed under the Dutch Civil Code). Constellium Holdco B.V. was formed to serve as the holding company for various entities comprising Alcan’s Engineered Aluminum Product business unit, which Constellium acquired from affiliates of Rio Tinto on January 4, 2011 (the “Acquisition”). On May 21, 2013, Constellium
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Holdco B.V. was converted into a Dutch public limited liability company and renamed Constellium N.V. On May 29, 2013, Constellium N.V. completed its initial public offering and began trading its shares as Constellium N.V., a Dutch company, on the New York Stock Exchange (the “NYSE”) under the symbol “CSTM”.
On June 28, 2019, Constellium N.V. converted its corporate form from a Dutch public limited liability company (Naamloze Vennootschap) into a Societas Europaea (SE) and changed its name to Constellium SE, with its head office remaining in Amsterdam, the Netherlands (the “Conversion”).
On December 12, 2019, Constellium SE completed its re-domicile and the relocation of its head office to Paris, France (the “Transfer”). The Conversion and the Transfer were each approved by the Company’s shareholders. Effective as of December 12, 2019, the Company’s existing Articles of Association were amended by means of a deed of amendment to reflect the Company’s re-domicile to Paris, France (as further amended from time to time, the “Articles of Association”).
As of the effectiveness of the Transfer, each outstanding Class A ordinary share of Constellium SE with its head office in Amsterdam, the Netherlands, automatically became an ordinary share of Constellium SE with its head office in Paris, France. The Company’s ordinary shares continue to be listed on the NYSE under the symbol “CSTM” and began trading under Constellium SE, a French company, on December 13, 2019.
Since the Transfer, any references to French law and the Articles of Association herein are references to French law and the Articles of Association of the Company, respectively, following the Conversion and Transfer.
The business address (head office) of Constellium SE is Washington Plaza, 40-44 rue Washington, 75008 Paris, France, and our telephone number is +33 1 73 01 46 19. The address for our agent for service of process in the United States is Corporation Service Company, 80 State Street, Albany, New York 12207-2543, and its telephone number is + 1(302) 636-5400.
For information on our historical capital expenditures and capital expenditures currently in progress, see “Item 5. Operating and Financial Review and Prospects—Cash Flows—Historical Capital Expenditures” and “—D. Property, Plants and Equipment.” We expect to finance our capital expenditures currently in process with a combination of internal and external financing sources.
The SEC maintains an Internet website that contains reports and other information about issuers, like us, that file electronically with the SEC. The address of that site is www.sec.gov. We also make available on our website, free of charge, our annual reports on Form 20-F and the text of our reports on Form 6-K, including any amendments to these reports, as well as certain other SEC filings, as soon as reasonably practicable after they are electronically filed with or furnished to the SEC. Our website address is www.constellium.com. The information contained on our website is not incorporated by reference in this document.
| B. | Business Overview | ||||
The Company
Overview
We are a global leader in the design and manufacture of a broad range of innovative rolled and extruded aluminium products, serving primarily the packaging, aerospace, automotive as well as defense and other transportation and industry end-markets. Our business model is to add value by converting aluminium into semi-fabricated and in some instances fabricated products. We supply numerous blue-chip customers with value-added products for performance-critical applications. Our product portfolio generally commands higher margins as compared to less differentiated, more commoditized semi-fabricated aluminium products, such as common alloy coils, paintstock, foilstock and soft alloy extrusions for construction and distribution.
As of December 31, 2023, we operated 25 manufacturing facilities, 3 R&D centers and 3 administrative centers in Baltimore, Maryland, Paris, France and Zürich, Switzerland. We believe our portfolio of flexible, integrated and strategically located facilities is among the most technologically advanced in the industry and that the significant growth investments we have made position us well to capture expected demand growth in each of our end-markets. It is our view that our established presence in Europe, North America and China combined with more than 50 years of manufacturing experience, quality and
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innovation, strategically position us to be a leading supplier to our global customer base. The Company had approximately 12,000 employees as of December 31, 2023.
We seek to sell to end-markets that have attractive characteristics for aluminium, including (i) stability through economic cycles as seen in our North American and European packaging businesses, (ii) rigorous and complex technical requirements as seen in our global aerospace and automotive businesses, and (iii) favorable growth fundamentals as seen in the packaging, automotive, and transportation markets generally.
We have invested capital not only to maintain the condition of our assets, but also to take advantage of a number of attractive growth opportunities including: (i) Auto Body Sheet capabilities in Muscle Shoals, Alabama, in Bowling Green, Kentucky, in Neuf-Brisach, France, and in Singen, Germany (ii) Automotive Structures operations in Europe, North America and China, (iii) additional extrusion capability in Děčín, Czech Republic and in Singen, Germany, (iv) a new casthouse in Děčín, Czech Republic, (v) a new recycling and casting center in Neuf-Brisach, France, that is currently under construction, and (vi) a number of other incremental growth initiatives across our operations.
Our unique platform has enabled us to develop a diversified customer base and to enjoy long-standing relationships with our largest customers. Our customer base includes market leading firms in packaging, aerospace, and automotive, such as Ball Corporation, Crown Holdings, Inc., Airbus, Boeing, and many premium automotive OEMs, including BMW AG, Mercedes-Benz Group AG, Ford Motor Company, Toyota Motor Corporation, Stellantis and Volkswagen Group. We believe that we are a critical supplier to many of our customers due to our technological and R&D capabilities as well as the long and complex qualification process required for many of our products. Our core products require close collaboration and, in many instances, joint development with our customers. We believe that this integrated collaboration with our customers for high value-added products reduces substitution risk, supports our competitive position and is difficult to replicate.
For the years ended December 31, 2023, 2022 and 2021, the Company’s key operational and financial metrics were as follows:
| For the years ended December 31, | ||||||||||||||||||||
| (in millions of euros, unless otherwise noted) | 2023 | 2022 | 2021 | |||||||||||||||||
| Shipments (kt) | 1,492 | 1,580 | 1,571 | |||||||||||||||||
| Revenue | 7,239 | 8,120 | 6,152 | |||||||||||||||||
| Income from operations | 337 | 334 | 484 | |||||||||||||||||
| Net income | 129 | 308 | 262 | |||||||||||||||||
References to “tons” throughout this Annual Report are to metric tons and to “kt” to thousands of metric tons.
For information on our Revenue by geographic market, see Note 3 to the Consolidated Financial Statements.
Our Strategy
Our mission is to meet customers’ and society’s need for lightweight, strong and sustainable aluminium products while generating attractive returns for our shareholders.
We aim to achieve our mission by expanding our leading position as an innovative, go-to-supplier of technologically advanced and responsible fabricated aluminium solutions. We are committed to building a safe and sustainable company and becoming the most exciting company in our industry. This means developing, manufacturing and promoting products that are sustainable for the benefit of our customers and end consumers, reducing our emissions and our waste, investing in our people, supporting our communities, adhering to sound governance principles, and creating shareholder value.
To achieve these objectives, we have built a business strategy centered around six core principles:
(i)Focus on High Value-added and Responsible Products
We are primarily focused on our three strategic end-markets—packaging, aerospace and automotive—in which we have leading positions and established relationships with many of the main manufacturers. These are also markets where we believe that we can differentiate ourselves through our high value-added and specialty products which make up the majority of our product portfolio. We have made substantial investments to develop unique R&D and technological capabilities and to increase our recycling capacity, which we believe give us a competitive advantage in quality, design, innovation and sustainability. We leverage aluminium’s inherent sustainability characteristics — lightweight, durable, and infinitely recyclable – to produce
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environmentally responsible products. We believe our differentiated products provide significant benefits to our customers in many areas such as weight reduction, higher strength and better formability, and contribute to their objective of reducing carbon emissions. In addition, these products typically command higher margins than more commoditized products, and are supplied to end-markets that we believe have highly attractive characteristics and long-term growth trends. We intend to continue to invest in our R&D and technological capabilities to develop a high value-added and responsible product portfolio.
(ii)Increase Customer Connectivity
We regard our relationships with our customers as partnerships in which we work closely together to leverage our unique knowledge of the attributes of aluminium, our industry leading R&D and technological capabilities, and our integrated industrial platform to develop customized solutions. Our diverse teams globally aim to deepen our ties with our customers by consistently providing best-in-class quality, sustainable products and services and joint product development projects.
In addition, through market leading supply chain integration we are able to better anticipate customer demands, optimize supply and more efficiently manage our working capital needs. We also seek to strengthen customer connectivity through customer technical support and closed-loop scrap recycling programs. We will aim to continue to further foster and enhance the relationships with our customers and position our company as a preferred supplier to our customers.
(iii)Optimize Margins and Asset Utilization Through Rigorous Product Portfolio Management
We are highly focused on maximizing the throughput of our facilities to increase the tons per machine hour and profitability per machine hour. We believe there are significant opportunities to do so through rigorous focus on the products we choose to make and optimizing the throughput of these products in our facilities. For example, given our manufacturing configurations, there are certain products that our facilities are better equipped to manufacture. As a consequence, we not only manufacture them more efficiently and at a lower cost, but we also reduce our energy consumption and improve our environmental footprint. This rigor encompasses both the existing portfolio as well as new product development. In addition, we strive to increase our throughput through our investments in asset integrity, and through continuous improvements in our operations such as debottlenecking and optimizing equipment uptime, recovery and mill speed. Finally, we intend to complement these efforts with increased recycling which will strengthen our margins, reduce our dependence on external slab and billet suppliers and enhance the sustainability of our products.
(iv)Strictly Control Cost, Continuously Improve and Manage Resources Responsibly
We believe that there are significant opportunities to reduce our operating costs and improve our operations by implementing manufacturing excellence initiatives, metal management programs and other cost, energy reduction, waste and water management initiatives. We aim to establish best-in-class operations and achieve cost reductions by standardizing manufacturing processes and reducing waste, while still allowing the flexibility to respond to local market demands. An important part of this continuous improvement plan is our focus on responsible resource management, including minimizing energy and water usage, maximizing scrap input and efficiently managing other resources used by the Company, including capital.
(v)Manage Capital Through a Disciplined Approach and Increase Financial Flexibility
We have invested capital in a number of attractive growth opportunities to advance our production capabilities, product offering and sustainability profile. One example of this is our lightweight solutions for the automotive market. We are highly focused on realizing attractive returns on the capital we invest to grow our business and, as a result, very discriminating on where we invest capital. We will remain disciplined with respect to future capital deployment and to capital allocation decisions more generally.
In addition, we are highly focused on increasing our financial flexibility through earnings growth and free cash flow conversion which will enable us to reduce our debt. This includes strict cost control but also working capital management and disciplined capital spending. We believe having increased financial flexibility is critical to achieving our long-term objective of investing in our operations and in our people such that we are the supplier-of-choice for high value-added, specialized, technologically-advanced products.
(vi)Commit to Our People and Communities
We believe our people are among the best in the industry; this is a competitive strength which allows us to be a leader in our industry. This is why we continuously provide training opportunities to our employees, expanding their skills and
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competencies as they grow with us. We strive to promote a safe and inclusive environment where everyone is valued, can contribute, and thrive. Lastly, we strive to be socially responsible operators in our communities.
Recent Developments
On February 21, 2024, Constellium announced that the Board of Directors has authorized a three-year share repurchase program of up to $300 million of the Company's outstanding shares of common stock, expiring on December 31, 2026.
Under this program, the Company may purchase shares from time to time for cash in open market transactions or in privately-negotiated transactions, in accordance with applicable state and federal securities laws and in compliance with applicable provisions of French corporate law, and it may make all or part of the purchases pursuant to Rule 10b5-1 plans. The timing and the amount of repurchases, if any, will be determined based on the Company's evaluation of market conditions, capital allocation alternatives and other factors. The share repurchase program does not require the Company to acquire any dollar amount or number of shares of CSTM common stock and may be modified, suspended, extended or terminated by the Company's Board of Directors at any time without prior notice. To execute the full share repurchase program, we will seek shareholder approvals each year at our Annual General Meeting, including the one to be held in the second quarter of 2024.
The Company intends to use a portion of the repurchased shares under this new program to satisfy employee equity obligations in lieu of issuing new shares, which would limit future dilution for its shareholders.
Our Operating Segments
Our business is organized into three operating segments:
(i) Packaging & Automotive Rolled Products (P&ARP) includes the production of rolled aluminium products in our European and North American facilities. We supply the packaging market with canstock and closure stock for the beverage and food industry, as well as foilstock for the flexible packaging market. In addition, we supply the automotive market with a number of technically sophisticated applications such as Auto Body Sheet ("ABS") and heat exchanger materials.
(ii) Aerospace & Transportation (A&T) includes the production of rolled aluminium products and limited volumes of extruded products in our European and North American facilities. We supply rolled aluminium products in plate and sheet form for the aerospace market and for transportation, industry and defense end-uses.
(iii) Automotive Structures & Industry (AS&I) includes the production of extruded aluminium products and aluminium structural components. We supply technologically advanced structural components for the automotive industry including crash-management systems, body structures, side impact beams and battery enclosures in our European, North American and Chinese facilities. In addition, we fabricate hard and soft aluminium alloy extruded profiles in a number of our other European facilities for a range of high demand industry applications in the automotive, engineering, rail and other transportation end-markets.
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Table: Overview of Operating Segments (as of December 31, 2023)
| Packaging & Automotive Rolled Products | Aerospace & Transportation | Automotive Structures & Industry | ||||||||||||||||||
Manufacturing Facilities1 | • 4 (France, Germany, U.S.) | • 5 (France, Switzerland, U.S.) | • 16 (Canada, China, Czech Republic, France, Germany, Mexico, Slovakia, Spain, Switzerland, U.S.) | |||||||||||||||||
| Employees | 4,200 | 3,400 | 4,100 | |||||||||||||||||
| Key Products | • Canstock • Foilstock • Closure stock • Auto Body Sheet • Rolled products for heat exchangers • Specialty reflective sheet (Bright) | • Aerospace plates, sheets and extrusions • Aerospace wing skins • Plate and sheet for transportation, industry and defense applications | • Automotive extruded products • Other extruded products including: •Soft alloys •Hard alloys •Large profiles | |||||||||||||||||
| Key Customers | Packaging: AB InBev, Amcor, Ardagh Group, Ball Corporation, Can-Pack, Coca-Cola, Crown Holdings Automotive: Audi, BMW AG, Mercedes-Benz Group AG, Stellantis, Toyota Motor Corporation, Volkswagen Group | Aerospace: Airbus, Boeing, Bombardier, Dassault Transportation, Industry, Defense and Distribution: Amari, Nexter Systems, Ryerson, ThyssenKrupp | Automotive: Audi, BMW AG, Mercedes-Benz Group AG, Ford Motor Company, Porsche, Stellantis Rail: CAF, Hitachi, Stadler | |||||||||||||||||
| Select Key Facilities | • Bowling Green (Kentucky, U.S.) • Neuf-Brisach (France) • Muscle Shoals (Alabama, U.S.) • Singen (Germany) | • Issoire (France) • Ravenswood (West Virginia, U.S.) • Sierre (Switzerland) | • Děčín (Czech Republic) • Gottmadingen (Germany) • Singen (Germany) • Van Buren (Michigan, U.S.) | |||||||||||||||||
% of total Revenue (for the twelve months ended December 31, 2023) | 54% | 24% | 23% | |||||||||||||||||
% of Adjusted EBITDA2 (for the twelve months ended December 31, 2023) | 40% | 45% | 19% | |||||||||||||||||
1Our 25 manufacturing facilities are located in 23 sites, two of which are shared between two operating segments.
2The difference between the sum of Adjusted EBITDA for our three segments and the Company’s Adjusted EBITDA is attributable to Holdings and Corporate.
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The following table presents our shipments by product lines:
| (in thousand metric tons) | For the year ended December 31, | |||||||||||||||||||
| 2023 | 2022 | 2021 | ||||||||||||||||||
| Packaging rolled products | 736 | 809 | 833 | |||||||||||||||||
| Automotive rolled products | 271 | 245 | 228 | |||||||||||||||||
| Specialty and other thin-rolled products | 23 | 35 | 43 | |||||||||||||||||
| Aerospace rolled products | 96 | 76 | 53 | |||||||||||||||||
| Transportation, industry, and other rolled products | 123 | 147 | 153 | |||||||||||||||||
| Automotive extruded products | 121 | 117 | 115 | |||||||||||||||||
| Other extruded products | 122 | 151 | 146 | |||||||||||||||||
| Total shipments | 1,492 | 1,580 | 1,571 | |||||||||||||||||
Packaging & Automotive Rolled Products Operating Segment
In our Packaging & Automotive Rolled Products operating segment, we develop and produce customized aluminium sheet solutions. For the year ended December 31, 2023, approximately 72% of operating segment volume was in packaging rolled products, which primarily includes beverage and food canstock as well as closure stock and foilstock, approximately 26% of operating segment volume was in automotive rolled products, and approximately 2% of operating segment volume was in specialty and other thin-rolled products.
We are a leading European and North American supplier of canstock and a leading worldwide supplier of closure stock. We are also a major player in automotive rolled products for ABS in both Europe and North America, and for heat exchangers in Europe. These products are subject to the exacting requirements and qualification processes of our customers which we believe provides us with a competitive advantage and represents a barrier to entry for new competitors. We have a diverse customer base, consisting of many of the world’s largest beverage and food can manufacturers, specialty packaging producers, leading automotive OEMs and global industrial companies. Our customers include AB InBev, Amcor Ltd., Ardagh Group S.A, Ball Corporation, BMW AG, Can-Pack S.A., Coca-Cola, Crown Holdings, Inc., Ford Motor Company, Mercedes-Benz Group AG, Stellantis, Toyota Motor Corporation and Volkswagen Group. Our customer contracts in packaging usually have a duration of three to five years. Our customer contracts in automotive are usually valid for the lifetime of a model, which is typically five to seven years.
We have two integrated rolling operations located in Europe and one in the U.S. Neuf-Brisach, our facility in France, is a fully integrated aluminium recycling, rolling and finishing facility producing both canstock and ABS. Singen, our facility located in Germany, is a rolling and finishing facility specialized in high-margin niche applications. Our Muscle Shoals, Alabama facility is a fully integrated aluminium recycling, rolling and finishing operation producing both canstock and ABS. We also operate a finishing line for ABS in Bowling Green, Kentucky.
The following table summarizes our volume, revenue and Adjusted EBITDA for our Packaging & Automotive Rolled Products operating segment for the periods presented:
| For the year ended December 31, | ||||||||||||||||||||
| (in millions of euros, unless otherwise noted) | 2023 | 2022 | 2021 | |||||||||||||||||
| Packaging & Automotive Rolled Products: | ||||||||||||||||||||
| Segment Shipments (kt) | 1,030 | 1,089 | 1,104 | |||||||||||||||||
| Segment Revenue | 3,898 | 4,664 | 3,698 | |||||||||||||||||
| Segment Revenue (€/ton) | 3,784 | 4,281 | 3,350 | |||||||||||||||||
Segment Adjusted EBITDA(1) | 283 | 326 | 344 | |||||||||||||||||
Segment Adjusted EBITDA (€/ton) | 274 | 299 | 312 | |||||||||||||||||
| Segment Adjusted EBITDA margin | 7 | % | 7 | % | 9 | % | ||||||||||||||
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(1)Adjusted EBITDA is not a measure defined under IFRS. Adjusted EBITDA is defined and discussed in “Item 5. Operating and Financial Review and Prospects—Segment Results.”
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Aerospace & Transportation Operating Segment
Our Aerospace & Transportation operating segment has market leadership positions in technologically advanced aluminium and specialty material products with wide applications across the global aerospace, transportation, industry and defense sectors. Approximately 44% of the segment volume for the year ended December 31, 2023 was in aerospace rolled products and approximately 56% was in transportation, industry, defense and other rolled product applications.
We offer a wide range of products including plate, sheet and extrusions products which allow us to offer tailored solutions to our customers. We seek to differentiate our products and act as a key partner to our customers through our advanced R&D capabilities, extensive recycling capabilities, broad product range, supply-chain solutions and a portfolio of plants across Europe and North America. Our customers are diverse and range from Airbus and Boeing in aerospace to Ryerson, ThyssenKrupp and Nexter Systems in transportation, industry and defense.
We have two integrated rolling operations located in Issoire, France and Ravenswood, West Virginia. These integrated facilities have extensive capabilities that enable us to produce value added products like wide and thick gauge plates required for certain civil and commercial aerospace programs and a range of transportation, industry and defense applications. In addition, we operate two other sites located in Sierre, Switzerland and Montreuil-Juigné, France. We completed the sale of our Ussel, France operation in February 2023.
Downstream aluminium products for the aerospace market require relatively high levels of R&D investment and advanced technological capabilities, and therefore tend to command higher margins compared to more commoditized products. We work in close collaboration with our customers to develop highly engineered solutions to fulfill their specific requirements. For example, we developed Airware®, a lightweight specialty aluminium-lithium alloy, for our aerospace customers to address increasing demand for lighter and more fuel-efficient aircraft.
Additionally, aerospace products are generally subject to long qualification periods. Aerospace production sites are regularly audited by external certification organizations including the National Aerospace and Defense Contractors Accreditation Program (“NADCAP”) and/or the International Organization for Standardization. NADCAP is a cooperative organization of a number of aerospace OEMs that defines industry-wide manufacturing standards. NADCAP appoints private auditors who grant suppliers like Constellium a NADCAP certification, which customers tend to require. New products or alloys are separately certified by the OEM that uses the product. Our sites have been qualified by external certification organizations and our products have been qualified by our customers. We are typically able to obtain qualification within 6 months to one year mainly because: (i) we have an existing range of qualifications including in excess of 100 specifications regarding alloy, temper or shape, due to our long history of working with the main aircraft OEMs, which we can build on to obtain new product qualifications; and (ii) we have invested in a number of capital intensive equipment and R&D programs to be able to qualify to the current industry norms and standards.
The majority of our contracts with our largest aerospace customers have a term of three to ten years, which provides visibility on volumes and profitability. We expect demand for our aerospace products to directly correlate with aircraft backlogs and build rates. As of December 31, 2023, the backlog reported by Airbus and Boeing for commercial aircraft reached 14,224 units on a combined basis.
We also serve the transportation, industry and defense end-markets. Our product portfolio in these segments include both specialty products as well as standard products. Specialty products are differentiated products, which are engineered to meet specific customer needs and as such have specific properties (e.g., mechanical properties, dimensions, surface aspect, etc.). Standard products typically face higher levels of competition in the regions that we serve. The majority of our contracts in the transportation and defense industry typically last between one to three years.
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The following table summarizes our volume, revenue and Adjusted EBITDA for our Aerospace & Transportation operating segment for the periods presented:
| For the year ended December 31, | ||||||||||||||||||||
| (in millions of Euros, unless otherwise noted) | 2023 | 2022 | 2021 | |||||||||||||||||
| Aerospace & Transportation: | ||||||||||||||||||||
| Segment Shipments (kt) | 219 | 223 | 206 | |||||||||||||||||
| Segment Revenue | 1,728 | 1,700 | 1,142 | |||||||||||||||||
| Segment Revenue (€/ton) | 7,901 | 7,619 | 5,548 | |||||||||||||||||
Segment Adjusted EBITDA(1) | 324 | 217 | 111 | |||||||||||||||||
Segment Adjusted EBITDA (€/ton) | 1,475 | 976 | 539 | |||||||||||||||||
| Segment Adjusted EBITDA margin | 19 | % | 13 | % | 10 | % | ||||||||||||||
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(1)Adjusted EBITDA is not a measure defined under IFRS. Adjusted EBITDA is defined and discussed in “Item 5. Operating and Financial Review and Prospects—Segment Results.”
Automotive Structures & Industry Operating Segment
Our Automotive Structures & Industry operating segment produces (i) technologically advanced structures for the automotive industry including crash management systems, body structures, side impact beams and battery enclosure components and (ii) soft and hard alloy extrusions for automotive, transportation, energy and building and construction applications and (iii) large profiles for rail and industrial applications. We complement our products with a comprehensive offering of downstream technology and services, which include pre-machining, surface treatment, R&D and technical support services. Approximately 50% of the segment volume for the year ended December 31, 2023 was in automotive extruded products and approximately 50% was in other extruded product applications.
In our automotive structures business, a series of aluminium extrusions are consolidated into a system for specific automotive applications. Due to the unique combination of strength and weight, aluminium extrusions are increasingly favored by our automotive customers. We manufacture automotive structural products for some of the largest European and North American car manufacturers supplying the global market, including Mercedes-Benz Group AG, BMW AG, Volkswagen Group, Stellantis, Toyota Motor Corporation and Ford Motor Company. We believe that we are one of the largest providers of aluminium automotive crash management systems globally. Our automotive structures contracts are typically five to seven years in duration, which usually represents the lifetime of a model.
In our Industry businesses, we serve a broad range of customers across a number of industries including automotive, rail, industrial and other transportation markets in Europe. Our Industry business is tied to contracts that typically last up to one year on average.
We manufacture products for our AS&I segment in 16 facilities located in Canada, China, Czech Republic, France, Germany, Mexico, Slovakia, Spain, Switzerland and U.S. We believe our local presence, downstream services and industry leading cycle times help to ensure that we respond to our customer demands in a timely and consistent fashion. Our two integrated remelt and casting centers in Switzerland and the Czech Republic utilize significant amounts of recycled aluminium and help provide security of metal supply. We also produce soft alloy extrusions for customers primarily in Germany and France, with customized solutions for a diverse number of end-markets. We completed the sale of our Crailsheim, Burg, and Landau, Germany operations in September 2023 which were part of our soft alloys extrusion portfolio.
We operate a joint venture, Astrex Inc., which produces automotive extruded profiles in Ontario, Canada, for our North American operations, and a joint venture, Engley Automotive Structures Co., Ltd., which produces aluminium crash management systems in China.
We believe that we have strong market positions in our AS&I segment given our R&D and manufacturing capabilities. Led by our partnership with Brunel University, London, United Kingdom, we have developed proprietary alloys and manufacturing technology which enable us to deliver high quality, cost effective products to our extrusion customers and differentiated design, engineering and manufacturing capabilities which accelerate time to market for our automotive customers.
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The following table summarizes our volume, revenue and Adjusted EBITDA for our Automotive Structures & Industry operating segment for the periods presented:
| For the year ended December 31, | ||||||||||||||||||||
| (in millions of Euros, unless otherwise noted) | 2023 | 2022 | 2021 | |||||||||||||||||
| Automotive Structures & Industry: | ||||||||||||||||||||
| Segment Shipments (kt) | 243 | 268 | 261 | |||||||||||||||||
| Segment Revenue | 1,630 | 1,861 | 1,383 | |||||||||||||||||
| Segment Revenue (€/ton) | 6,707 | 6,947 | 5,292 | |||||||||||||||||
Segment Adjusted EBITDA(1) | 133 | 149 | 142 | |||||||||||||||||
Segment Adjusted EBITDA (€/ton) | 545 | 557 | 545 | |||||||||||||||||
| Segment Adjusted EBITDA margin | 8 | % | 8 | % | 10 | % | ||||||||||||||
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(1)Adjusted EBITDA is not a measure defined under IFRS. Adjusted EBITDA is defined and discussed in “Item 5. Operating and Financial Review and Prospects—Segment Results.”
Our Industry
Aluminium Sector Value Chain
The global aluminium industry consists of (i) mining companies that produce bauxite, the ore from which aluminium is ultimately derived, (ii) primary aluminium producers that refine bauxite into alumina and smelt alumina into aluminium, (iii) aluminium semi-fabricated products manufacturers, including aluminium casters, extruders and rollers, (iv) aluminium recyclers and remelters and (v) integrated companies that are present across multiple stages of the aluminium production chain.
Our business is primarily focused on rolling and extruding semi-fabricated products for a variety of value added end-markets. We recycle aluminium, both for our own use and as a service to our customers. We do not participate in upstream activities such as mining, refining bauxite or smelting alumina into aluminium.
Constellium’s Position in the Aluminium Sector Value Chain
Aluminium value chain
Rolled and extruded aluminium product prices are based generally on the price of aluminium (which is based on the LME quoted price plus a regional premium) plus a conversion margin (i.e., the margin to convert the aluminium into a semi-finished product). The price of aluminium is not a significant driver of our financial performance because we typically pass through the cost of aluminium either to our customers or the financial market. Instead, the financial performance of producers of rolled and
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extruded aluminium products, such as Constellium, is driven by the dynamics in the end-markets that they serve, their relative positioning in those markets and the efficiency of their industrial operations.
The aluminium rolled products industry is characterized by economies of scale as significant capital investments are required to achieve and maintain technological capabilities and demanding customer qualification standards. The service and efficiency demands of large customers have encouraged consolidation among suppliers of aluminium rolled products.
The aluminium extruded products industry is relatively fragmented and generally more regional. The business also requires significant capital investments in order to achieve and maintain technological capabilities and meet demanding customer qualification standards.
The supply of aluminium rolled and extruded products has historically been affected by production capacity, alternative technology substitution and trade flows between regions. The demand for these products has historically been affected by economic growth, substitution trends, cyclicality and seasonality and aluminium rolled products in particular by down-gauging.
There are two main sources of input aluminium metal for our rolled or extruded products:
•Slabs or billets we cast from a combination of primary and recycled aluminium. The primary aluminium is typically in the form of standard ingots. The recycled aluminium comes either from scrap from fabrication processes, or from recycled end products in their end-of-life phase, such as used beverage cans.
•Slabs or billets purchased from smelters or metal trading companies.
Primary aluminium, sheet ingot and extrusion billets can generally be purchased at prices set on the LME plus a premium that varies by geographic region on delivery, alloying material, form (ingot or molten metal) and purity.
Recycled aluminium is also tied to LME pricing (typically sold at a discount to LME price and regional premium). Aluminium is infinitely recyclable and recycling aluminium requires only approximately 5% of the energy required to produce primary aluminium. As a result, in regions where aluminium is widely used, manufacturers and customers are active in setting up collection processes in which used beverage cans and other end-of-life aluminium products are collected for remelting at purpose-built plants. Manufacturers may also enter into agreements with customers who sell them recycled process material, which is then re-melted and rolled into the same product again.
Aluminium Rolled Products Overview
The rolling process consists of passing aluminium through a hot-rolling mill and then transferring it to a cold-rolling mill, which gradually reduces the thickness of the metal down to approximately 6 mm for plates and to approximately 0.2-6 mm for sheet.
Aluminium rolled products, including sheet, plate and foil, are semi-finished products that provide the raw material for the manufacture of finished goods ranging from packaging to automotive body panels to fuselage sheet to aircraft wing parts. The packaging industry is a major consumer of sheet and foil for making beverage cans, foil containers and foil wrapping. Sheet is also used extensively in transportation applications for airframes, automobiles, trucks and rail vehicles, in marine applications, including offshore platforms, and the hulls of boats and in building applications for roofing and siding. Plate is used for airframes, military vehicles, ships and other large vessels, bridges, and as tooling plate for the production of plastic products. Foil applications outside packaging include electrical equipment, insulation for buildings and foil for heat exchangers.
The following chart illustrates expected global demand for aluminium rolled products according to CRU International Limited (“CRU”). The compound annual growth rate (“CAGR”) between 2023 and 2028 for the flat rolled products market is expected to be 4.3% according to CRU.
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Projected Aluminium Flat Rolled Products Demand (in kt)
Source: CRU International Ltd., Aluminium Rolled Products Market Outlook November 2023
(Asia Pacific includes Japan, China, India, South Korea, Australia, Middle East and other Asia. Other includes Central and South America, and Africa)
Aluminium Extrusions and Automotive Structures Overview
Aluminium extrusion is a technique used to transform aluminium billets into objects with a defined cross-sectional profile for a wide range of uses. In the extrusion process, a heated aluminium billet is forced through a die. Extrusions can be manufactured in many sizes and in almost any shape. The extrusion process makes the most of aluminium’s unique combination of physical characteristics. Its malleability allows it to be easily cast and machined. Aluminium is one-third the density of steel but has the same stiffness, so the resulting products offer strength and stability, particularly when alloyed with other metals.
Extruded profiles can be produced in solid or hollow form and additional complexities can be applied using advanced die designs. After the extrusion process, a variety of options are available to adjust the color, texture and brightness of the aluminium’s finish. This may include aluminium anodizing or painting.
Today, aluminium extrusions are used for a wide range of purposes, including building, transportation and industrial markets. Virtually every type of vehicle contains aluminium extrusions, including cars, boats, bicycles and trains. Home appliances and tools take advantage of aluminium’s excellent strength-to-weight ratio. The increased focus on green building is also leading contractors and architects to use more extruded aluminium products, as aluminium extrusions are corrosion-resistant and offer design flexibility. These diverse applications are possible due to the advantageous attributes of aluminium, including its particular blend of strength and ductility, its conductivity, its non-magnetic properties and its ability to be recycled repeatedly without loss of integrity. We believe that all of these capabilities make aluminium extrusions a viable and adaptable solution for a growing number of manufacturing needs.
Our Key End-markets
We have a significant presence in (i) the packaging end-markets, which are expected to grow at a healthy pace in the long-term, despite inventory adjustments in the supply chain over the past year, (ii) the automotive end-market which has exhibited steady growth based on the light weight and strength attributes of aluminium, (iii) the aerospace end-markets, which are continuing to recover and have attractive longer term growth prospects and (iv) a number of niche specialty end-markets including transportation, industry, defense and other products that diversify our exposure to economic trends.
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Packaging
Our Packaging & Automotive Rolled Products operating segment serves the packaging market which has historically been relatively resilient during periods of economic downturn and has had relatively limited exposure to economic cycles and periods of financial instability.
Aluminium beverage cans represented approximately 25% of the total European aluminium flat rolled demand by volume and 37% of total North American flat rolled demand in 2023. According to CRU, aluminium demand for the canstock market in Europe and North America is expected to grow by 4.3% and 4.7% per year between 2023 and 2028, respectively.
Aluminium is a preferred material for beverage packaging as it allows drinks to chill faster, can be stacked for transportation and stored more densely than competing formats (such as glass bottles), is highly formable for unique or differentiated branding, and offers the environmental advantage of easy, cost- and energy-efficient recycling. As a result of these benefits, aluminium is displacing tinplate, glass and plastics as the preferred packaging material in most markets. In both Europe and North America, aluminium is increasingly the beverage packaging container of choice and is experiencing increased demand. We are benefiting from increased can consumption, including growing specialty product categories given the attributes of aluminium packaging.
| Total European Rolled Products Consumption Canstock (kt) | Total North American Rolled Products Consumption Canstock (kt) | |||||||
 |  | |||||||
| Source: CRU International Ltd., Aluminium Rolled Products Market Outlook November 2023 | Source: CRU International Ltd., Aluminium Products Market Outlook November 2023 | |||||||
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Automotive
We supply the automotive sector with rolled products out of our Packaging & Automotive Rolled Products operating segment and extruded and fabricated products out of our Automotive Structures & Industry operating segment. Our automotive products are predominantly used in premium models, light trucks and sport utility vehicles manufactured by the European and North American OEMs.
In our view, the main drivers of automotive sales are overall economic growth, credit availability, consumer prices and consumer confidence. According to CRU, light vehicle production is expected to grow in Europe and North America by approximately 2.1% per annum from 2023 to 2028.
Vehicle Production(1)
Source: CRU International Ltd, Global & Economic Outlook December 2023
(1) Represents both car and commercial vehicle production, including light trucks, heavy trucks and, except in the U.S. and Canada, coaches
Within the automotive sector, the demand for aluminium has been increasing faster than the underlying demand for light vehicles due to recent growth in the use of aluminium products in automotive applications. We believe the main reasons for this are aluminium’s high strength-to-weight ratio in comparison to steel and a need for increased energy efficiency. This lightweighting facilitates better fuel economy, improves emissions performance and enhances vehicle safety. As a result, manufacturers are seeking additional applications where aluminium can be used in place of steel and an increased number of cars are being manufactured with aluminium panels and crash management systems.
We believe that the vehicle lightweighting trend will continue as increasingly stringent EU and U.S. regulations relating to reductions in carbon emissions will force the automotive industry to increase its use of aluminium to “lightweight” vehicles. In Europe, EU legislation has set mandatory emission reduction targets for new cars such that by 2030, the fleet average to be achieved by all new cars is 37.5% lower compared to the limits in 2021 of 95 grams of CO2 emissions per kilometer (g/km). In the United States, we expect that U.S. regulations requiring reductions in carbon emissions and fuel efficiency, as well as fluctuating fuel prices, will continue to drive aluminium demand in the automotive industry.
As electric vehicles become more widespread, we believe the demand for aluminium in the automotive industry will increase due to the greater importance of lightweighting to maximize range. Aluminium thermal conductivity is a significant inherent advantage for battery boxes in electric vehicles and aluminium also has superior energy absorption as compared to steel. Whereas growth in aluminium use in vehicles has historically been driven by increased use of aluminium castings, we anticipate that future growth will be primarily in the kinds of extruded and rolled products that we supply to the OEMs.
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According to CRU, the consumption of ABS between 2023 and 2028 will grow 8.6% per annum in Europe and 7.2% per annum in North America.
| Total European Automotive Body Sheet Flat Rolled Products Consumption (kt) | Total North American Automotive Body Sheet Flat Rolled Products Consumption (kt) | |||||||
 |  | |||||||
| Source: CRU International Ltd., Aluminium Products Market Outlook November 2023 | Source: CRU International Ltd., Aluminium Products Market Outlook November 2023 | |||||||
Aerospace
Demand for aerospace plate and sheet is primarily driven by the build rate of commercial aircraft, which we believe will be supported for the foreseeable future by (i) the increasing demand for air travel in an environment of economic growth and globalization, (ii) the increased affordability and accessibility of air travel to people from diverse socio-economic backgrounds, (iii) the expansion of airline networks and the opening of new routes to previously underserved destinations and (iv) the necessary replacement of aging fleets by airline operators, particularly in the United States and Western Europe by more fuel-efficient aircraft. Over the longer term the fundamentals driving aerospace demand growth remain intact, despite contraction due to the global pandemic caused by COVID-19. Between 2023 and 2042, Boeing predicts approximately 42,000 new aircraft across all categories of large commercial aircraft with 42% of sales of new airplanes to Asia Pacific, 44% to Europe and North America and the remaining 14% to the Middle East, Latin America and and Africa, excluding Russia.
According to CRU, aluminium demand for the aerospace rolled products markets in North America and Europe is expected to increase by 8.8% per annum from 2023 to 2028 due to significant recovery from the COVID-19 led downturn.
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| World’s Commercial Aircraft Fleet (thousands) | Fleet Development Driven by Passenger Demand and Aging Fleet (units) | |||||||
 |  | |||||||
| Source: Boeing 2023 Current Market Outlook | Source: Boeing 2023 Current Market Outlook, excluding Freighters | |||||||
Aerospace Flat Rolled Products Consumption (kt)
Source: CRU International Ltd., Aluminium Rolled Products Market Outlook November 2023
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Our Business Operations
Our business model is to add value by converting aluminium into semi-fabricated products. It is our policy not to speculate on metal price movements.
Managing Our Metal Price Exposure
For all contracts, we seek to minimize the impact of aluminium price fluctuations in order to protect our cash flows against variations in the LME price, regional and other premiums that we buy and sell, with the following methods:
•In cases where we are able to align the price and quantity of physical aluminium purchases with that of physical aluminium sales to our customers, we enter into back-to-back arrangements with our customers.
•When we are unable to align the price and quantity of physical aluminium purchases with that of physical aluminium sales to our customers, we enter into derivative financial instruments to pass through the exposure to financial institutions at the time the price is set.
•For a small portion of our volumes, the aluminium we process is owned by our customers and we bear no aluminium price risk.
Sales and Marketing
Our sales force is based in Europe (France, Germany, Czech Republic, United Kingdom and Switzerland), the U.S. and Asia (Seoul and Shanghai). We primarily serve our customers directly and in some cases through distributors.
Raw Materials and Supplies
Approximately 69% of our rolling slab demand and approximately 58% of our extrusion billet demand are produced in our own internal cast-houses. In addition, our external rolling slab and extrusion billet supplies are secured through long-term contracts with several upstream companies. All of our top 10 overall metal suppliers (covering rolling slabs, extrusion billets, primary, high purity, scrap and hardeners) have been long-standing suppliers to our plants (in many cases for more than 10 years) and, in aggregate, accounted for approximately 52% of our total metal purchases (in terms of volumes) for the year ended December 31, 2023. We typically enter into annual or multi-year contracts with these metal suppliers pursuant to which we purchase various types of metal, including:
•Primary metal from smelters or metal traders in the form of ingots, rolling slabs or extrusion billets.
•Remelted metal in the form of rolling slabs or extrusion billets from external cast-houses, as an addition to our own internal cast-houses.
•Production scrap from customers and scrap traders.
•End-of-life scrap (e.g., used beverage cans) from customers, collectors and scrap traders.
•Specific alloying elements and primary ingots from producers and metal traders.
Our operations use natural gas and electricity, which represents a large component of our cost of sales, after metal, labor costs and depreciation. We purchase natural gas and electricity from the market and typically we secure a large part of our natural gas and electricity needs pursuant to fixed-price commitments. To reduce the risks associated with our natural gas and electricity requirements, we use forward contracts with our suppliers - and, to a lesser extent, forward contracts or financial futures with the financial markets - to fix the commodity component of the energy costs. Furthermore, in our longer-term sales contracts, we try to include indexation clauses on energy prices. From time to time, we can experience fluctuations and periods of volatility in the pricing of raw materials.
Our Customers
Our customer base includes some of the leading manufacturers in the packaging, aerospace and automotive end-markets. We have a relatively diverse customer base with our 10 largest customers representing approximately 50% of our revenue for the year ended December 31, 2023. We generally have long-term relationships with our significant customers, many of which span decades.
A substantial portion of our volume is sold under multi-year contracts, as we generally have three- to five-year terms in contracts with our packaging customers, five- to ten-year terms in contracts with our largest aerospace customers, and five- to seven-year terms in our “life of a car platform/car model” contracts with our automotive customers. This provides us with a certain visibility into our future volumes and earnings.
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We collaborate with our customers to complete a rigorous process for qualifying our products in each of our end-markets, which requires substantial time and investment and creates high switching costs, resulting in longer-term, mutually beneficial relationships. We see our relationships with our customers as partnerships where we work together to find customized solutions to meet their evolving requirements.
Our product portfolio is predominantly focused on high value-added products, which tend to require close collaboration with our customers to develop tailored solutions. The significant effort and investment to adhere to rigorous qualification procedures enables us to foster long-term relationships with our customers.
Competition
The worldwide rolled and extruded aluminium industry is highly competitive, and we expect this dynamic to continue for the foreseeable future. We believe the most important competitive factors in our industry are: product quality, price, timeliness of delivery and customer service, geographic coverage and product innovation. Aluminium competes with other materials such as steel, plastic, composite materials and glass for various applications. Our key competitors in our Packaging & Automotive Rolled Products operating segment are Arconic Corporation, Commonwealth Rolled Products, Inc., Kaiser Aluminum Corporation, Novelis Inc., Speira GmbH and Tri-Arrows Aluminum Inc. Our key competitors in our Aerospace & Transportation operating segment are Arconic Corporation, AMAG Austria Metall AG, Commonwealth Rolled Products, Inc., Kaiser Aluminum Corporation, Novelis Inc. and Universal Alloy Corporation. Our key competitors in our Automotive Structures & Industry operating segment are Benteler International AG, Gestamp Automoción, S.A., Magna International Inc., Martinrea International Inc., Metra Aluminum Inc., Nemak, S.A.B. de C.V., Norsk Hydro ASA, Otto Fuchs KG, Sankyo Tateyama, Inc. and UACJ Automotive Whitehall Industries, Inc.
Seasonality
Customer demand in the aluminium industry is seasonal due to a variety of factors, including holiday seasons, weather conditions, economic and other factors beyond our control. Our volumes are impacted by the timing of the holiday seasons in particular, with the lowest volumes typically delivered in August and December and highest volumes delivered in January to June. Our business is also impacted by seasonal slowdowns and upturns in certain of our customers’ industries. Historically, the can industry is strongest in the spring and summer seasons and the automotive and aerospace sectors encounter slowdowns in both the third and fourth quarters of the calendar year.
Research and Development (“R&D”)
We believe that our research and development capabilities coupled with our integrated, longstanding customer relationships create a distinctive competitive advantage versus our competition. Our three R&D centers are based in Voreppe, France, Plymouth, Michigan and Brunel University, London, United Kingdom.
We invested €52 million, €48 million and €39 million in R&D in the years ended December 31, 2023, 2022 and 2021, respectively.
C-TEC, our R&D center based in Voreppe, France provides services and support to all of our facilities, focusing on product and process development, providing technical assistance to our plants and working with our customers to develop new products. In developing new products, we focus on increased performance that aims to lower the total cost of ownership for the end users of our products, for example, by developing materials that decrease maintenance costs of aircraft or increase fuel efficiency in cars. At the Voreppe facility, we also work on the development, improvement, and testing of processes used in our plants such as melting, casting, rolling, extruding, finishing and recycling. In addition, we develop and test technologies used by our customers, such as friction stir welding, and provide technological support to our customers.
Our R&D center in the U.S. located in Plymouth, Michigan provides support primarily to our North American automotive customers by addressing specific market requirements related to our aluminium based lightweighting solutions.
Additionally, in the Constellium University Technology Center at Brunel University London, United Kingdom, a dedicated team of R&D engineers and project managers translate technology from the lab to new customer programs and to our plants for production. The facility features industrial scale casting and extrusion equipment, forming technology and extensive joining methods, enabling us to leverage our proprietary alloys and strong manufacturing innovation capabilities to develop engineered solutions adapted to customer needs, and accelerate time to market.
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As of December 31, 2023, C-TEC, our main R&D center located in Voreppe, France and its hub in Plymouth, Michigan, employed 335 people, approximately 75% of whom were scientists and technicians. Our R&D center in Brunel, England, employed 50 Constellium scientists and technicians, in addition to 19 PhD studentships and postdoctoral research fellows from Brunel University and other academic partners.
Trademarks, Patents, Licenses and IT
We actively review intellectual property arising from our operations and our research and development activities and, when appropriate, apply for patents in the appropriate jurisdictions. We currently hold more than 250 active patent families and regularly apply for new ones. While these patents and patent applications are important to the business on an aggregate basis, we do not believe any single patent family or patent application is critical to the business.
We are from time to time involved in opposition and re-examination proceedings that we consider to be part of the ordinary course of our business, in particular at the European Patent Office and the U.S. Patent and Trademark Office. We believe that the outcome of existing proceedings would not have a material adverse effect on our financial position, results of operations or cash flows.
In connection with our collaborations with universities and other third parties, we occasionally obtain royalty-bearing licenses for the use of third-party technologies in the ordinary course of business.
Insurance
We have implemented a corporate-wide insurance program consisting of both master policies with worldwide coverage and local policies where required by applicable regulations. Our insurance coverage includes: (i) property damage and business interruption; (ii) general liability including operation, professional, product and environment liability; (iii) aviation product liability; (iv) marine cargo (transport); (v) business travel and personal accident; (vi) construction all risk; (vii) automobile liability; (viii) trade credit; (ix) cyber risk; (x) workers’ compensation in the U.S.; and (xi) other specific coverages for executive and special risks.
We believe that our insurance coverage terms and conditions are customary for a business such as Constellium and are sufficient to protect us against catastrophic losses.
We also purchase and maintain insurance on behalf of our directors and officers.
Governmental Regulations and Environmental, Health and Safety Matters
Our operations are subject to a number of international, national, state and local regulations relating to the protection of the environment and to workplace health and safety. Our operations involve the use, handling, storage, transportation and disposal of hazardous substances, and accordingly we are subject to extensive laws and regulations governing emissions to air, discharges to water emissions, the generation, storage, transportation, treatment or disposal of hazardous materials or wastes and employee health and safety matters. In addition, prior operations at certain of our properties have resulted in contamination of soil and groundwater which we are required to investigate and remediate pursuant to applicable environmental, health and safety (“EHS”) laws and regulations. Environmental compliance at our key facilities is supervised by the Direction Régionale de l’Environnement de l’Aménagement et du Logement in France, the Umweltbundesamt in Germany, the Service de la Protection de l’Environnement du Canton du Valais in Switzerland, the United States Environmental Protection Agency, the West Virginia Department of Environmental Protection, the Alabama Department of Environmental Management, the Kentucky Department for Environmental Protection, Georgia Environmental Protection Division and Michigan Department of Environment, Great Lakes and Energy in the United States, the Regional Authority of the Usti Region in the Czech Republic, the Slovenká Insvpekcia zvivotného prostredia in Slovakia, Secretaria de Medio Ambiente y Recursos Naturales in Mexico, the Environmental Monitoring Agency in China, Consellería de Medioambiente, Territorio y Vivienda in Spain and Enforcement Branch Ontario region in Canada. Violations of EHS laws and regulations, and remediation obligations arising under such laws and regulations, may result in restrictions being imposed on our operating activities as well as fines, penalties, damages or other costs. Accordingly, we have implemented EHS policies and procedures to protect the environment and ensure compliance with these laws, and we incorporate EHS considerations into our planning for new projects. We perform regular risk assessments and EHS reviews. We closely and systematically monitor and manage situations of noncompliance with EHS laws and regulations and cooperate with authorities to redress any noncompliance issues. We believe that we have made adequate reserves with respect to our remediation and compliance obligations. Nevertheless, new regulations or other unforeseen increases in the number of our non-compliant situations may impose costs on us that may have a material adverse effect on our financial condition, results of operations or liquidity.
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Our operations also result in the emission of substantial quantities of carbon dioxide, a greenhouse gas that is regulated under the EU’s Emissions Trading System (“ETS”) and under the EU's recent Carbon Border Adjustment Mechanism (“CBAM”). Although compliance with ETS and CBAM to date has not resulted in material costs to our business, compliance with these and any further new requirements, increased energy costs due to ETS requirements imposed on our energy suppliers, and future costs of CBAM certificates incurred on CBAM goods imported into the EU by us or our suppliers starting from January 1, 2026, could have a material adverse effect on our business, financial condition or results of operations. We may also be liable for personal injury claims or workers’ compensation claims relating to exposure to hazardous substances. In addition, we are, from time to time, subject to environmental reviews and investigations by relevant governmental authorities.
E.U. Directive 2010/75 titled “Industrial Emissions” regulates some of our European activities such as recycling or melting/casting. The revision of the 2026 the Best Available Techniques Reference of Non Ferrous Metals, which became effective in 2020 under this directive, defines associated emission limits for these activities. Staying in compliance with the law requires significant expenditures to tune our processes or implement abatement installations. Similarly, other applicable regulations under this same directive such as, the Best Available Techniques Reference of Surface Treatment of Metals and Plastics, are currently under revision and may impact our facilities in the future. In the U.S., the Environmental Protection Agency decreased the amount of allowable particulate matter, or PM 2.5, permitted in the ambient air by revising the National Ambient Air Quality Standards (NAAQS) in February 2024. This could impact the ability to expand our equipment and may require additional investments. These and any other similar regulations applicable to us in the countries where we operate, could have an adverse impact on our business and financial condition.
Additionally, some of the chemicals we use in our fabrication processes are subject to REACH in the EU. Under REACH, we are required to register some of the substances contained in our products with the European Chemicals Agency, and this process could cause significant delays or costs. We are currently compliant with REACH, and expect to stay in compliance, but if the nature of the regulation changes in the future, or if the perimeter of REACH is changing (e.g. Brexit) or if substances we use currently in our process, considered as Substances of Very High Concern, fall under need of authorization for use, we may be required to make significant expenditures to reformulate the chemicals that we use in our products and materials or incur costs to register such chemicals to gain and/or regain compliance. Future noncompliance could also subject us to significant fines or other civil and criminal penalties. Obtaining regulatory approvals for chemical products used in our facilities is an important part of our operations.
We accrue for costs associated with environmental investigations and remedial efforts when it becomes probable that we are liable and the associated costs can be reasonably estimated. The aggregate close down and environmental remediation costs provisions at December 31, 2023 were €86 million. All accrued amounts have been recorded without giving effect to any possible future recoveries. With respect to ongoing environmental compliance costs, including maintenance and monitoring, we expense the costs when incurred.
We have incurred, and in the future will continue to incur, operating expenses related to environmental compliance. As part of our general capital expenditure plan, we expect to incur capital expenditures for other capital projects that may, in addition to improving operations, reduce certain environmental impacts as energy consumption, air emissions, water releases, and waste streams optimization.
Litigation and Legal Proceedings
The Company is involved, and may become involved, in various lawsuits, claims and proceedings relating to customer claims, product liability, employee and retiree benefit matters, and other commercial matters. The Company 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. From time to time, asbestos-related claims are also filed against us, relating to historic asbestos exposure in our production process. We have made reserves for potential occupational disease claims for a total of €8 million as of December 31, 2023. It is not anticipated that any of our currently pending litigation and proceedings will have a material effect on the future results of the Company.
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| C. | Organizational Structure | ||||
The following diagram reflects our simplified corporate legal entity structure as of March 15, 2024. Percentages reflect ownership interest where ownership interest is less than 100%. The country listed for each legal entity below depicts such entity’s jurisdiction of incorporation.
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| D. | Property, Plants and Equipment | ||||
At December 31, 2023, we operated 25 manufacturing facilities serving both global and local customers and three R&D centers, two in Europe and one in the United States. Among our production sites, we have eight major facilities (Muscle Shoals, Alabama, Bowling Green, Kentucky, Neuf-Brisach, France, Issoire, France, Ravenswood, West Virginia, Singen, Germany, Déčín, Czech Republic and Sierre, Switzerland) catering to the needs of our Packaging & Automotive Rolled Products, Aerospace & Transportation and Automotive Structures & Industry operating segments:
•The Muscle Shoals, Alabama facility is an integrated recycling, casting, rolling and finishing plant. It operates one of the largest and most efficient can reclamation facilities in the world. In addition, the facility utilizes multi-station electromagnetic casting, houses the widest hot line in North America and has one of the fastest can end stock coating line in the world. Production capabilities include body stock, tab stock, and end stock. In addition, we are producing cold coils for ABS. The capital expenditures invested in the facility were €172 million in the three-year period ended December 31, 2023.
•The Bowling Green, Kentucky facility is a fully integrated finishing line comprising of edge trimming, degreasing, thermal treatment, surface treatment, electrostatic oiling, and a continuous inspection system. The plant supplies advanced alloyed products for a variety of automotive applications, including structural components, inner closures and outer panels. The capital expenditures invested in the facility were €7 million in the three-year period ended December 31, 2023.
•The Neuf-Brisach, France plant is an integrated recycling, casting, rolling and finishing facility. The plant is one of the biggest recyclers of aluminium in Europe, capable of producing sheets for the beverage and food can industries, with high levels of recycled content. With its state-of-the-art automotive finishing capabilities, the plant is well positioned as a major supplier of aluminium ABS. The plant also enjoys a strong position in heat exchanger material for the automotive market. In 2023, we continued to invest in the construction of our recycling and casting capacity in Neuf Brisach, France. The capital expenditures invested in the facility were €157 million in the three-year period ended December 31, 2023.
•The Singen, Germany rolling and extrusions plant has capabilities to make sheet and extruded products for the automotive, packaging, rail and other markets. The rolling operations are an integrated producer of aluminium sheet products for specialty and automotive end-markets. The extrusion operations have one of the largest extrusion presses in Europe and advanced extrusion presses that support the demand for automotive extrusions. The capital expenditures invested in the facility were €107 million in the three-year period ended December 31, 2023.
•The Issoire, France facility is one of the world’s two leading integrated aerospace plate mills based on volume. The plant operates two Airware® industrial casthouses and currently uses recycling capabilities to take back scrap along the entire fabrication chain. Issoire also produces high-technology materials for the space market. Issoire operates as an integrated platform with Ravenswood, West Virginia and Sierre, Switzerland, providing a significant competitive advantage for us as a global supplier to the aerospace industry. Issoire also produces sheet and plate products for the transportation, industry and defense markets with significant capabilities. The capital expenditures invested in the facility were €108 million in the three-year period ended December 31, 2023.
•The Ravenswood, West Virginia facility is an integrated plant which has significant capability to produce plate and sheet products for the aerospace, transportation, industry and defense markets. The facility has stretchers and wide-coil capabilities that make it one of the few facilities in the world capable of producing plates of a size needed for the largest commercial aircraft. The capital expenditures invested in the facility were €91 million in the three-year period ended December 31, 2023.
•The Sierre, Switzerland facility is dedicated to precision plates for general engineering, aerospace plates and slabs and is a leading supplier of extruded products for high-speed train railway manufacturers and a wide range of applications. The Sierre facility includes the Chippis casthouse that has the capacity to produce non-standard billets for a wide range of extrusions and the Steg casthouse that produces automotive, general engineering and aerospace slabs. Its qualification to produce aerospace grade slabs and plate products increases the flexibility of our aerospace capabilities. The capital expenditures invested in the facility were €47 million in the three-year period ended December 31, 2023.
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•The Děčín, Czech Republic facility is a large integrated extrusion facility, mainly focusing on hard alloy extrusions for automotive and industrial applications, with significant recycling capabilities. It is located near the German border, strategically positioning it to supply the German, Czech and French Tier 1 suppliers and OEMs. Its integrated casthouse allows it to offer high value-add customized hard alloys to our customers. The capital expenditures invested in the facility were €19 million in the three-year period ended December 31, 2023.
Our manufacturing facilities as of December 31, 2023 are listed below by operating segment:
| Location | Country | Owned/ Leased | ||||||||||||
| Packaging & Automotive Rolled Products | ||||||||||||||
| Biesheim, Neuf-Brisach | France | Owned | ||||||||||||
| Singen | Germany | Owned | ||||||||||||
| Muscle Shoals, AL | United States | Owned | ||||||||||||
| Bowling Green, KY | United States | Owned | ||||||||||||
| Aerospace & Transportation | ||||||||||||||
| Issoire | France | Owned | ||||||||||||
| Montreuil-Juigné | France | Owned | ||||||||||||
| Ravenswood, WV | United States | Owned | ||||||||||||
| Steg | Switzerland | Owned | ||||||||||||
| Sierre | Switzerland | Owned | ||||||||||||
| Automotive Structures & Industry | ||||||||||||||
Lakeshore, Ontario (JV)(1) | Canada | Leased | ||||||||||||
Changchun, Jilin Province (JV)(2) | China | Leased | ||||||||||||
| Nanjing | China | Leased | ||||||||||||
| Děčín | Czech Republic | Leased / Owned | ||||||||||||
| Nuits-Saint-Georges | France | Owned | ||||||||||||
| Neckarsulm | Germany | Owned | ||||||||||||
| Gottmadingen | Germany | Leased | ||||||||||||
| Singen | Germany | Leased / Owned | ||||||||||||
| San Luis Potosi | Mexico | Leased | ||||||||||||
| Levice | Slovakia | Leased / Owned | ||||||||||||
| Zilina | Slovakia | Leased | ||||||||||||
| Vigo | Spain | Leased | ||||||||||||
| Chippis | Switzerland | Owned | ||||||||||||
| Sierre | Switzerland | Owned | ||||||||||||
| Van Buren, MI | United States | Leased | ||||||||||||
| White, GA | United States | Leased | ||||||||||||
(1)Astrex Inc. is a Constellium joint venture with Can Art Aluminium Extrusions Inc.
(2)Constellium Engley (Changchun) Automotive Structures Co Ltd is a Constellium joint venture with Changchun Engley Auto Parts Co. Ltd.
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The production capacity for our main plants as of December 31, 2023 is listed below. In 2023, the estimated utilization rate for these plants ranged from 59% to 95%.
| Plant | Capacity | ||||
| Muscle Shoals | 500-550 kt | ||||
Bowling Green | 100 kt | ||||
| Neuf-Brisach | 450 kt | ||||
| Singen | 300-320 kt | ||||
| Issoire | 110 kt | ||||
| Ravenswood | 175 kt | ||||
| Sierre | 70-75 kt | ||||
| Děčín | 100 kt | ||||
Production capacity is an estimate based on a theoretical output capacity assuming the plant operates with currently operating equipment and current staffing levels and product mix.
For information concerning the material plans to construct, expand or improve facilities, see “Item 5. Operating and Financial Review and Prospects—Liquidity and Capital Resources.”
Item 4A. Unresolved Staff Comments
None.
Item 5. Operating and Financial Review and Prospects
The following discussion and analysis is based principally on our audited Consolidated Financial Statements as of December 31, 2023 and 2022, and for the three years in the period ended December 31, 2023 included elsewhere in this Annual Report, and is provided to supplement the audited Consolidated Financial Statements and the related notes to help provide an understanding of our financial condition, changes in financial condition, results of our operations, and liquidity. The following discussion is to be read in conjunction with our audited Consolidated Financial Statements and the notes thereto, which are included elsewhere in this Annual Report.
The following discussion and analysis includes forward-looking statements. These forward-looking statements are subject to risks, uncertainties and other factors that could cause our actual results to differ materially from those expressed or implied by our forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those discussed below and elsewhere in this Annual Report. See in particular “Special Note about Forward-Looking Statements” and “Item 3. Key Information—D. Risk Factors.”
Overview
We are a global leader in the development, manufacture and sale of a broad range of highly engineered, value-added specialty rolled and extruded aluminium products to the packaging, aerospace, automotive, other transportation and industrial end-markets. As of December 31, 2023, we had approximately 12,000 employees, 25 production facilities, 3 R&D centers and 3 administrative centers.
We serve a diverse set of customers across a broad range of end-markets with different product needs, specifications and requirements. As a result, we have organized our business into three segments to better serve our customer base:
•Our Packaging & Automotive Rolled Products segment produces aluminium sheet and coils, which primarily includes beverage and food canstock, closure stock, foilstock and automotive rolled products.
•Our Aerospace & Transportation segment produces technologically advanced aluminium products, including plate, sheet and other fabricated products with applications across the aerospace, defense, transportation and industrial sectors.
•Our Automotive Structures & Industry segment produces technologically advanced structures for the automotive industry (including crash-management systems, body structures, side impact beams and battery enclosures), soft and hard alloy extrusions and large extruded profiles for automotive, rail, energy, building and industrial applications.
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For the year ended December 31, 2023, our segments represented the following percentages of total Revenue and total Adjusted EBITDA:
Year ended December 31, 2023 | ||||||||||||||
| (as a % of total) | Revenue | Adjusted EBITDA | ||||||||||||
| P&ARP | 54 | % | 40 | % | ||||||||||
| A&T | 24 | % | 45 | % | ||||||||||
| AS&I | 23 | % | 19 | % | ||||||||||
| Holdings and Corporate | — | % | (4) | % | ||||||||||
| Total | 100 | % | 100 | % | ||||||||||
Discontinued Operations and Disposals
On February 2, 2023, the Group disposed of its interest in its subsidiary Constellium Ussel S.A.S. The Group received cash consideration of €1.6 million for net assets at the date of disposal of €5.9 million. The disposal of Constellium Ussel S.A.S., after transaction costs, generated a €5 million loss and the proceeds net of cash disposed amounted to €0.3 million.
On September 29, 2023, the Group disposed of its interest in its subsidiary Constellium Extrusions Deutschland GmbH ("CED"), which was classified as held for sale in the June 30, 2023 Consolidated Financial Statements. The Group received cash consideration of €50 million for net assets at the date of disposal of €12 million. The disposal of CED generated a €36 million gain net of transaction costs and the proceeds net of cash disposed amounted to €47 million.
Management Review of 2023 and Outlook
Review
Constellium delivered strong results in 2023 despite significant inflationary pressures and demand headwinds in several end-markets. Shipments were down 5% at 1.5 million metric tons. We reported revenue of €7.2 billion and net income of €129 million. We achieved €713 million of Adjusted EBITDA, record Adjusted EBITDA in our A&T segment and generated strong cash flows from operating activities.
Outlook
Looking forward to 2024, Constellium expects aerospace demand to remain strong as the post-pandemic recovery continues. In packaging, demand has stabilized in recent quarters and we are expecting modest growth versus last year. In automotive, despite some demand deceleration in the second half of 2023, we expect demand to remain healthy this year. We continue to experience weakness in most industrial markets to start the year.
We are expecting inflationary cost pressures to continue throughout 2024, though at a lower rate than the last two years. We are confident in our ability to continue to offset a substantial portion of the impact with improved pricing and our relentless focus on cost control, as we have demonstrated in the past.
To prepare for our long-term growth, we continue to invest more than we have in the past in activities where we see the most attractive returns, including additional recycling and casting capacity. Our products are at the core of the circular economy of tomorrow. While uncertainties persist on the macroeconomic and geopolitical fronts, we believe our end-market positioning is strong and we are optimistic about our prospects for 2024 and beyond.
Key Factors Influencing Constellium’s Financial Condition and Results from Operations
Russian War on Ukraine
Although we do not have operations in Russia or Ukraine, the conflict and the related sanctions imposed thus far on Russian institutions, companies and individuals continue to generate volatility and disruption in the global economy, including issues with supply chains and fluctuating commodity and energy prices. It remains difficult to predict the length and impact of this crisis on the global economy and on the price and availability of metal and energy. We continue to monitor the situation and to develop contingency plans and counter-measures as necessary to address adverse effects or disruptions to our operations as they arise.
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Economic Conditions and Markets
We are directly impacted by the economic conditions that affect our customers and the markets in which they operate. General economic conditions such as the level of disposable income, the level of inflation, the rate of economic growth, the rate of unemployment, interest rates, exchange rates and currency devaluation or revaluation influence consumer confidence and consumer purchasing power. These factors, in turn, influence the demand for our products in terms of total volumes and prices that can be charged. We attempt to respond to the variability of economic conditions through the terms of our contracts with our customers and cost control.
In addition, although a number of our end-markets are cyclical in nature, we believe that the diversity of our portfolio and the secular growth trends we are experiencing in many of our end-markets will help the Company weather these economic cycles. In each of our three core end-markets of packaging, aerospace and automotive:
•Historically, can packaging has not been highly correlated to the general economic cycle. We believe can sheet has an attractive long-term growth outlook due to increased consumer preference for cans as a package and the sustainable attributes of aluminium.
•While aerospace demand had been adversely impacted following the COVID crisis, it has experienced a sharp recovery in the recent periods. We continue to believe the longer-term trends including increasing passenger traffic and fleet replacements with newer and more fuel efficient aircraft, along with new military and space programs support a positive long-term demand trend.
•The automotive markets were impacted globally by supply chain disruptions in recent years. However, longer term demand for aluminium has been increasing in recent years triggered by a lightweighting trend for new car models, which increases fuel efficiency, reduces emissions and increases vehicle safety. We expect this to continue and be enhanced by increased demand for electric vehicles.
Aluminium Consumption
The aluminium industry is cyclical and is affected by global economic conditions, industry competition and product development. Aluminium is increasingly seen as the material of choice in a number of applications, including packaging, automotive and aerospace given its lightweight, high strength-to-weight ratio, corrosion resistance and infinite recyclability. Due to these qualities, the penetration of aluminium in a wide variety of applications continues to increase. We believe that long-term growth in aluminium consumption generally, and demand for those products we produce specifically, will be supported by factors globally, that include growing populations, greater purchasing power and increasing focus on sustainability and environmental issues.
Aluminium Prices
Raw materials and consumables, where aluminium is the largest component by a wide margin, represented 69%, 74% and 71% of our cost of sales in the years ended December 31, 2023, 2022 and 2021, respectively. Aluminium prices are determined by worldwide forces of supply and demand and are volatile. We operate a pass–through business model and therefore, to the extent possible, avoid taking aluminium price risk. In case of significant sustained increases in the price of aluminium, the demand for our products may be affected over time.
The price we pay for aluminium includes regional premiums, such as the Rotterdam premium for metal purchased in Europe or the Midwest premium for metal purchased in the U.S. The regional premiums have been volatile in recent years. Like LME prices, we seek to pass through this regional premium price risk to our customers or to hedge it in the financial markets. However, in certain instances, we are not able to fully pass through or hedge this cost.
We believe our cash flows are largely protected from variations in LME prices due to the fact that we hedge our sales based on their replacement cost, by matching the price paid for our aluminium purchases with the price received from our aluminium sales, at a given time, using hedges when necessary. As a result, when LME prices increase, we have limited additional cash requirements to finance the increased replacement cost of our inventory.
The average LME transaction price, Rotterdam Premium and Midwest Premium per ton of primary aluminium in the years ended December 31, 2023, 2022 and 2021 are presented below.
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| Year ended December 31, | Percent changes | |||||||||||||||||||||||||||||||
| (Euros per ton) | 2023 | 2022 | 2021 | 2023 vs 2022 | 2022 vs 2021 | |||||||||||||||||||||||||||
Average LME transaction price | 2,081 | 2,560 | 2,099 | (19) | % | 22 | % | |||||||||||||||||||||||||
| Average Rotterdam Premium (ECDP) | 256 | 445 | 231 | (42) | % | 93 | % | |||||||||||||||||||||||||
Average all-in aluminium price Europe | 2,337 | 3,005 | 2,330 | (22) | % | 29 | % | |||||||||||||||||||||||||
Average LME transaction price | 2,081 | 2,560 | 2,099 | (19) | % | 22 | % | |||||||||||||||||||||||||
| Average Midwest Premium | 471 | 622 | 491 | (24) | % | 27 | % | |||||||||||||||||||||||||
Average all-in aluminium price U.S. | 2,552 | 3,182 | 2,590 | (20) | % | 23 | % | |||||||||||||||||||||||||
Product Price and Margin
Our products are typically priced based on three components: (i) the LME price, (ii) a regional premium and (iii) a conversion margin.
Our risk management practices aim to reduce, but do not entirely eliminate, our exposure to changing primary aluminium and regional premium prices. Moreover, while we limit our exposure to unfavorable price changes, we also limit our ability to benefit from favorable price changes. We do not apply hedge accounting for the derivative instruments we entered into in order to hedge our exposure to changes in metal prices and the mark-to-market movements for these instruments are recognized in Other gains and losses—net.
Our results are also impacted by changes in the difference between the prices of primary and scrap aluminium. As we price our products using the prevailing price of primary aluminium but purchase large amounts of scrap aluminium to manufacture our products, we benefit when primary aluminium price increases exceed scrap price increases. Conversely, when scrap price increases exceed primary aluminium price increases, our results are negatively impacted. The difference between the price of primary aluminium and scrap price is referred to as the “scrap spread” and is impacted by the effectiveness of our scrap purchasing activities, the supply of scrap available and movements in the terminal commodity markets.
Volumes
The profitability of our businesses is determined, in part, by the volume of tons processed and sold. Increased production volumes will generally result in lower per unit costs. Higher volumes sold will generally result in additional revenue and associated margins.
Personnel Costs
Our operations are labor intensive. Our personnel costs were €1,171 million, €1,110 million and €967 million, and represented 17%, 14% and 17% of our cost of sales, selling and administrative expenses and R&D expenses for the years ended December 31, 2023, 2022, and 2021, respectively. Personnel costs include the salaries, wages and benefits of our employees, as well as costs related to temporary labor. During our seasonal peaks and especially during the summer months, we have historically increased our temporary workforce to compensate for staff on vacation and increased volume of activity.
Personnel costs generally increase and decrease with the expansion or contraction in production levels of operating facilities. Personnel costs also generally increase in periods of higher inflation.
Energy
Our operations require substantial amounts of energy to run, primarily electricity and natural gas. Energy costs excluding the impact of related hedging (losses) / gains were €263 million, €274 million, €149 million, and represented 4%, 4% and 3% of our cost of sales in the years ended December 31, 2023, 2022 and 2021, respectively.
The direction of energy costs depends on the energy supply demand relationships in the regions we operate in and will likely continue being impacted by the effects of the war in Ukraine and related sanctions. The current geopolitical instability continues to expose us to the risk of energy supply disruptions. In addition, sustainability trends are expected to put upward pressure on energy costs over time. A significant increase in energy costs or disruption of energy supply could have a material adverse effect on financial position, results of operations, and cash flows.
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Currency
We are a global company with operations in France, the United States, Germany, Switzerland, the Czech Republic, Slovakia, Spain, Mexico, Canada and China. As a result, our revenue and earnings have exposure to a number of currencies, primarily the euro, the U.S. dollar and the Swiss franc. As our reporting currency is the euro, and the functional currencies of the businesses located outside of the Eurozone are primarily the U.S. dollar and the Swiss franc, the results of the businesses located outside of the Eurozone must be translated each period to euros. Accordingly, fluctuations in the exchange rate of the functional currencies of our businesses located outside of the Eurozone against the euro have a translation impact on our results of operations.
Transaction impacts arise when our businesses transact in a currency other than their own functional currency. As a result, we are exposed to foreign exchange risk on payments and receipts in multiple currencies. In Europe, a portion of our revenue is denominated in U.S. dollars while the majority of our costs incurred are denominated in local currencies.
We engage in hedging activities to attempt to mitigate the effects of foreign currency transactions on our profitability. Notably, where we have multiple-year sales agreements in U.S. dollars by euro-functional currency entities, we have entered into derivative contracts to forward sell U.S. dollars to match these future sales. With the exception of certain derivative instruments entered into to hedge the foreign currency risk associated with the cash flows of certain highly probable forecasted sales, which we have designated for hedge accounting, hedge accounting is not applied to such ongoing commercial transactions and therefore the mark-to-market impact is recorded in Other gains and losses —net.
Results of Operations
| For the years ended December 31, | ||||||||||||||||||||||||||||||||||||||
| (in millions of Euros and as a % of revenue) | 2023 | 2022 | 2021 | |||||||||||||||||||||||||||||||||||
| Revenue | 7,239 | 100 | % | 8,120 | 100 | % | 6,152 | 100 | % | |||||||||||||||||||||||||||||
| Cost of sales | (6,529) | 90 | % | (7,448) | 92 | % | (5,488) | 89 | % | |||||||||||||||||||||||||||||
| Gross profit | 710 | 10 | % | 672 | 8 | % | 664 | 11 | % | |||||||||||||||||||||||||||||
| Selling and administrative expenses | (302) | 4 | % | (282) | 3 | % | (258) | 4 | % | |||||||||||||||||||||||||||||
| Research and development expenses | (52) | 1 | % | (48) | 1 | % | (39) | 1 | % | |||||||||||||||||||||||||||||
| Other gains and losses - net | (19) | — | % | (8) | — | % | 117 | 2 | % | |||||||||||||||||||||||||||||
| Income from operations | 337 | 5 | % | 334 | 4 | % | 484 | 8 | % | |||||||||||||||||||||||||||||
| Finance costs - net | (141) | 2 | % | (131) | 2 | % | (167) | 3 | % | |||||||||||||||||||||||||||||
| Income before tax | 196 | 3 | % | 203 | 3 | % | 317 | 5 | % | |||||||||||||||||||||||||||||
| Income tax (expense) / benefit | (67) | 1 | % | 105 | 1 | % | (55) | 1 | % | |||||||||||||||||||||||||||||
| Net income | 129 | 2 | % | 308 | 4 | % | 262 | 4 | % | |||||||||||||||||||||||||||||
| Shipment volumes (in kt) | 1,492 | n/a | 1,580 | n/a | 1,571 | n/a | ||||||||||||||||||||||||||||||||
| Revenue per ton (€ per ton) | 4,853 | n/a | 5,138 | n/a | 3,916 | n/a | ||||||||||||||||||||||||||||||||
Results of Operations for the years ended December 31, 2023 and 2022
Revenue
For the year ended December 31, 2023, revenue decreased by 11% to €7,239 million from €8,120 million for the year ended December 31, 2022. This decrease reflected a decrease in shipments and lower revenue per ton.
For the year ended December 31, 2023, sales volumes decreased by 6% to 1,492 kt from 1,580 kt for the year ended December 31, 2022. This decrease reflected a 5% decrease in volumes for P&ARP, a 2% decrease in volumes for A&T and a 9% decrease in volumes for AS&I. For the year ended December 31, 2023, revenue per ton decreased by 6% to €4,853 from €5,138 for the year ended December 31, 2022.
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The following table presents the primary drivers for changes in Revenue:
| (in millions of Euros) | Total | |||||||
| Revenue for the year ended December 31, 2022 | 8,120 | |||||||
| Volume | (380) | |||||||
| Price and product mix | 617 | |||||||
| Metal price | (1,131) | |||||||
| Foreign exchange and other | 13 | |||||||
| Revenue for the year ended December 31, 2023 | 7,239 | |||||||
Our revenue is discussed in more detail in the “Segment Results” section.
Cost of Sales
For the year ended December 31, 2023, cost of sales decreased by 12% to €6,529 million from €7,448 million for the year ended December 31, 2022. This decrease in cost of sales was primarily driven by a decrease of €1,048 million, or 19%, in raw materials and consumables used due to lower volumes and lower metal prices, partially offset by an increase of €44 million, or 5%, in labor costs, mainly due to inflation.
Gross Profit
For the year ended December 31, 2023, gross profit increased by 6% to €710 million from €672 million for the year ended December 31, 2022 while gross margin increased to 10% compared to 8%, respectively. This increase in gross profit primarily resulted from an increase in revenue as a result of stronger price and mix, partially offset by higher labor costs mainly due to inflation and adverse non-cash impact of metal price lag.
Selling and Administrative Expenses
For the year ended December 31, 2023, selling and administrative expenses increased by 7% to €302 million from €282 million for the year ended December 31, 2022. The increase reflected primarily a €13 million increase in labor costs and a €3 million increase in lease expenses.
Research and Development Expenses
For the year ended December 31, 2023, research and development expenses increased by €4 million to €52 million from €48 million for the year ended December 31, 2022. This increase reflected primarily an increase in labor costs.
Other Gains and Losses, net
| For the years ended December 31, | ||||||||||||||
| (in millions of Euros) | 2023 | 2022 | ||||||||||||
| Realized losses on derivatives | (46) | (6) | ||||||||||||
| Unrealized losses on derivatives at fair value through profit and loss—net | (3) | (47) | ||||||||||||
Unrealized exchange losses from the remeasurement of monetary assets and liabilities—net | (2) | (1) | ||||||||||||
| Restructuring costs | — | (1) | ||||||||||||
| Gains on pension plan amendments | — | 47 | ||||||||||||
| Gains / (losses) on disposal | 29 | (4) | ||||||||||||
| Other | 3 | 4 | ||||||||||||
| Total other gains and losses, net | (19) | (8) | ||||||||||||
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The following table provides an analysis of the realized and unrealized gains and losses by nature of exposure:
| For the years ended December 31, | ||||||||||||||
| (in millions of Euros) | 2023 | 2022 | ||||||||||||
| Realized gains on foreign currency derivatives | 16 | — | ||||||||||||
| Realized losses on commodity derivatives | (62) | (6) | ||||||||||||
| Realized losses on derivatives | (46) | (6) | ||||||||||||
| Unrealized (losses) / gains on foreign currency derivatives | (12) | 6 | ||||||||||||
| Unrealized gains / (losses) on commodity derivatives | 9 | (53) | ||||||||||||
| Unrealized losses on derivatives at fair value through profit and loss—net | (3) | (47) | ||||||||||||
Realized gains or losses relate to financial derivatives used by the Group to hedge underlying commercial and commodity transactions. Realized gains and losses on these derivatives are recognized in Other Gains and Losses, net and are offset by the commercial and commodity transactions accounted for in revenue and cost of sales.
Unrealized gains or losses relate to financial derivatives used by the Group to hedge forecasted commercial and commodity transactions for which hedge accounting is not applied. Unrealized gains or losses on these derivatives are recognized in Other Gains and Losses, net and are intended to offset the change in the value of forecasted transactions which are not yet accounted for.
Changes in realized and unrealized gains or losses on derivatives for the year ended December 31, 2023 as compared to the year ended December 31, 2022 primarily reflected the fluctuation in metal prices.
For the year ended December 31, 2023, gains on disposal included a €36 million gain, net of transaction costs related to the sale of Constellium Extrusions Deutschland GmbH, which was completed on September 29, 2023 and a €5 million loss relating to the sale of Constellium Ussel, which was completed on February 2, 2023.
In October 2022, Constellium Rolled Products Ravenswood, LLC and the United Steelworkers Local Union 5668 entered into a new three-year collective bargaining agreement. The agreement included changes in OPEB and pension benefits that are accounted for as a plan amendment in the year ended December 31, 2022. The changes resulted in a reduction of the OPEB obligation recorded as a gain from negative past service cost for €49 million and an increase of the pension obligation recorded as an additional past service cost for €2 million.
Finance Costs, net
For the year ended December 31, 2023, finance costs, net increased by €10 million, to €141 million from €131 million for the year ended December 31, 2022. This increase primarily reflected higher interest costs as a result of the increase in interest rates.
Income Tax
For the years ended December 31, 2023 and 2022, income tax was an expense of €67 million and a tax benefit of €105 million, respectively. Our effective tax rate was 34% of our income before income tax compared to a statutory tax rate of 25.8%. Our effective tax rate was higher than the statutory rate, primarily due to the impact of the geographical mix of our pre-tax results and the impact of non-recurring transactions.
For the year ended December 31, 2022, income tax was significantly impacted by the recognition of previously unrecognized deferred tax assets related to one of our main operating entities in the United States, which resulted in a €154 million tax benefit being recorded in the period. Excluding this impact, our effective tax rate was 24% of our income before income tax compared to a statutory tax rate of 25.8%. Our effective tax rate was lower than the statutory rate, primarily due to the favorable impact of the geographical mix of our pre-tax results.
Net Income
As a result of the foregoing factors, we recognized net income of €129 million and net income of €308 million in the years ended December 31, 2023 and 2022, respectively.
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Results of Operations for the years ended December 31, 2022 and 2021
Revenue
For the year ended December 31, 2022, revenue increased by 32% to €8,120 million from €6,152 million for the year ended December 31, 2021. This increase reflected stable shipments and higher revenue per ton.
For the year ended December 31, 2022, sales volumes were relatively stable with a 1% increase to 1,580 kt from 1,571 kt for the year ended December 31, 2021. This increase reflected an 8% increase in volumes for A&T, a 2% increase in volumes for AS&I, partially offset by a 1% decrease in volumes for P&ARP. For the year ended December 31, 2022, revenue per ton increased by 31% to €5,138 from €3,916 for the year ended December 31, 2021.
The following table presents the primary drivers for changes in Revenue:
| (in millions of Euros) | Total | |||||||
| Revenue for the year ended December 31, 2021 | 6,152 | |||||||
| Volume | 73 | |||||||
| Price and product mix | 654 | |||||||
| Metal price | 1,158 | |||||||
| Foreign exchange and other | 83 | |||||||
| Revenue for the year ended December 31, 2022 | 8,120 | |||||||
Our revenue is discussed in more detail in the “Segment Results” section.
Cost of Sales
For the year ended December 31, 2022, cost of sales increased by 36% to €7,448 million from €5,488 million for the year ended December 31, 2021. This increase in cost of sales was primarily driven by an increase of €1,660 million, or 43%, in raw materials and consumables used due to higher metal prices, a €127 million, or 17%, increase in labor costs and a €124 million, or 84%, increase in energy costs.
Gross Profit
For the year ended December 31, 2022, gross profit increased by 1% to €672 million from €664 million for the year ended December 31, 2021 while gross margin decreased to 8% compared to 11%, respectively. This increase in gross profit primarily resulted from an increase in revenue as a result of stronger price and mix, largely offset by higher metal costs, higher labor costs, higher energy prices and adverse non-cash impact of metal price lag.
Selling and Administrative Expenses
For the year ended December 31, 2022, selling and administrative expenses increased by 9% to €282 million from €258 million for the year ended December 31, 2021. This increase reflected primarily a €12 million increase in labor costs and an €8 million increase in professional fees.
Research and Development Expenses
For the year ended December 31, 2022, research and development expenses increased by €9 million to €48 million from €39 million for the year ended December 31, 2021. The increase reflected mainly an increase in labor costs.
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Other Gains and Losses, net
| For the years ended December 31, | ||||||||||||||
| (in millions of Euros) | 2022 | 2021 | ||||||||||||
| Realized (losses) / gains on derivatives | (6) | 113 | ||||||||||||
| Unrealized (losses) / gains on derivatives at fair value through profit and loss—net | (47) | 39 | ||||||||||||
| Unrealized exchange (losses) / gains from the remeasurement of monetary assets and liabilities—net | (1) | 1 | ||||||||||||
| Restructuring costs | (1) | (3) | ||||||||||||
| Gains / (losses) on pension plan amendments | 47 | (32) | ||||||||||||
| Losses on disposal | (4) | |||||||||||||