Constellium SE (NYSE: CSTM) today reported results for the third quarter ended September 30, 2022.

Third quarter 2022 highlights:

  • Shipments of 387 thousand metric tons, down 2% compared to Q3 2021
  • Revenue of €2.0 billion, up 27% compared to Q3 2021
  • Value-Added Revenue (VAR) of €673 million, up 21% compared to Q3 2021
  • Net income of €131 million compared to net income of €99 million in Q3 2021
  • Adjusted EBITDA of €160 million, up 12% compared to Q3 2021
  • Cash from Operations of €154 million and Free Cash Flow of €74 million

Nine months ended September 30, 2022 highlights:

  • Shipments of 1.2 million metric tons, up 2% compared to YTD 2021
  • Revenue of €6.3 billion, up 41% compared to YTD 2021
  • VAR of €2.0 billion, up 21% compared to YTD 2021
  • Net income of €278 million compared to net income of €255 million in YTD 2021
  • Adjusted EBITDA of €525 million, up 21% compared to YTD 2021
  • Cash from Operations of €323 million and Free Cash Flow of €160 million
  • Net debt / LTM Adjusted EBITDA of 3.0x at September 30, 2022

Jean-Marc Germain, Constellium’s Chief Executive Officer said, “Constellium delivered strong results in the third quarter. Adjusted EBITDA of €160 million is a third quarter record and includes record third quarter performances by both A&T and AS&I. Looking across our end markets, packaging demand continues to be resilient. Our shipments were down in the quarter due to operating challenges at our Muscle Shoals facility. Automotive shipments were up double digits in the quarter versus last year with new platform launches driving our growth, but we continue to be impacted by the semiconductor shortage and other supply chain challenges. In aerospace, demand is very strong with shipments up around 50% compared to last year for the second quarter in a row. While we are seeing signs of weakness across certain industrial markets, we like our end market positioning. Free Cash Flow in the third quarter was solid at €74 million.”

"Macroeconomic and geopolitical risks remain elevated and we expect significant inflationary pressures to continue, particularly for inputs like energy and in regions more directly affected by the ongoing war in Ukraine. The Constellium team has demonstrated its relentless focus on execution and cost control and I am confident in our ability to manage our business through these challenging times. We remain focused on executing our strategy, driving operational improvements, strengthening our margins, generating Free Cash Flow and increasing shareholder value,” Mr. Germain continued.

Mr. Germain concluded, “We expect recent demand trends in our markets to continue through the remainder of 2022. Based on our current outlook, in 2022 we expect Adjusted EBITDA at the low end of our range of €670 million to €690 million and Free Cash Flow in excess of €170 million.”

• Group Summary

  Q32022 Q32021 Var. YTD2022 YTD2021 Var.
Shipments (k metric tons) 387 395 (2)% 1,212 1,186 2%
Revenue (€ millions) 2,022 1,587 27% 6,276 4,446 41%
VAR (€ millions) 673 558 21% 2,029 1,670 21%
Net income (€ millions) 131 99 n.m. 278 255 n.m.
Adjusted EBITDA (€ millions) 160 143 12% 525 434 21%
Adjusted EBITDA per metric ton (€) 412 362 14% 433 366 18%

The difference between the sum of reported segment revenue and total group revenue includes revenue from certain non-core activities and inter-segment eliminations. The difference between the sum of reported segment Adjusted EBITDA and the Group Adjusted EBITDA is related to Holdings and Corporate.

For the third quarter of 2022, shipments of 387 thousand metric tons decreased 2% compared to the third quarter of last year due to lower shipments in the Packaging & Automotive Rolled Products segment, partially offset by higher shipments in the Aerospace & Transportation and Automotive Structures & Industry segments. Revenue of €2.0 billion increased 27% compared to the third quarter of the prior year primarily due to improved price and mix and higher metal prices. VAR of €673 million increased 21% compared to the third quarter of the prior year primarily due to improved price and mix and favorable foreign exchange translation, partially offset by lower volumes and unfavorable metal costs due to inflation. Net income of €131 million increased €32 million compared to net income of €99 million in the third quarter of 2021. Adjusted EBITDA of €160 million increased 12% compared to the third quarter of last year due to stronger results in our Aerospace & Transportation, Automotive Structures & Industry and Holdings & Corporate segments, partially offset by weaker results in our Packaging & Automotive Rolled Products segment.

For the first nine months of 2022, shipments of 1.2 million metric tons increased 2% compared to the first nine months of 2021 on higher shipments in each of our segments. Revenue of €6.3 billion increased 41% compared to the first nine months of 2021 primarily due to higher metal prices, improved price and mix and higher volumes. VAR of €2.0 billion increased 21% compared to the first nine months of 2021 primarily due to higher volumes, improved price and mix and favorable foreign exchange translation, partially offset by unfavorable metal costs due to inflation. Net income of €278 million increased €23 million compared to net income of €255 million in the first nine months of 2021. Adjusted EBITDA of €525 million increased 21% compared to the first nine months of 2021 on stronger results in our Aerospace & Transportation, Automotive Structures & Industry and Holdings & Corporate segments.

• Results by Segment

• Packaging & Automotive Rolled Products (P&ARP)

  Q32022 Q32021 Var. YTD2022 YTD2021 Var.
Shipments (k metric tons) 267 281 (5)% 835 832 0%
Revenue (€ millions) 1,140 988 15% 3,656 2,661 37%
Adjusted EBITDA (€ millions) 78 94 (17)% 255 256 (1)%
Adjusted EBITDA per metric ton (€) 291 335 (13)% 305 308 (1)%

For the third quarter of 2022, Adjusted EBITDA decreased 17% compared to the third quarter of 2021 as a result of lower shipments and higher operating costs mainly due to inflation and operating challenges at our Muscle Shoals facility which resulted in higher maintenance and supplies costs, partially offset by improved price and mix and favorable foreign exchange translation. Shipments of 267 thousand metric tons decreased 5% compared to the third quarter of the prior year due to lower shipments of packaging and specialty rolled products, partially offset by higher shipments of automotive rolled products. Revenue of €1.1 billion increased 15% compared to the third quarter of 2021 primarily due to improved price and mix and higher metal prices, partially offset by lower shipments.

For the first nine months of 2022, Adjusted EBITDA of €255 million was relatively stable compared to the first nine months of 2021 with improved price and mix, favorable metal costs and favorable foreign exchange translation offset by higher operating costs mainly due to inflation and operating challenges at our Muscle Shoals facility which resulted in higher maintenance and supplies costs. Shipments of 835 thousand metric tons were stable compared to the first nine months of 2021 on higher shipments of automotive rolled products, mostly offset by lower shipments of specialty rolled products. Revenue of €3.7 billion increased 37% compared to the first nine months of 2021 primarily due to higher metal prices.

• Aerospace & Transportation (A&T)

  Q32022 Q32021 Var. YTD2022 YTD2021 Var.
Shipments (k metric tons) 55 52 6% 170 153 11%
Revenue (€ millions) 432 289 50% 1,278 821 56%
Adjusted EBITDA (€ millions) 45 20 136% 161 81 99%
Adjusted EBITDA per metric ton (€) 807 362 123% 944 525 80%

For the third quarter of 2022, Adjusted EBITDA increased 136% compared to the third quarter of 2021 primarily due to higher shipments, improved price and mix and favorable foreign exchange translation, partially offset by higher operating costs due to inflation and the production ramp-up in aerospace. Shipments of 55 thousand metric tons increased 6% compared to the third quarter of 2021 on higher shipments of aerospace rolled products, partially offset by lower shipments of TID rolled products. Revenue of €432 million increased 50% compared to the third quarter of 2021 on improved price and mix, higher metal prices, higher shipments and favorable foreign exchange translation.

For the first nine months of 2022, Adjusted EBITDA of €161 million increased 99% compared to the first nine months of 2021 primarily due to higher shipments, improved price and mix and favorable foreign exchange translation, partially offset by higher operating costs due to inflation and the production ramp-up in aerospace. Shipments of 170 thousand metric tons increased 11% compared to the first nine months of 2021 on higher shipments of aerospace rolled products. Revenue of €1.3 billion increased 56% compared to the first nine months of 2021 primarily due to higher metal prices, improved price and mix and higher shipments.

• Automotive Structures & Industry (AS&I)

  Q32022 Q32021 Var. YTD2022 YTD2021 Var.
Shipments (k metric tons) 65 62 4% 207 201 3%
Revenue (€ millions) 473 326 45% 1,433 1,021 40%
Adjusted EBITDA (€ millions) 35 32 7% 118 111 6%
Adjusted EBITDA per metric ton (€) 544 528 3% 570 553 3%

For the third quarter of 2022, Adjusted EBITDA increased 7% compared to the third quarter of 2021 primarily due to higher shipments and improved price and mix, partially offset by higher operating costs mainly due to inflation. Shipments of 65 thousand metric tons increased 4% compared to the third quarter of 2021 due to higher shipments of automotive extruded products. Revenue of €473 million increased 45% compared to the third quarter of 2021 primarily due to improved price and mix and higher metal prices.For the first nine months of 2022, Adjusted EBITDA of €118 million increased 6% compared to the first nine months of 2021 primarily due to higher shipments and improved price and mix, partially offset by higher operating costs mainly due to inflation. Shipments of 207 thousand metric tons increased 3% compared to the first nine months of 2021 on higher shipments of other extruded products. Revenue of €1.4 billion increased 40% compared to the first nine months of 2021 primarily due to higher metal prices and improved price and mix.

• Net Income

For the third quarter of 2022, net income of €131 million compares to net income of €99 million in the third quarter of the prior year. The increase in net income is primarily related to the recognition of deferred tax assets previously unrecognized, partially offset by realized losses on derivatives mostly related to our metal hedging positions and lower gross profit.For the first nine months of 2022, net income of €278 million compares to net income of €255 million in first nine months of the prior year. The increase in net income is primarily related to the recognition of deferred tax assets previously unrecognized, higher gross profit and lower finance costs, partially offset by realized and unrealized losses on derivatives mostly related to our metal hedging positions and higher selling and administrative expenses.

• Cash Flow

Free Cash Flow was €160 million in the first nine months of 2022 compared to €121 million in the first nine months of the prior year. The increase was primarily due to stronger Adjusted EBITDA and lower cash interest, partially offset by increased capital expenditures and higher cash taxes.Cash flows from operating activities were €323 million for the first nine months of 2022 compared to cash flows from operating activities of €239 million in the first nine months of the prior year. Constellium increased derecognized factored receivables by €22 million for the first nine months of 2022 compared to a decrease of €30 million in the prior year.Cash flows used in investing activities were €163 million for the first nine months of 2022 compared to cash flows used in investing activities of €118 million in the first nine months of the prior year.

Cash flows used in financing activities were €141 million for the first nine months of 2022 compared to cash flows used in financing activities of €241 million in the first nine months of the prior year. In the first nine months of 2022, Constellium drew on the Pan-U.S. ABL due 2026 and used the proceeds and cash on the balance sheet to repay the €180 million PGE French Facility due 2022 and the CHF 15 million Swiss Facility due 2025. In the first nine months of 2021, Constellium issued $500 million of 3.75% Sustainability-Linked Senior Notes due 2029 and €300 million of 3.125% Sustainability-Linked Senior Notes due 2029 and used the proceeds and cash on the balance sheet to redeem $650 million of 6.625% Senior Notes due 2025 and $400 million of 5.75% Senior Notes due 2024.

• Liquidity and Net Debt

Liquidity at September 30, 2022 was €819 million, comprised of €171 million of cash and cash equivalents and €648 million available under our committed lending facilities and factoring arrangements.Net debt was €1,997 million at September 30, 2022 compared to €1,981 million at December 31, 2021.

• Outlook

Based on our current outlook, we expect Adjusted EBITDA in the range of €670 million to €690 million in 2022.We are not able to provide a reconciliation of this Adjusted EBITDA guidance to net income, the comparable GAAP measure, because certain items that are excluded from Adjusted EBITDA cannot be reasonably predicted or are not in our control. In particular, we are unable to forecast the timing or magnitude of realized and unrealized gains and losses on derivative instruments, metal lag, impairment or restructuring charges, or taxes without unreasonable efforts, and these items could significantly impact, either individually or in the aggregate, net income in the future.

• Forward-looking statements

Certain statements contained in this press release may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. This press release may contain “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 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, while others are more specific to our business and operations. These risks and uncertainties include, but are not limited to: market competition; economic downturn; disruption to business operations, including the length and magnitude of disruption resulting from the global COVID-19 pandemic; the Russian invasion of Ukraine; the inability to meet customer demand and quality requirements; the loss of key customers, suppliers or other business relationships; supply disruptions; excessive inflation; the capacity and effectiveness of our hedging policy activities; the loss of key employees; levels of indebtedness which could limit our operating flexibility and opportunities; and other risk factors set forth under the heading “Risk Factors” in our Annual Report on Form 20-F, and as described from time to time in subsequent reports filed with the U.S. Securities and Exchange Commission. 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. Consequently, actual results may differ materially from the forward-looking statements contained in this press release. We undertake no obligation to update or revise any forward-looking statement as a result of new information, future events or otherwise, except as required by law.

• About Constellium

Constellium (NYSE: CSTM) is a global sector leader that develops innovative, value added aluminium products for a broad scope of markets and applications, including packaging, automotive and aerospace. Constellium generated €6.2 billion of revenue in 2021.Constellium’s earnings materials for the third quarter ended September 30, 2022, are also available on the company’s website (www.constellium.com).

   
Jason Hershiser - Investor Relations Delphine Dahan-Kocher - External Communications
Phone: +1 443 988 0600 Phone: +1 443 420 7860
Investor-relations@constellium.com delphine.dahan-kocher@constellium.com
   

CONSOLIDATED INCOME STATEMENT (UNAUDITED)

  Three months ended September 30, Nine months ended September 30,
(in millions of Euros) 2022 2021 2022 2021
Revenue 2,022   1,587   6,276   4,446  
Cost of sales (1,889 ) (1,419 ) (5,711 ) (3,937 )
Gross profit 133   168   565   509  
Selling and administrative expenses (63 ) (60 ) (206 ) (187 )
Research and development expenses (11 ) (10 ) (32 ) (30 )
Other gains and losses - net (29 ) 55   (53 ) 142  
Income from operations 30   153   274   434  
Finance costs - net (36 ) (34 ) (98 ) (126 )
(Loss) / income before tax (6 ) 119   176   308  
Income tax benefit / (expense) 137   (20 ) 102   (53 )
Net income 131   99   278   255  
Net income attributable to:        
Equity holders of Constellium 130   97   273   250  
Non-controlling interests 1   2   5   5  
Net income 131   99   278   255  
         
Earnings per share attributable to the equity holders of Constellium, (in Euros)        
Basic 0.90   0.68   1.90   1.77  
Diluted 0.88   0.65   1.86   1.69  
Weighted average number of shares, (in thousands)        
Basic 144,302   141,677   143,398   140,765  
Diluted 146,759   147,148   146,759   147,148  
                 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME / (LOSS) (UNAUDITED)

  Three months endedSeptember 30, Nine months endedSeptember 30,
(in millions of Euros) 2022 2021 2022 2021
Net income 131   99   278   255  
Other comprehensive income        
Items that will not be reclassified subsequently to the consolidated income statement        
Remeasurement on post-employment benefit obligations 26   5   181   94  
Income tax on remeasurement on post-employment benefit obligations (9 ) (3 ) (39 ) (14 )
Items that may be reclassified subsequently to the consolidated income statement        
Cash flow hedges (12 ) (6 ) (27 ) (14 )
Income tax on cash flow hedges 3   1   7   3  
Currency translation differences 47   10   89   22  
Other comprehensive income 55   7   211   91  
Total comprehensive income 186   106   489   346  
Attributable to:        
Equity holders of Constellium 184   104   483   340  
Non-controlling interests 2   2   6   6  
Total comprehensive income 186   106   489   346  
                 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION (UNAUDITED)

         
(in millions of Euros)   At September 30, 2022   At December 31, 2021
Assets        
Current assets
Cash and cash equivalents   171   147
Trade receivables and other   822   683
Inventories   1,383   1,050
Other financial assets   47   58
    2,423   1,938
Non-current assets        
Property, plant and equipment   2,057   1 ,948
Goodwill   522   451
Intangible assets   57   58
Deferred tax assets   275   162
Trade receivables and other   53   55
Other financial assets   18   12
    2,982   2,686
Total Assets   5,405   4,624
         
Liabilities
Current liabilities
Trade payables and other   1,690   1,377
Borrowings   154   258
Other financial liabilities   87   25
Income tax payable   24   34
Provisions   22   20
    1,977   1,714
Non-current liabilities        
Trade payables and other   40   32
Borrowings   2,015   1,871.60
Other financial liabilities   28   599.97
Pension and other post-employment benefit obligations   450   14
Provisions   97   _
Deferred tax liabilities   5   _
    2,635   2,619
Total Liabilities   4,612   4,333
Equity        
Share capital   3   3
Share premium   420   420
Retained earnings / (deficit) and other reserves   347   (149)
Equity attributable to equity holders of Constellium   770   274
Non-controlling interests   23   17
Total Equity   793   291
Total Equity and Liabilities   5,405   4,624
         

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED)

(in millions of Euros)   Share capital   Share premium   Re-measurement     Cashflowhedges   Foreigncurrencytranslationreserve   Other reserves   Retained(deficit) earnings   Total   Non-controllinginterests   Totalequity
At January 1, 2022   3   420   (94 )   (4 )   19     83   (153 )   274     17     291  
Net income   _   _   _     _     _     _   273     273     5     278  
Other comprehensive income / (loss)   _   _   142     (20 )   88     _   _     210     1     211  
Total comprehensive income | (loss)   _   _   142     (20 )   88     _   273     483     6     489  
Share-based compensation   _   _   _     _     _     13   _     13     _     13  
Transactions with non-controlling interests   _   _   _     _     _         _     _     _     _  
At September 30, 2022   3   420   48     (24 )   107     96   120     770     23     793  
                                                       
                                                       
(in millions of Euros)   Sharecapital   Share premium   Re-measurement   Cashflowhedges   Foreign currency translation reserve   Other reserves   Retaineddeficit   Total   Non-controlling interests   Totalequity
At January 1, 2021   3   420   (192 )   9     (13 )   68   (410 )   (115 )   14     (101 )
Net income   _   _   _     _     _     _   250     250     5     255  
Other comprehensive income / (loss)   _   _   80     (11 )   21     _   _     90     1     91  
Total comprehensive income | (loss)   _   _   80     (11 )   21     _   250     340     6     346  
Share-based compensation   _   _   _     _     _     11   _     11     _     11  
Transactions with non-controlling interests   _   _   _     _     _     _   _     _     (2 )   (2 )
At September 30, 2021   3   420   (112 )   (2 )   8     79   (160 )   236     18     254  
                                                       

CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)

  Three months ended September 30, Nine months ended September 30,
(in millions of Euros) 2022 2021 2022 2021
Net income 131   99   278   255  
Adjustments        
Depreciation and amortization 73   67   209   195  
Pension and other post-employment benefits service costs 7   8   18   25  
Finance costs - net 36   34   98   126  
Income tax (benefit) / expense (137 ) 20   (102 ) 53  
Unrealized (gains) / losses on derivatives - net and from remeasurement of monetary assets and liabilities - net (18 ) (23 ) 67   (68 )
Losses on disposal 1   1   2   1  
Other - net 4   3   12   8  
Change in working capital        
Inventories 18   (122 ) (238 ) (334 )
Trade receivables 195   (23 ) (92 ) (257 )
Trade payables (119 ) 56   206   356  
Other (1 ) 15   3   15  
Change in provisions (3 ) (3 ) (7 ) (7 )
Pension and other post-employment benefits paid (12 ) (13 ) (33 ) (34 )
Interest paid (31 ) (27 ) (85 ) (99 )
Income tax refunded / (paid) 10   (1 ) (13 ) 4  
Net cash flows from operating activities 154   91   323   239  
Purchases of property, plant and equipment (80 ) (54 ) (164 ) (128 )
Property, plant and equipment grants received   3   1   10  
Net cash flows used in investing activities (80 ) (51 ) (163 ) (118 )
Proceeds from issuance of long-term borrowings       712  
Repayments of long-term borrowings (2 ) (2 ) (188 ) (871 )
Net change in revolving credit facilities and short-term borrowings (57 ) 1   67    
Lease repayments (7 ) (8 ) (27 ) (25 )
Payment of financing costs and redemption fees (1 ) (2 ) (1 ) (28 )
Transactions with non-controlling interests     (2 ) (2 )
Other financing activities 5   2   10   (27 )
Net cash flows used in financing activities (62 ) (9 ) (141 ) (241 )
Net increase / (decrease) in cash and cash equivalent 12   31   19   (120 )
Cash and cash equivalents - beginning of year 156   290   147   439  
Effect of exchange rate changes on cash and cash equivalents 3   2   5   4  
Cash and cash equivalents - end of period 171   323   171   323  
                 

SEGMENT ADJUSTED EBITDA

  Three months endedSeptember 30, Nine months ended September 30,
(in millions of Euros) 2022 2021 2022 2021
P&ARP 78 94   255   256  
A&T 45 20   161   81  
AS&I 35 32   118   111  
Holdings and Corporate 2 (3 ) (9 ) (14 )
Total 160 143   525   434  
               

SHIPMENTS AND REVENUE BY PRODUCT LINE

(in k metric tons) Three months ended September 30, Nine months ended September 30,
2022  2021  2022  2021 
Packaging rolled products 196   215   623   622  
Automotive rolled products 64   55   184   177  
Specialty and other thin-rolled products 7   11   28   33  
Aerospace rolled products 19   13   55   39  
Transportation, industry, defense and other rolled products 36   39   115   114  
Automotive extruded products 29   26   89   89  
Other extruded products 36   36   118   112  
Total shipments 387   395   1,212   1,186  
(in millions of Euros)        
Packaging rolled products 792   730   2,629   1,897  
Automotive rolled products 308   216   879   637  
Specialty and other thin-rolled products 40   42   148   127  
Aerospace rolled products 184   92   510   279  
Transportation, industry, defense and other rolled products 248   197   768   542  
Automotive extruded products 248   167   721   544  
Other extruded products 225   159   712   477  
Other and inter-segment eliminations (23 ) (16 ) (91 ) (57 )
Total revenue 2,022   1,587   6,276   4,446  
                 

NON-GAAP MEASURES

Reconciliation of Revenue to VAR (a non-GAAP measure)

  Three months endedSeptember 30, Nine months endedSeptember 30,
(in millions of Euros) 2022 2021 2022 2021
Revenue 2,022   1,587   6,276   4,446  
Hedged cost of alloyed metal (1,414 ) (966 ) (4,191 ) (2,617 )
Revenue from incidental activities (5 ) (4 ) (16 ) (15 )
Metal time lag 70   (59 ) (40 ) (144 )
VAR 673   558   2,029   1,670  
                 

Reconciliation of net income to Adjusted EBITDA (a non-GAAP measure)

  Three months endedSeptember 30, Nine months endedSeptember 30,
(in millions of Euros) 2022 2021 2022 2021
Net income 131   99   278   255  
Income tax (benefit) / expense (137 ) 20   (102 ) 53  
(Loss) / income before tax (3 ) 119   176   308  
Finance costs - net 36   34   98   126  
Income from operations 30   153   274   434  
Depreciation and amortization 73   67   209   195  
Restructuring costs       3  
Unrealized (gains) / losses on derivatives (19 ) (23 ) 65   (67 )
Unrealized exchange losses / (gains) from the remeasurement of monetary assets and liabilities – net 1     2   (1 )
Losses on pension plan amendments       2  
Share based compensation costs 4   4   13   11  
Metal price lag (A) 70   (59 ) (40 ) (144 )
Losses on disposal 1   1   2   1  
Adjusted EBITDA 160   143   525   434  
                 

(A) Metal price lag represents the financial impact of the timing difference between when aluminium prices included within Constellium's Revenue are established and when aluminium purchase prices included in Cost of sales are established. The Group accounts for inventory using a weighted average price basis and this adjustment aims to remove the effect of volatility in LME prices. The calculation of the Group metal price lag adjustment is based on an internal standardized methodology calculated at each of Constellium’s manufacturing sites and is primarily calculated as the average value of product recorded in inventory, which approximates the spot price in the market, less the average value transferred out of inventory, which is the weighted average of the metal element of cost of sales, based on the quantity sold in the year.

Reconciliation of net cash flows from operating activities to Free Cash Flow (a non-GAAP measure)

           
(in millions of Euros)   Three months endedSeptember 30   Nine months endedSeptember 30
  2022     2021     2022     2021  
Net cash flows from operating activities   154     91     323     239  
Purchases of property, plant and equipment   (80 )   (54 )   (164 )   (128 )
Property, plant and equipment grants received   _     3     1     10  
Free Cash Flow    74      40      160      121  
                         

Reconciliation of borrowings to Net debt (a non-GAAP measure)

(in millions of Euros)   At September 30, 2022   At December 31,2021
       
Borrowings   2,169     2,129  
Fair value of net debt derivatives, net of margin calls   (1 )   (1 )
Cash and cash equivalents   (171 )   (147 )
Net debt   1,997     1,981  
             

Non-GAAP measures

In addition to the results reported in accordance with International Financial Reporting Standards (“IFRS”), this press release includes information regarding certain financial measures which are not prepared in accordance with IFRS (“non-GAAP measures”). The non-GAAP measures used in this press release are: VAR, Adjusted EBITDA, Adjusted EBITDA per metric ton, Free Cash Flow and Net debt. Reconciliations to the most directly comparable IFRS financial measures are presented in the schedules to this press release. We believe these non-GAAP measures are important supplemental measures of our operating and financial performance. By providing these measures, together with the reconciliations, we believe we are enhancing investors’ understanding of our business, our results of operations and our financial position, as well as assisting investors in evaluating the extent to which we are executing our strategic initiatives. However, these non-GAAP financial measures supplement our IFRS disclosures and should not be considered an alternative to the IFRS measures and may not be comparable to similarly titled measures of other companies.VAR is defined as revenue, excluding revenue from incidental activities, minus cost of metal which includes, cost of aluminium adjusted for metal lag, cost of other alloying metals, freight out costs, and realized gains and losses from hedging. Management believes that VAR is a useful measure of our activity as it eliminates the impact of metal costs from our revenue and reflects the value-added elements of our activity. VAR eliminates the impact of metal price fluctuations which are not under our control and which we generally pass-through to our customers and facilitates comparisons from period to period. VAR is not a presentation made in accordance with IFRS and should not be considered as an alternative to revenue determined in accordance with IFRS.In considering the financial performance of the business, management and our chief operational decision maker, as defined by IFRS, analyze the primary financial performance measure of Adjusted EBITDA in all of our business segments. The most directly comparable IFRS measure to Adjusted EBITDA is our net income or loss for the period. We believe Adjusted EBITDA, as defined below, is useful to investors and is used by our management for measuring profitability because it excludes the impact of certain non-cash charges, such as depreciation, amortization, impairment and unrealized gains and losses on derivatives as well as items that do not impact the day-to-day operations and that management in many cases does not directly control or influence. Therefore, such adjustments eliminate items which have less bearing on our core operating performance.Adjusted EBITDA measures are frequently used by securities analysts, investors and other interested parties in their evaluation of Constellium and in comparison to other companies, many of which present an Adjusted EBITDA-related performance measure when reporting their results.Adjusted EBITDA is defined as income / (loss) from continuing operations before income taxes, results from joint ventures, net finance costs, other expenses and depreciation and amortization as adjusted to exclude restructuring costs, impairment charges, unrealized gains or losses on derivatives and on foreign exchange differences on transactions which do not qualify for hedge accounting, metal price lag, share based compensation expense, effects of certain purchase accounting adjustments, start-up and development costs or acquisition, integration and separation costs, certain incremental costs and other exceptional, unusual or generally nonrecurring items.Adjusted EBITDA is the measure of performance used by management in evaluating our operating performance, in preparing internal forecasts and budgets necessary for managing our business and, specifically in relation to the exclusion of the effect of favorable or unfavorable metal price lag, this measure allows management and the investor to assess operating results and trends without the impact of our accounting for inventories. We use the weighted average cost method in accordance with IFRS which leads to the purchase price paid for metal impacting our cost of goods sold and therefore profitability in the period subsequent to when the related sales price impacts our revenues. Management believes this measure also provides additional information used by our lending facilities providers with respect to the ongoing performance of our underlying business activities. Historically, we have used Adjusted EBITDA in calculating our compliance with financial covenants under certain of our loan facilities.Adjusted EBITDA is not a presentation made in accordance with IFRS, is not a measure of financial condition, liquidity or profitability and should not be considered as an alternative to profit or loss for the period, revenues or operating cash flows determined in accordance with IFRS.Free Cash Flow is defined as net cash flow from operating activities less capital expenditure, equity contributions and loans to joint ventures and other investing activities. Management believes that Free Cash Flow is a useful measure of the net cash flow generated or used by the business as it takes into account both the cash generated or consumed by operating activities, including working capital, and the capital expenditure requirements of the business. However, Free Cash Flow is not a presentation made in accordance with IFRS and should not be considered as an alternative to operating cash flows determined in accordance with IFRS. Free Cash Flow has certain inherent limitations, including the fact that it does not represent residual cash flows available for discretionary spending, notably because it does not reflect principal repayments required in connection with our debt or capital lease obligations.

Net debt is defined as borrowings plus or minus the fair value of cross currency basis swaps net of margin calls less cash and cash equivalents and cash pledged for the issuance of guarantees. Management believes that Net debt is a useful measure of indebtedness because it takes into account the cash and cash equivalent balances held by the Company as well as the total external debt of the Company. Net debt is not a presentation made in accordance with IFRS, and should not be considered as an alternative to borrowings determined in accordance with IFRS.

Constellium (NYSE:CSTM)
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