Investments pay off for Novelis

Investments pay off for Novelis

Company's net income grows for Q2 of its fiscal 2019.

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November 5, 2018
Edited by DeAnne Toto
Financial Nonferrous North America

Atlanta-based Novelis Inc., a world leader in aluminum rolling and recycling, has reported net income attributable to its common shareholder of $116 million for the second quarter of fiscal 2019, which compares to $307 million in the prior-year period. Excluding tax-effected special items in both periods, the largest being a $318 million pretax gain related to the Ulsan Aluminum Ltd. joint venture in the prior year, the company reported net income of $122 million for the quarter, an increase from $78 million in the prior-year period.

The increase in net income, excluding special items, is largely because of  an 18 percent increase in adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) over the prior year to $355 million in the second quarter of fiscal 2019.  Ongoing efforts to optimize its investments to increase rolling, automotive finishing and recycling capacity, combined with favorable market conditions, have resulted in higher shipments of premium products, operating cost efficiencies and favorable metal costs. Adjusted EBITDA per ton reached $440 in the quarter. It was $377 per ton in the prior-year period.

Net sales increased 12 percent over the prior year to $3.1 billion for the second quarter of fiscal 2019, driven by higher average aluminum prices, higher total shipments and a more favorable product mix, the company say. Shipments of flat-rolled products increased 1 percent to a record high of 807,000 tons.

"Continued strong customer demand for lightweight, high-strength aluminum has resulted in another strong quarter," says Steve Fisher, president and CEO of Novelis. "Moving forward, we are focusing on safely bringing our recent automotive investments online, enhancing the way we engage with customers and leveraging our R&D capabilities in order to provide solutions that help meet their design, performance and sustainability goals."

The company reports $108 million of free cash flow for the second quarter of fiscal 2019, net of $60 million in capital expenditures.  Year-to-date free cash flow improved $80 million over the prior year to $104 million. This increase was driven primarily by higher adjusted EBITDA, partially offset by higher taxes and capital expenditures, according to Novelis.

"Our continued strong financial performance and operating cash flow generation has allowed us to strategically add capacity to capture growing demand, while continuing to improve net leverage to 2.8 times at the end of the second quarter," says Devinder Ahuja, senior vice president and chief financial officer for Novelis.

As of Sept. 30, 2018, the company said it had a strong liquidity position of $1.7 billion.

On July 26, 2018, Novelis announced it had signed a definitive agreement to acquire Aleris Corp., headquartered in Cleveland. The acquisition continues to progress as expected, according to Novelis, and remains on track to close nine to 15 months from the date of the announcement, as previously communicated, subject to customary closing conditions and regulatory approvals.

Nov. 1, Novelis secured financing for the pending Aleris acquisition by entering into commitment letters with a group of banks to provide up to $775 million of an incremental term loan with a five year maturity and up to a $1.5 billion short-term bridge loan with a one year maturity. The company says it expects to replace the bridge loan with permanent financing soon after closing, depending on market conditions.

Novelis is a subsidiary of Hindalco Industries Ltd., an industry leader in aluminum and copper and metals flagship company of the Aditya Birla Group, a multinational conglomerate based in Mumbai.

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