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Novelis Reports Second Quarter of Fiscal 2020 Results

November 6, 2019
(PRNewsfoto/Novelis Inc.)
(PRNewsfoto/Novelis Inc.)

ATLANTA, Nov. 6, 2019 /PRNewswire/ --

Second Quarter Fiscal Year 2020 Highlights

Novelis Inc., the world leader in aluminum rolling and recycling, today reported net income attributable to its common shareholder of $123 million for the second quarter of fiscal year 2020, compared to $116 million in the prior year period. Excluding tax-effected special items, such as $32 million for restructuring actions in the current period, the company reported net income of $160 million in the second quarter of fiscal 2020, compared to $122 million in the prior year period. This 31 percent increase is primarily due to higher Adjusted EBITDA and a lower effective tax rate.

Adjusted EBITDA increased five percent over the prior year period to $374 million in the second quarter of fiscal 2020, primarily driven by higher shipments as well as favorable price and product mix, partially offset by less favorable recycling benefits due to lower aluminum prices. Adjusted EBITDA per ton reached $448 in the quarter, as compared to $440 in the prior year period.

Net sales decreased nine percent from the prior year period to $2.9 billion for the second quarter of fiscal 2020, driven by lower average LME aluminum prices and local market premiums, partially offset by higher total shipments. Strong overall operational performance and solid demand for lightweight, sustainable aluminum products led to a three percent increase in flat rolled product shipments to 835 kilotonnes.

“Our outstanding operational performance resulted in record second quarter shipments and strong financials, while we continue to make excellent progress on our strategic growth initiatives,” said Steve Fisher, President and CEO, Novelis Inc. “Our customers continue to enhance their sustainability initiatives through more sustainable packaging, automotive closed-loop recycling systems, and adopting more recycled content into their products. I believe we are making the right investments, such as the recent announcement to increase recycling capacity at our Greensboro, Georgia facility, to support our customers and deliver on our purpose of shaping a sustainable world together.”

The company reported $112 million of free cash flow for the second quarter of fiscal 2020. On a year-to-date basis, fiscal 2020 free cash flow of $18 million includes a significant increase in capital expenditures year-over-year to $300 million mainly to support strategic investments in incremental rolling, recycling and automotive finishing capacity. Free cash flow before capital expenditures improved 46 percent over the prior year to $318 million, driven primarily by higher Adjusted EBITDA and a lower use of working capital year-to-date. Each of the three previously announced significant capacity expansion projects underway in the U.S., China and Brazil continue to progress on time and on budget.

(in $ millions, non-GAAP measures)

Three Months Ended
September 30,


Six Months Ended
September 30,


2019


2018


2019


2018

Free cash flow

$

112



$

108



$

18



$

104


Capital expenditures

138



60



300



114


Free cash flow before capital expenditures

$

250



$

168



$

318



$

218


“Strong financial performance allowed us to further improve our net leverage ratio during the quarter, despite a significant increase in strategic capital investments to meet growing demand for sustainable aluminum solutions,” said Devinder Ahuja, Senior Vice President and Chief Financial Officer, Novelis Inc.

As of September 30, 2019, the company reported a strong total liquidity position of $1.8 billion, and reduced its net leverage ratio to 2.4x as compared to 2.8x in the prior year period.

Aleris Acquisition
On July 26, 2018, Novelis announced it signed a definitive agreement to acquire Aleris Corporation. Having received conditional approval in the European Union, as well as a clear path forward for approval in the U.S., Novelis continues to work closely with the Chinese State Administration for Market Regulation to receive its approval. The company expects to close the transaction by January 21, 2020, the outside date under the merger agreement.

Second Quarter of Fiscal Year 2020 Earnings Conference Call
Novelis will discuss its second quarter of fiscal year 2020 results via a live webcast and conference call for investors at 7:30 a.m. ET on Wednesday, November 6, 2019. To view slides and listen only, visit the web at https://cc.callinfo.com/r/z3xmd1ss8840&eom. To join by telephone, dial toll-free in North America at 877 256 3669, India toll-free at 1800 266 0834 or the international toll line at +1 415 226 5361. Presentation materials and access information may also be found at novelis.com/investors.

About Novelis
Novelis Inc. is driven by its purpose to shape a sustainable world together. As a global leader in innovative products and services and the world’s largest recycler of aluminum, we partner with customers in the automotive, beverage can and specialties industries to deliver solutions that maximize the benefits of lightweight aluminum throughout North America, Europe, Asia and South America. The company is headquartered in Atlanta, Georgia, operates 23 facilities in nine countries, has approximately 11,000 employees and recorded $12.3 billion in revenue for its 2019 fiscal year. Novelis is a subsidiary of Hindalco Industries Limited, an industry leader in aluminum and copper, and the metals flagship company of the Aditya Birla Group, a multinational conglomerate based in Mumbai, India. For more information, visit novelis.com.

Non-GAAP Financial Measures
This news release and the presentation slides for the earnings call contain non-GAAP financial measures as defined by SEC rules. We believe these measures are helpful to investors in measuring our financial performance and liquidity and comparing our performance to our peers. However, our non-GAAP financial measures may not be comparable to similarly titled non-GAAP financial measures used by other companies. These non-GAAP financial measures have limitations as an analytical tool and should not be considered in isolation or as a substitute for GAAP financial measures. To the extent we discuss any non-GAAP financial measures on the earnings call, a reconciliation of each measure to the most directly comparable GAAP measure will be available in the presentation slides filed as Exhibit 99.2 to our Current Report on Form 8-K furnished to the SEC concurrently with the issuance of this press release. In addition, the Form 8-K includes a more detailed description of each of these non-GAAP financial measures, together with a discussion of the usefulness and purpose of such measures.

Attached to this news release are tables showing the Condensed Consolidated Statements of Operations, Condensed Consolidated Balance Sheets, Condensed Consolidated Statements of Cash Flows, Reconciliation to Adjusted EBITDA, Free Cash Flow, Liquidity, Net Income excluding Special Items, and Segment Information.

Forward-Looking Statements
Statements made in this news release which describe Novelis’ intentions, expectations, beliefs or predictions may be forward-looking statements within the meaning of securities laws. Forward-looking statements include statements preceded by, followed by, or including the words “believes,” “expects,” “anticipates,” “plans,” “estimates,” “projects,” “forecasts,” or similar expressions. Examples of forward looking statements in this news release are statements about our expectation that demand for aluminum will continue to grow and support our investments in capacity expansion. Novelis cautions that, by their nature, forward-looking statements involve risk and uncertainty and Novelis’ actual results could differ materially from those expressed or implied in such statements. We do not intend, and we disclaim any obligation, to update any forward-looking statements, whether as a result of new information, future events or otherwise. Factors that could cause actual results or outcomes to differ from the results expressed or implied by forward-looking statements include, among other things: changes in the prices and availability of aluminum (or premiums associated with such prices) or other materials and raw materials we use; the capacity and effectiveness of our hedging activities; relationships with, and financial and operating conditions of, our customers, suppliers and other stakeholders; fluctuations in the supply of, and prices for, energy in the areas in which we maintain production facilities; our ability to access financing including in connection with potential acquisitions and investments; risks relating to, and our ability to consummate, pending and future acquisitions, investments or divestitures, including the proposed acquisition of Aleris Corporation; changes in the relative values of various currencies and the effectiveness of our currency hedging activities; factors affecting our operations, such as litigation, environmental remediation and clean-up costs, breakdown of equipment and other events; economic, regulatory and political factors within the countries in which we operate or sell our products, including changes in duties or tariffs; competition from other aluminum rolled products producers as well as from substitute materials such as steel, glass, plastic and composite materials; changes in general economic conditions including deterioration in the global economy; changes in government regulations, particularly those affecting taxes, derivative instruments, environmental, health or safety compliance; changes in interest rates that have the effect of increasing the amounts we pay under our credit facilities and other financing agreements; and our ability to generate cash. The above list of factors is not exhaustive. Other important risk factors are included under the caption “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended March 31, 2019.

Novelis Inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

(in millions)



Three Months Ended
September 30,


Six Months Ended
September 30,


2019


2018


2019


2018

Net sales

$

2,851



$

3,136



$

5,776



$

6,233


Cost of goods sold (exclusive of depreciation and amortization)

2,348



2,657



4,762



5,248


Selling, general and administrative expenses

122



127



249



244


Depreciation and amortization

88



86



176



172


Interest expense and amortization of debt issuance costs

61



68



126



134


Research and development expenses

18



17



37



32


Restructuring and impairment, net

32





33



1


Equity in net (income) loss of non-consolidated affiliates



(1)





(1)


Other (income) expenses, net

2



(6)



6



23


Business acquisition and other integration related costs

12



8



29



10



$

2,683



$

2,956



$

5,418



$

5,863


Income before income taxes

168



180



358



370


Income tax provision

45



64



108



117


Net income

$

123



$

116



$

250



$

253


Net income attributable to noncontrolling interest








Net income attributable to our common shareholder

$

123



$

116



$

250



$

253


Novelis Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)

(in millions, except number of shares)



September 30,
2019


March 31,
2019

ASSETS




Current assets




Cash and cash equivalents

$

935



$

950


Accounts receivable, net




— third parties (net of allowance for uncollectible accounts of $7 as of September 30, 2019
and March 31, 2019, respectively)

1,329



1,417


— related parties

159



164


Inventories

1,454



1,460


Prepaid expenses and other current assets

122



121


Fair value of derivative instruments

101



70


Assets held for sale

5



3


Total current assets

$

4,105



$

4,185


Property, plant and equipment, net

3,435



3,385


Goodwill

607



607


Intangible assets, net

323



351


Investment in and advances to non–consolidated affiliates

768



792


Deferred income tax assets

136



142


Other long–term assets

203



101


Total assets

$

9,577



$

9,563


LIABILITIES AND SHAREHOLDER'S EQUITY




Current liabilities




Current portion of long–term debt

$

19



$

19


Short–term borrowings

14



39


Accounts payable




— third parties

1,827



1,986


— related parties

202



175


Fair value of derivative instruments

102



87


Accrued expenses and other current liabilities

532



616


Total current liabilities

$

2,696



$

2,922


Long–term debt, net of current portion

4,338



4,328


Deferred income tax liabilities

248



223


Accrued postretirement benefits

811



844


Other long–term liabilities

242



180


Total liabilities

$

8,335



$

8,497


Commitments and contingencies




Shareholder's equity




Common stock, no par value; unlimited number of shares authorized; 1,000 shares issued and
outstanding as of September 30, 2019 and March 31, 2019




Additional paid–in capital

1,404



1,404


Retained earnings

453



203


Accumulated other comprehensive income (loss)

(583)



(506)


Total equity of our common shareholder

$

1,274



$

1,101


Noncontrolling interest

(32)



(35)


Total equity

$

1,242



$

1,066


Total liabilities and equity

$

9,577



$

9,563


Novelis Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

(in millions)



Six Months Ended September 30,


2019


2018

OPERATING ACTIVITIES




Net income

$

250



$

253


Adjustments to determine net cash provided by operating activities:




Depreciation and amortization

176



172


(Gain) loss on unrealized derivatives and other realized derivatives in investing activities, net

(21)



(8)


(Gain) loss on sale of assets

(2)



2


Impairment charges

11




Deferred income taxes, net

32



21


Equity in net (gain) loss of non-consolidated affiliates



(1)


Amortization of debt issuance costs and carrying value adjustments

9



9


Changes in operating assets and liabilities:




Accounts receivable

51



(70)


Inventories

(22)



(237)


Accounts payable

(57)



141


Other current assets

(4)



(49)


Other current liabilities

(94)



(20)


Other noncurrent assets

2



(10)


Other noncurrent liabilities

(34)



7


Net cash provided by (used in) operating activities

$

297



$

210


INVESTING ACTIVITIES




Capital expenditures

(300)



(114)


Acquisition of assets under a capital lease



(239)


Proceeds from sales of assets, third party, net of transaction fees and hedging

3



2


Proceeds from investment in and advances to non-consolidated affiliates, net

11



6


Proceeds (outflows) from the settlement of derivative instruments, net

3



(5)


Other

7



7


Net cash provided by (used in) investing activities

$

(276)



$

(343)


FINANCING ACTIVITIES




Proceeds from issuance of long-term and short-term borrowings

12




Principal payments of long-term and short-term borrowings

(11)



(40)


Revolving credit facilities and other, net

(23)



103


Debt issuance costs

(2)



(2)


Net cash provided by (used in) financing activities

$

(24)



$

61


Net increase (decrease) in cash, cash equivalents and restricted cash

(3)



(72)


Effect of exchange rate changes on cash

(11)



(19)


Cash, cash equivalents and restricted cash — beginning of period

960



932


Cash, cash equivalents and restricted cash — end of period

$

946



$

841






Cash and cash equivalents

$

935



$

829


Restricted cash (Included in "Other long-term assets")

11



12


Cash, cash equivalents and restricted cash — end of period

$

946



$

841


Reconciliation of Net income attributable to our common shareholder to Adjusted EBITDA (unaudited)

The following table reconciles Net income attributable to our common shareholder to Adjusted EBITDA, a non-GAAP financial measure





(in millions)

Three Months Ended
September 30,


Six Months Ended
September 30,


2019


2018


2019


2018

Net income attributable to our common shareholder

$

123



$

116



$

250



$

253


Income tax provision

45



64



108



117


Interest, net

58



66



120



129


Depreciation and amortization

88



86



176



172


EBITDA

$

314



$

332



$

654



$

671










Unrealized (gains) losses on change in fair value of derivative instruments, net

(3)



(1)



(9)



3


Realized (gains) losses on derivative instruments not included in segment income

1



(1)



3



(1)


Adjustment to reconcile proportional consolidation

14



15



29



31


(Gain) loss on sale of fixed assets

(1)



(1)



(2)



2


Restructuring and impairment, net

32





33



1


Metal price lag

5



(1)



7



(34)


Business acquisition and other integration related costs

12



8



29



10


Other, net



4



2



6


Adjusted EBITDA

$

374



$

355



$

746



$

689


Free Cash Flow (unaudited)


The following table presents "Free cash flow".


(in millions)

Six Months Ended September 30,


2019


2018

Net cash provided by (used in) operating activities

$

297



$

210


Net cash provided by (used in) investing activities

(276)



(343)


Plus: Cash used in the acquisition of assets under a capital lease



239


Less: Proceeds from sales of assets and business, net of transaction fees, cash income taxes and hedging

(3)



(2)


Free cash flow

$

18



$

104


Cash and Cash Equivalents and Total Liquidity (unaudited)

The following table reconciles the ending balances of cash and cash equivalents to total liquidity.


(in millions)

September 30, 2019


March 31, 2019

Cash and cash equivalents

$

935



$

950


Availability under committed credit facilities

875



897


Total liquidity

$

1,810



$

1,847


Reconciliation of Net income attributable to our common shareholder to Net income attributable to our common shareholder, excluding special items (unaudited)

The following table presents Net income attributable to our common shareholder excluding special items. We adjust for items which may recur in varying magnitude which affect the comparability of the operational results of our underlying business.





(in millions)

Three Months Ended
September 30,


Six Months Ended
September 30,


2019


2018


2019


2018

Net income attributable to our common shareholder

$

123



$

116



$

250



$

253


Special Items:








Business acquisition and other integration related costs

12



8



29



10


Metal price lag

5



(1)



7



(34)


Restructuring and impairment, net

32





33



1


Tax effect on special items

(12)



(1)



(14)



7


Net income attributable to our common shareholder, excluding special items

$

160



$

122



$

305



$

237


Segment Information (unaudited)













The following table presents selected segment financial information (in millions, except shipments which are in kilotonnes).
















Selected Operating Results
Three Months Ended September 30, 2019


North
America


Europe


Asia


South
America


Eliminations and Other


Total

Adjusted EBITDA


$

171



$

60



$

46



$

97



$



$

374















Shipments (in kt)













Rolled products - third party


286



237



176



136





835


Rolled products - intersegment




8



1



5



(14)




Total rolled products


286



245



177



141



(14)



835





















Selected Operating Results
Three Months Ended September 30, 2018


North
America


Europe


Asia


South
America


Eliminations and Other


Total

Adjusted EBITDA


$

151



$

59



$

47



$

98



$



$

355















Shipments (in kt)













Rolled products - third party


295



222



165



125





807


Rolled products - intersegment




7



3



1



(11)




Total rolled products


295



229



168



126



(11)



807





















Selected Operating Results
Six Months Ended September 30, 2019


North
America


Europe


Asia


South
America


Eliminations and Other


Total

Adjusted EBITDA


$

341



$

113



$

99



$

193



$



$

746















Shipments (in kt)













Rolled products - third party


575



460



359



271





1,665


Rolled products - intersegment




19



2



9



(30)




Total rolled products


575



479



361



280



(30)



1,665





















Selected Operating Results
Six Months Ended September 30, 2018


North
America


Europe


Asia


South
America


Eliminations and Other


Total

Adjusted EBITDA


$

270



$

122



$

102



$

195



$



$

689















Shipments (in kt)













Rolled products - third party


569



450



338



247





1,604


Rolled products - intersegment




11



5



5



(21)




Total rolled products


569



461



343



252



(21)



1,604


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SOURCE Novelis Inc.