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Novelis Reports First Quarter Of Fiscal Year 2017 Results
Positive Portfolio Mix Shift and Productivity Drive Strong Results
First Quarter Fiscal Year 2017 Highlights
- Net income $24 million, up $84 million YoY; excluding special items, net income increased 38% to $33 million
- Total FRP shipments of 755 kilotonnes; record automotive sheet shipments up 15% YoY
- Adjusted EBITDA, excluding metal price lag, increased 26% YoY to $268 million

ATLANTA, Aug. 5, 2016 /PRNewswire/ -- Novelis, the world leader in aluminum rolling and recycling, today reported net income of $24 million for the first quarter of fiscal year 2017, compared to a net loss of $60 million in the prior year period. Excluding tax-effected special items, the company reported net income of $33 million in the first quarter of fiscal 2017, up from $24 million reported in the first quarter of fiscal 2016.

"Building on the momentum of a strong close to fiscal 2016, the 26 percent increase in Adjusted EBITDA excluding metal price lag reflects our heightened focus on manufacturing operations, driving productivity gains and asset efficiency while operating with a more complex, premium product portfolio," said Steve Fisher, President and Chief Executive Officer for Novelis. "In addition, we are better able to serve our customers, optimize our portfolio, and leverage our recycling capabilities as a result of the completion of our recent investment phase."

Adjusted EBITDA for the first quarter of fiscal 2017 increased to $255 million from $127 million reported in the prior year period primarily as a result of a significant reduction in negative metal price lag and operational improvements. The impact of metal price lag has moderated in recent results due to reduced volatility in local market premiums over the past several months.  Metal price lag in the first quarter of fiscal 2017 was negative $13 million, as compared to negative $85 million in the prior year.

Excluding metal price lag in both periods, Adjusted EBITDA increased 26 percent to $268 million. The increase was primarily driven by higher productivity and lower costs associated with the start-up of new automotive finishing and recycling capacity in the prior year.  Favorable product mix shift, including a 15 percent increase in automotive sheet shipments to record levels, also contributed to this growth. Partially offsetting these gains was a two percent decline in total shipments of rolled aluminum products to 755 kilotonnes. 

Net sales decreased thirteen percent to $2.3 billion for the first quarter of fiscal 2017.  This was driven by lower average aluminum prices and local market premiums, as well as lower total shipments, which was partially offset by increased shipments of higher conversion premium products.

The company reported negative free cash flow of $146 million for the first quarter of fiscal 2017 as compared to negative $425 million in the first quarter of fiscal 2016. The $279 million improvement in free cash flow over the prior year was primarily a result of higher Adjusted EBITDA, better working capital management, and a reduction in capital expenditures to $44 million as compared to $129 million in the prior year period.

As of June 30, 2016, the company reported a strong liquidity position of $1.1 billion.

First Quarter of Fiscal Year 2017 Earnings Conference Call
Novelis will discuss its first quarter of fiscal year 2017 results via a live webcast and conference call for investors at 10:00 a.m. ET on Friday, August 5, 2016.  To view slides and listen only, visit the web at https://cc.callinfo.com/r/1bc8s5sjprvra&eom. To join by telephone, dial toll-free in North America at 800 918 9578, India toll-free at 0008001007932 or the international toll line at +1 212 231 2906.  Presentation materials and access information may also be found at novelis.com/investors.

About Novelis
Novelis Inc. is the global leader in aluminum rolled products and the world's largest recycler of aluminum. The company operates in 11 countries, has approximately 12,000 employees and reported $10 billion in revenue for its 2016 fiscal year. Novelis supplies premium aluminum sheet and foil products to transportation, packaging, construction, industrial and consumer electronics markets throughout North America, Europe, Asia and South America. Novelis is a subsidiary of Hindalco Industries Limited, an industry leader in aluminum and copper, and metals flagship company of the Aditya Birla Group, a multinational conglomerate based in Mumbai, India. For more information, visit novelis.com and follow us on Facebook at facebook.com/NovelisInc and Twitter at twitter.com/Novelis.

Non-GAAP Financial Measures
This press 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 and Adjusted EBITDA excluding Metal Price Lag, Free Cash Flow, Reconciliation to Liquidity, Reconciliation to Net Income excluding Certain 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 the company's ability to leverage its recycling capabilities.  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 for future capital requirements; 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, labor relations and negotiations, breakdown of equipment and other events; the impact of restructuring efforts in the future; 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, particularly sectors in which our customers operate; cyclical demand and pricing within the principal markets for our products as well as seasonality in certain of our customers' industries; 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; the effect of taxes and changes in tax rates; our level of indebtedness and our ability to generate cash. The above list of factors is not exhaustive.  Other important risk factors included under the caption "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended March 31, 2016 are specifically incorporated by reference into this news release.

 

 

Novelis Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
(in millions)

   
 

Three Months Ended June 30,

 

2016

 

2015

   

Net sales

$

2,296

   

$

2,634

 

Cost of goods sold (exclusive of depreciation and amortization)

1,930

   

2,400

 

Selling, general and administrative expenses

92

   

100

 

Depreciation and amortization

89

   

87

 

Research and development expenses

13

   

13

 

Interest expense and amortization of debt issuance costs

83

   

80

 

Gain on assets held for sale

(1)

   

 

Loss on extinguishment of debt

   

13

 

Restructuring and impairment, net

2

   

15

 

Equity in net loss of non-consolidated affiliates

   

1

 

Other expense (income), net

28

   

(30)

 
 

2,236

   

2,679

 

Income (loss) before income taxes

60

   

(45)

 

Income tax provision

36

   

15

 

Net income (loss)

24

   

(60)

 

Net income attributable to noncontrolling interests

   

 

Net income (loss) attributable to our common shareholder

$

24

   

$

(60)

 

 

 

Novelis Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
(in millions, except number of shares)

 
 

June 30, 2016

 

March 31, 2016

ASSETS

 

Current assets

     

Cash and cash equivalents

$

457

   

$

556

 

Accounts receivable, net

     

— third parties (net of uncollectible accounts of $4 as of June 30, 2016 and $3 as of March 31, 2016)

998

   

956

 

— related parties

57

   

59

 

Inventories

1,224

   

1,180

 

Prepaid expenses and other current assets

130

   

127

 

Fair value of derivative instruments

131

   

88

 

Assets held for sale

4

   

5

 

Total current assets

3,001

   

2,971

 

Property, plant and equipment, net

3,437

   

3,506

 

Goodwill

607

   

607

 

Intangible assets, net

505

   

523

 

Investment in and advances to non–consolidated affiliate

475

   

488

 

Deferred income tax assets

93

   

87

 

Other long–term assets

     

— third parties

89

   

82

 

— related parties

14

   

16

 

Total assets

$

8,221

   

$

8,280

 

LIABILITIES AND SHAREHOLDER'S DEFICIT

     

Current liabilities

     

Current portion of long–term debt

$

48

   

$

47

 

Short–term borrowings

630

   

579

 

Accounts payable

     

— third parties

1,447

   

1,506

 

— related parties

47

   

48

 

Fair value of derivative instruments

142

   

85

 

Accrued expenses and other current liabilities

457

   

569

 

Total current liabilities

2,771

   

2,834

 

Long–term debt, net of current portion

4,416

   

4,421

 

Deferred income tax liabilities

111

   

89

 

Accrued postretirement benefits

815

   

820

 

Other long–term liabilities

188

   

175

 

Total liabilities

8,301

   

8,339

 

Commitments and contingencies

     

Shareholder's deficit

     

Common stock, no par value; unlimited number of shares authorized; 1,000 shares issued and outstanding as of June 30, 2016 and March 31, 2016

   

 

Additional paid–in capital

1,404

   

1,404

 

Accumulated deficit

(939)

   

(963)

 

Accumulated other comprehensive loss

(545)

   

(500)

 

        Total deficit of our common shareholder

(80)

   

(59)

 

Noncontrolling interests

   

 

Total deficit

(80)

   

(59)

 

     Total liabilities and deficit

$

8,221

   

$

8,280

 

 

 

Novelis Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(in millions)

 
 

Three Months Ended June 30,

 

2016

 

2015

OPERATING ACTIVITIES

     

Net income (loss)

$

24

   

$

(60)

 

Adjustments to determine net cash provided by operating activities:

     

Depreciation and amortization

89

   

87

 

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

   

(32)

 

Gain on assets held for sale

(1)

   

 

Loss on sale of assets

4

   

1

 

Impairment charges

   

1

 

Loss on extinguishment of debt

   

13

 

Deferred income taxes

7

   

3

 

Amortization of fair value adjustments, net

3

   

3

 

Equity in net loss of non-consolidated affiliates

   

1

 

Gain on foreign exchange remeasurement of debt

   

(2)

 

Amortization of debt issuance costs and carrying value adjustments

5

   

5

 

Changes in assets and liabilities including assets and liabilities held for sale (net of effects from divestitures):

     

Accounts receivable

(55)

   

(130)

 

Inventories

(59)

   

(75)

 

Accounts payable

(39)

   

(29)

 

Other current assets

(6)

   

(15)

 

Other current liabilities

(100)

   

(66)

 

Other noncurrent assets

(8)

   

12

 

Other noncurrent liabilities

29

   

(5)

 

Net cash used in operating activities

(107)

   

(288)

 

INVESTING ACTIVITIES

     

Capital expenditures

(44)

   

(129)

 

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

2

   

(1)

 

Proceeds (outflows) from settlement of other undesignated derivative instruments, net

3

   

(7)

 

Net cash used in investing activities

(39)

   

(137)

 

FINANCING ACTIVITIES

     

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

87

   

139

 

Principal payments of long-term and short-term borrowings

(72)

   

(68)

 

Revolving credit facilities and other, net

35

   

182

 

Debt issuance costs

   

(10)

 

Net cash provided by financing activities

50

   

243

 

Net decrease in cash and cash equivalents

(96)

   

(182)

 

Effect of exchange rate changes on cash

(3)

   

10

 

Cash and cash equivalents — beginning of period

556

   

628

 

Cash and cash equivalents — end of period

$

457

   

$

456

 

 

Reconciliation from Net income (loss) attributable to our common shareholder to Adjusted EBITDA, and Adjusted EBITDA excluding Metal Price Lag (unaudited)
Novelis is providing disclosure of the reconciliation of reported non-GAAP financial measures to their comparable financial measures on a GAAP basis. To better analyze underlying operational results, the following table also shows Adjusted EBITDA to Adjusted EBITDA excluding the impact of Metal Price Lag.  On certain sales contracts we experience timing differences on the pass through of changing aluminum prices from our suppliers to our customers. Additional timing differences occur in the flow of metal costs through moving average inventory cost values and cost of goods sold. This timing difference is referred to as metal price lag. Although we use derivatives contracts to minimize the price lag associated with LME base aluminum prices, we do not use derivative contracts for local market premiums, as these are not prevalent in the market.

(in millions)

Three Months Ended June 30,

 

2016

 

2015

Net income (loss) attributable to our common shareholder

$

24

   

$

(60)

 

Income tax provision

(36)

   

(15)

 

Interest, net

(80)

   

(78)

 

Depreciation and amortization

(89)

   

(87)

 

EBITDA

229

   

120

 
       

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

(7)

   

35

 

Realized gains on derivative instruments not included in segment income

1

   

1

 

Adjustment to eliminate proportional consolidation

(8)

   

(7)

 

Loss on sale of fixed assets

(4)

   

(1)

 

Gain on assets held for sale

1

   

 

Loss on extinguishment of debt

   

(13)

 

Restructuring and impairment, net

(2)

   

(15)

 

Other expense, net

(7)

   

(7)

 

Adjusted EBITDA

$

255

   

$

127

 
       

Metal price lag

(13)

   

(85)

 

Adjusted EBITDA excluding metal price lag

$

268

   

$

212

 

 

Free Cash Flow and Cash and Cash Equivalents (unaudited)
The following table shows the "Free cash flow" for the three months ended June 30, 2016 and 2015 and the ending balances of cash and cash equivalents (in millions).

 

Three Months Ended June 30,

 

2016

 

2015

Net cash used in operating activities

$

(107)

   

$

(288)

 

Net cash used in investing activities

(39)

   

(137)

 

Less: Proceeds from sales of assets, net of transaction fees and hedging

   

 

Free cash flow

$

(146)

   

$

(425)

 

Ending cash and cash equivalents

$

457

   

$

456

 

 

Total Liquidity (unaudited)
The following table shows available liquidity as of June 30, 2016 and March 31, 2016 (in millions).

 

June 30,

 

March 31,

 

2016

 

2016

Cash and cash equivalents

$

457

   

$

556

 

Availability under committed credit facilities

633

   

640

 

Total liquidity

$

1,090

   

$

1,196

 

 

Reconciliation of Net Income (Loss) to Net Income, excluding Special Items (unaudited)
The following table shows Net Income attributable to our common shareholder excluding special items (in millions).  We adjust for items which may recur in varying magnitude which affect the comparability of the operational results of our underlying business.

 

Three Months Ended June 30,

 

2016

 

2015

Net (loss) income attributable to our common shareholder

$

24

   

$

(60)

 

Special Items:

     

Gain on assets held for sale

(1)

   

 

Loss on extinguishment of debt

   

13

 

Metal price lag

13

   

85

 

Restructuring and impairment, net

2

   

15

 

Tax effect on special items

(5)

   

(29)

 

Net income attributable to our common shareholder, excluding special items

$

33

   

$

24

 

 

Segment Information (unaudited)
The following table shows selected segment financial information (in millions, except shipments which are in kilotonnes).

Selected Operating Results Three Months
Ended June 30, 2016

 

North

America

 

Europe

 

Asia

 

South

America

 

Eliminations and Other

 

Total

Adjusted EBITDA

 

$

86

   

$

52

   

$

45

   

$

72

   

$

   

$

255

 

Metal price lag

 

(6)

   

(5)

   

(1)

   

(1)

   

   

(13)

 

Adjusted EBITDA excluding metal price lag

 

92

   

57

   

46

   

73

   

   

268

 
                         

Shipments

                       

Rolled products - third party

 

241

   

241

   

176

   

97

   

   

755

 

Rolled products - intersegment

 

1

   

5

   

2

   

6

   

(14)

   

 

Total rolled products

 

242

   

246

   

178

   

103

   

(14)

   

755

 

 

Selected Operating Results Three Months
Ended June 30, 2015

 

North

America

 

Europe

 

Asia

 

South

America

 

Eliminations and Other

 

Total

Adjusted EBITDA

 

$

42

   

$

(9)

   

$

36

   

$

59

   

$

(1)

   

$

127

 

Metal price lag

 

(27)

   

(54)

   

(3)

   

(1)

   

   

(85)

 

Adjusted EBITDA excluding metal price lag

 

69

   

45

   

39

   

60

   

(1)

   

212

 
                         

Shipments

                       

Rolled products - third party

 

261

   

231

   

182

   

94

   

   

768

 

Rolled products - intersegment

 

   

21

   

11

   

13

   

(45)

   

 

Total rolled products

 

261

   

252

   

193

   

107

   

(45)

   

768

 

 

SOURCE Novelis Inc.

For further information: Media Contact: Matthew Bianco, +1 404 760 4159, matthew.bianco@novelis.adityabirla.com; Investor Contact: Megan Cochard, +1 404 760 4170, megan.cochard@novelis.adityabirla.com