Form: DRS/A

Draft registration statement submitted by Emerging Growth Company under Securities Act Section 6(e) or by Foreign Private Issuer under Division of Corporation Finance policy

February 15, 2024

Table of Contents
Index to Financial Statements

Confidential Treatment Requested by Novelis Inc.

Pursuant to 17 C.F.R. Section 200.83

 

Confidential Draft Submission #4, as confidentially submitted to the United States Securities and Exchange Commission on February 15, 2024

This draft registration statement has not been filed publicly with the Securities and Exchange Commission, and all information herein remains strictly confidential.

Registration No. 333-  

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM F-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

NOVELIS INC.

(Exact name of registrant as specified in its charter)

 

 

 

Canada   3350   98-0442987
(State or other jurisdiction of incorporation or organization)   (Primary Standard Industrial Classification Code Number)
  (I.R.S. Employer
Identification No.)

3550 Peachtree Road NE, Suite 1100

Atlanta, GA 30326

(404) 760-4000

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

CSC Corporation

1180 Avenue of the Americas, Suite 210

New York, NY 10036

(212) 299-5600

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies to:

 

Keith M. Townsend
Elizabeth A. Morgan
Robert J. Leclerc

King & Spalding LLP
1180 Peachtree Street, NE, Suite 1600
Atlanta, Georgia 30309
(404) 572-4600

 

Rima Ramchandani
Mile T. Kurta

Torys LLP

79 Wellington Street West

Toronto, ON M5K 1N2

(416) 865-0040

 

Richard D. Truesdell, Jr.
Dan Gibbons

Davis Polk & Wardwell LLP

450 Lexington Avenue

New York, NY 10017

(212) 450-4000

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. ☐

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933.

Emerging Growth Company ☐

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 7(a)(2)(B) of the Securities Act. ☐

 

†

The term “new or revised financial accounting standard” refers to any updated issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012

 

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

 

 

 


Table of Contents
Index to Financial Statements

Confidential Treatment Requested by Novelis Inc.

Pursuant to 17 C.F.R. Section 200.83

 

The information in this preliminary prospectus is not complete and may be changed. The selling shareholder may not sell these securities until the registration statement filed with the Securities and Exchange Commission of which the preliminary prospectus forms a part is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

SUBJECT TO COMPLETION, DATED    , 2024

 

PRELIMINARY PROSPECTUS

Common Shares

 

LOGO

Novelis Inc.

 

 

This is the initial public offering of common shares, no par value per share, of Novelis Inc., or Novelis. All of the     common shares being sold in this offering are being sold by the selling shareholder identified in this prospectus. We will not receive any proceeds from the sale of common shares by the selling shareholder. Prior to this offering, there has been no public market for our common shares. It is currently estimated that the initial public offering price per common share will be between $   and $   . We intend to apply to list our common shares on the New York Stock Exchange, or NYSE, under the symbol “NVL.” Listing on the NYSE is subject to the approval of the NYSE in accordance with its listing standards.

Following this offering, assuming no exercise of the underwriters’ option to purchase additional shares referred to below, Hindalco Industries Limited (“Hindalco”), whose wholly owned subsidiary, AV Minerals (Netherlands) N.V. (the “selling shareholder”), is our existing sole shareholder, will beneficially own approximately   % of our outstanding share capital. Hindalco will therefore control approximately   % of the voting power of our outstanding share capital following the offering, assuming no exercise of the underwriters’ option to purchase additional shares. As a result, we will be a “controlled company” within the meaning of the corporate governance standards of the NYSE. For further information, see “Management—Director Independence and Controlled Company Exception,” “Principal and Selling Shareholder” and “Description of Share Capital.”

We are a “foreign private issuer” under applicable Securities and Exchange Commission rules, and as a result, will be subject to reduced public company reporting requirements for this prospectus and future filings with the Securities and Exchange Commission.

 

 

Our business and an investment in our common shares involve significant risks. You should carefully consider the risks that are described under the caption “Risk Factors” beginning on page 35 of this prospectus before making a decision to invest in our common shares.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

 

 

 

     Per
Share
     Total  

Initial public offering price

                   

Underwriting discounts and commissions(1)

     

Proceeds, before expenses, to the selling shareholder

     

 

(1)

The underwriters will be reimbursed for certain FINRA-related expenses, in addition to the underwriting discounts and commissions they will receive. See “Underwriting” for a detailed description of the compensation payable to the underwriters.

The selling shareholder has granted the underwriters an option for a period of 30 days from the date of this prospectus to purchase up to    additional common shares at the initial public offering price, less underwriting discounts and commissions.

The underwriters expect to deliver our common shares to purchasers against payment on or about    , 2024.

 

 

Joint Book-Running Managers

 

Morgan Stanley   BofA Securities   Citigroup

    , 2024

 


Table of Contents
Index to Financial Statements

Confidential Treatment Requested by Novelis Inc.

Pursuant to 17 C.F.R. Section 200.83

 

LOGO

 


Table of Contents
Index to Financial Statements

Confidential Treatment Requested by Novelis Inc.

Pursuant to 17 C.F.R. Section 200.83

 

LOGO

 


Table of Contents
Index to Financial Statements

Confidential Treatment Requested by Novelis Inc.

Pursuant to 17 C.F.R. Section 200.83

 

     Page  

PROSPECTUS SUMMARY

     2  

RISK FACTORS

     35  

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

     58  

USE OF PROCEEDS

     60  

DIVIDEND POLICY

     61  

CAPITALIZATION

     62  

DILUTION

     63  

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     65  

BUSINESS

     99  

MANAGEMENT

     134  

EXECUTIVE COMPENSATION

     144  

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

     167  

PRINCIPAL AND SELLING SHAREHOLDER

     169  

DESCRIPTION OF SHARE CAPITAL

     171  

SHARES ELIGIBLE FOR FUTURE SALE

     180  

UNDERWRITING

     181  

MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS

     188  

MATERIAL CANADIAN FEDERAL INCOME TAX CONSIDERATIONS

     192  

EXPENSES RELATED TO THE OFFERING

     194  

LEGAL MATTERS

     195  

EXPERTS

     195  

WHERE YOU CAN FIND MORE INFORMATION

     195  

INDEX TO CONSOLIDATED FINANCIAL INFORMATION

     F-1  

Neither we, the selling shareholder nor any of the underwriters have authorized anyone to provide you with any information other than that contained in this prospectus or in any free writing prospectus prepared by or on behalf of us or to which we may have referred you. We, the selling shareholder and the underwriters take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. Neither we, the selling shareholder nor any of the underwriters are making an offer to sell the common shares in any jurisdiction where the offer or sale is not permitted. This offering is being made in the United States and elsewhere solely on the basis of the information contained in this prospectus. You should assume that the information appearing in this prospectus is accurate only as of the date on the front cover of this prospectus, regardless of the time of delivery of this prospectus or any sale of the common shares. Our business, financial condition, results of operations and prospects may have changed since the date on the front cover of this prospectus.

 

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Table of Contents
Index to Financial Statements

Confidential Treatment Requested by Novelis Inc.

Pursuant to 17 C.F.R. Section 200.83

 

BASIS OF PRESENTATION

Unless otherwise indicated or unless the context otherwise requires, (a) all references in this prospectus to the “Company,” “Novelis,” “we,” “us,” “our” or similar terms refer to Novelis Inc. and its subsidiaries, and (b) all references to “Hindalco” and “Parent” refer to Hindalco Industries Limited, Novelis’ ultimate parent, and its consolidated subsidiaries other than Novelis and Novelis’ subsidiaries. All references to “shares” or “common shares” in this prospectus refer to the common shares of Novelis Inc., no par value per share.

INDUSTRY AND MARKET DATA

The data included in this prospectus regarding markets and the industry in which we operate, including the size of certain markets and our position and the position of our competitors within these markets, are based on reports of government agencies, independent industry sources such as Ducker Carlisle Worldwide, LLC (“Ducker Carlisle”), an independent consulting and industrial research firm, Commodity Research Unit International Limited (“CRU”), an independent business analysis and consultancy group focused on the mining, metals, power, cables, fertilizer and chemical sectors, and other research consultants, as well as our own estimates relying on our management’s knowledge and experience in the markets in which we operate. Our management’s knowledge and experience is based on information obtained from our customers, distributors, suppliers, trade and business organizations and other contacts in the markets in which we operate. We believe these estimates to be accurate as of the date of this prospectus. However, the information may prove to be inaccurate because of the method by which we obtained some of the data for our estimates or because this information cannot always be verified with complete certainty due to the limits on the availability and reliability of raw data, the voluntary nature of the data gathering process and other limitations and uncertainties. As a result, you should be aware that market, ranking and other industry data included in this prospectus, and our estimates and beliefs based on that data, may not be reliable. Neither we, the selling shareholder nor the underwriters can guarantee the accuracy or completeness of any such information contained in this prospectus.

TRADEMARKS

We own or have rights to trademarks, service marks or trade names that we use in connection with the operation of our business. Solely for convenience, the trademarks, service marks and trade names referred to in this prospectus are listed without the ® and TM symbols, but we will assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensors to these trademarks, service marks and trade names.

PRESENTATION OF FINANCIAL INFORMATION

We prepare and report our consolidated financial statements in accordance with accounting principles generally accepted in the United States, which we refer to as U.S. GAAP. We maintain our books and records in U.S. dollars.

We operate on a fiscal year calendar ending on March 31 of each year. Accordingly, any references in this prospectus to the years ended March 31, 2023, 2022 and 2021 or to the fiscal years 2023, 2022 and 2021 refer to the twelve-month periods ended March 31, 2023, 2022 and 2021, respectively. Analogous convention is used for the fiscal years prior to March 31, 2021.

We have made rounding adjustments to some of the figures included in this prospectus. Accordingly, numerical figures shown as totals in some tables may not be an arithmetic aggregation of the figures that precede them.

In this prospectus, unless otherwise specified, all monetary amounts are in U.S. dollars and all references to “$” mean U.S. dollars. The assets and liabilities of our foreign operations, whose functional currency is other than the

 

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Index to Financial Statements

Confidential Treatment Requested by Novelis Inc.

Pursuant to 17 C.F.R. Section 200.83

 

U.S. dollar, are translated to U.S. dollars at the period end exchange rates, and revenues and expenses are translated at average exchange rates for the period, in each case, using the exchange rates published by the relevant central banks. Differences arising from this translation are included in the currency translation adjustment component of accumulated other comprehensive loss and noncontrolling interests, both of which are on our consolidated balance sheets. For all operations, the monetary items denominated in currencies other than the functional currency are remeasured at period-end exchange rates, and transaction gains and losses are included in other (income) expenses, net in our consolidated statements of operations. Non-monetary items are remeasured at historical rates.

NON-U.S. GAAP FINANCIAL MEASURES

We refer to the terms “EBITDA,” “Adjusted EBITDA” and “Adjusted Free Cash Flow” in various places in this prospectus. These are supplemental financial measures that are not prepared in accordance with U.S. GAAP. Although our management uses these non-U.S. GAAP financial measures when planning, monitoring and evaluating our performance, any analysis of non-U.S. GAAP financial measures should be used only in conjunction with results presented in accordance with U.S. GAAP.

EBITDA and Adjusted EBITDA

Novelis defines EBITDA as earnings before interest, taxes, depreciation and amortization. Novelis defines Adjusted EBITDA as earnings before (a) “depreciation and amortization”; (b) “interest expense and amortization of debt issuance costs”; (c) “interest income”; (d) “unrealized gains (losses) on change in fair value of derivative instruments, net,” except for foreign currency remeasurement hedging activities, which are included in Adjusted EBITDA; (e) impairment of goodwill; (f) “gain or loss on extinguishment of debt”; (g) noncontrolling interest’s share; (h) adjustments to reconcile our proportional share of Adjusted EBITDA from non-consolidated affiliates to income as determined on the equity method of accounting; (i) “restructuring and impairment (reversal) expenses, net”; (j) gains or losses on disposals of property, plant and equipment and businesses, net; (k) other costs, net; (l) litigation settlement, net of insurance recoveries; (m) sale transaction fees; (n) income tax provision (benefit); (o) cumulative effect of accounting change, net of tax; (p) metal price lag; (q) business acquisition and other related costs; (r) purchase price accounting adjustments; (s) “income (loss) from discontinued operations, net of tax”; and (t) “(gain) loss on sale of discontinued operations, net of tax.” EBITDA and Adjusted EBITDA are measures commonly used in our industry, and we present EBITDA and Adjusted EBITDA to enhance your understanding of our operating performance. We believe that EBITDA and Adjusted EBITDA are operating performance measures, and not liquidity measures, that provide you with a measure of operating results unaffected by differences in capital structures, capital investment cycles and ages of related assets among otherwise comparable companies.

Our management believes investors’ understanding of our performance is enhanced by including these non-U.S. GAAP financial measures as a reasonable basis for comparing our ongoing results of operations. Many investors are interested in understanding the performance of our business by comparing our results from ongoing operations from one period to the next and would ordinarily add back items that are not part of normal day-to-day operations of our business. By providing these non-U.S. GAAP financial measures, together with reconciliations, we believe we are enhancing investors’ understanding of our business and our results of operations, as well as assisting investors in evaluating how well we are executing strategic initiatives.

However, EBITDA and Adjusted EBITDA are not measurements of financial performance under U.S. GAAP, and our EBITDA and Adjusted EBITDA may not be comparable to similarly titled measures of other companies. EBITDA and Adjusted EBITDA have important limitations as an analytical tool, and you should not consider them in isolation or as a substitute for analysis of our results as reported under U.S. GAAP. For example, EBITDA and Adjusted EBITDA:

 

  •  

do not reflect our cash expenditures or requirements for capital expenditures or capital commitments;

 

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Index to Financial Statements

Confidential Treatment Requested by Novelis Inc.

Pursuant to 17 C.F.R. Section 200.83

 

  •  

do not reflect changes in, or cash requirements for, our working capital needs; and

 

  •  

do not reflect any costs related to the current or future replacement of assets being depreciated and amortized.

Additionally, our senior secured credit facilities, 3.25% senior notes due 2026, 3.375% senior notes due 2029, 4.75% senior notes due 2030, and 3.875% senior notes due 2031 provide for adjustments to EBITDA, which may decrease or increase Adjusted EBITDA for purposes of compliance with certain covenants under such facilities and notes. We also use EBITDA and Adjusted EBITDA:

 

  •  

as measures of operating performance to assist us in comparing our operating performance on a consistent basis because it removes the impact of items not directly resulting from our core operations;

 

  •  

for planning purposes, including the preparation of our internal annual operating budgets and financial projections;

 

  •  

to evaluate the performance and effectiveness of our operational strategies; and

 

  •  

to calculate incentive compensation payments for our key employees.

We also present our financial leverage ratio in this prospectus, which represents the ratio of our total debt less cash and cash equivalents to our Adjusted EBITDA, to monitor compliance with covenants in agreements governing our outstanding indebtedness and to assess our liquidity position over time.

Adjusted Free Cash Flow

Novelis defines Adjusted Free Cash Flow as: (a) “Net cash provided by (used in) operating activities—continuing operations,” (b) plus “Net cash provided by (used in) investing activities—continuing operations,” (c) plus “Net cash provided by (used in) operating activities—discontinued operations,” (d) plus “Net cash provided by (used in) investing activities—discontinued operations,” (e) plus cash used in the “Acquisition of assets under a finance lease,” (f) plus cash used in the “Acquisition of business and other investments, net of cash,” (g) plus accrued merger consideration, (h) less “Proceeds from sales of assets and business, net of transaction fees, cash income taxes and hedging,” and (i) less proceeds from sales of assets and business, net of transaction fees, cash income taxes and hedging—discontinued operations.

Our management believes Adjusted Free Cash Flow is relevant to investors as it provides a measure of the cash generated internally that is available for debt service and other value creation opportunities. In addition, management uses this measure as a key consideration in determining the amounts to be paid as returns of capital to our common shareholder.

However, Adjusted Free Cash Flow is not a measurement of financial performance or liquidity under U.S. GAAP and does not necessarily represent cash available for discretionary activities, as certain debt service obligations must be funded out of Adjusted Free Cash Flow. In addition, our method of calculating Adjusted Free Cash Flow may not be consistent with that of other companies.

For more information regarding these non-U.S. GAAP financial measures and a reconciliation of such measures to the most directly comparable U.S. GAAP financial measures, see “Prospectus Summary—Summary Historical Condensed Consolidated Financial Information.”

SEGMENT LEVEL PROFITABILITY

ASC 280, Segment Reporting, establishes the standards for reporting information about segments in financial statements. In applying the criteria set forth in ASC 280, we have determined that we have four reportable segments for financial reporting purposes, based on geographical areas: North America, Europe, Asia, and South

 

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Index to Financial Statements

Confidential Treatment Requested by Novelis Inc.

Pursuant to 17 C.F.R. Section 200.83

 

America. Under ASC 280, our measure of segment profitability and financial performance of our operating segments is Adjusted EBITDA. Adjusted EBITDA by segment provides a measure of our underlying segment results that is in line with our approach to risk management. For each segment, we define Adjusted EBITDA Income as earnings before (a) depreciation and amortization; (b) interest expense and amortization of debt issuance costs; (c) interest income; (d) unrealized gains (losses) on change in fair value of derivative instruments, net, except for foreign currency remeasurement hedging activities, which are included in Adjusted EBITDA; (e) impairment of goodwill; (f) gain or loss on extinguishment of debt, net; (g) noncontrolling interests’ share; (h) adjustments to reconcile our proportional share of Adjusted EBITDA from non-consolidated affiliates to income as determined on the equity method of accounting; (i) restructuring and impairment (reversal) expenses, net; (j) gains or losses on disposals of property, plant and equipment and businesses, net; (k) other costs, net; (l) litigation settlement, net of insurance recoveries; (m) sale transaction fees; (n) income tax provision (benefit); (o) cumulative effect of accounting change, net of tax; (p) metal price lag; (q) business acquisition and other related costs; (r) purchase price accounting adjustments; (s) income (loss) from discontinued operations, net of tax; and (t) loss on sale of discontinued operations, net of tax. Refer to “ —Results of Operations—Segment Review” for more information on Adjusted EBITDA as a measure of our segment level profitability.

PRESENTATION OF SHIPMENT INFORMATION

We present product shipment information throughout this prospectus. As used herein, consolidated “aluminum rolled product shipments,” “rolled products shipments” or “shipments” refers to aluminum rolled product shipments to third parties. For our operating segments, regional “aluminum rolled product shipments,” “rolled products shipments” or “shipments” refers to aluminum rolled product shipments to third parties and intersegment shipments to other regions. Shipment amounts also include tolling shipments. References to “total shipments” include aluminum rolled product shipments as well as certain other non-rolled product shipments, primarily scrap, used beverage can scrap, ingots, billets, and primary remelt. The term “aluminum rolled products” is synonymous with the terms “flat-rolled products” and “FRP,” which are commonly used by manufacturers and third-party analysts in our industry. All tonnages are stated in metric tonnes. One metric tonne is equivalent to 2,204.6 pounds. One kilotonne (“kt”) is 1,000 metric tonnes. One megaton (“mt”) is 1000 kilotonnes. See the subsections titled “—Key Sales and Shipment Trends” and “—Segment Review” under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations” for more information. We also refer to Adjusted EBITDA per tonne (which is calculated by dividing Adjusted EBITDA by rolled product shipments (in tonnes) for the corresponding period), both on a consolidated basis and at the segment level. Adjusted EBITDA per tonne is calculated using aluminum rolled product shipments rather than total shipments because the incremental impact of non-rolled products shipments on our Adjusted EBITDA is marginal since the price of these products is generally set to cover the costs of raw materials not utilized in manufacturing products sold to beverage packaging customers, specialties and aerospace customers in our regions, and these non-rolled products are not part of our core operating business. Adjusted EBITDA reported for the Company on a consolidated basis is non-U.S. GAAP financial measure; for more information regarding this non-U.S. GAAP financial measure, see “Non-U.S. GAAP Financial Measures” above, and for a reconciliation of such measure to the most directly comparable U.S. GAAP financial measure, see “Prospectus Summary—Summary Historical Condensed Consolidated Financial Information.” Adjusted EBITDA reported at the segment level is our segment level measure of profitability, and therefore a financial measure prepared in accordance with U.S. GAAP.

 

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Table of Contents
Index to Financial Statements

Confidential Treatment Requested by Novelis Inc.

Pursuant to 17 C.F.R. Section 200.83

 

LOGO

 


Table of Contents
Index to Financial Statements

Confidential Treatment Requested by Novelis Inc.

Pursuant to 17 C.F.R. Section 200.83

 

PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus and does not contain all of the information that you should consider in making your investment decision. Before deciding to invest in our common shares, you should read this entire prospectus carefully, including the sections of this prospectus entitled “Risk Factors,” “Special Note Regarding Forward-Looking Statements” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” our audited annual consolidated financial statements and the related notes and our unaudited interim condensed consolidated financial statements and the related notes contained elsewhere in this prospectus.

Our Business

Our Purpose and Vision. Novelis’ purpose of “Shaping a Sustainable World Together” is at the core of who we are. Our purpose guides our strategy and the way we work, the decisions we make and the partnerships we pursue. In line with our purpose, our vision is to be the “Leading Provider of Sustainable and Innovative Aluminum Solutions.” Our customers around the world rely on us for sustainable solutions and products, and we make positive contributions in the communities where we live and work.

Our Company. We consider ourselves the leading producer of innovative, sustainable aluminum solutions and the world’s largest recycler of aluminum. Specifically, we believe we are the leading provider of low-carbon aluminum solutions, helping to drive a circular economy by partnering with our suppliers and customers in beverage packaging, automotive, aerospace and specialties (a diverse market including building & construction, signage, foil & packaging, commercial transportation and commercial & consumer products, among others) markets globally. Throughout North America, Europe, Asia, and South America, we have an integrated network of 32 world-class, technologically advanced facilities, including 14 recycling centers, 11 innovation centers, and 13,160 employees.

Aluminum is the sustainable material of choice for a wide range of growing end-markets that require strong, yet lightweight, sustainable solutions. The virtually infinite recyclability of aluminum is essential to our innovative circular business model. With operations on four continents in nine countries, we consider our global scale to be a distinct competitive advantage. In addition, our leading position in aluminum recycling combined with our cutting-edge operational processes provides us with an advantaged cost position, increasing our operating cash flow. For fiscal 2023, we had total flat-rolled product shipments of 3,790 kt, net sales of $18.5 billion, net income of $657 million, and Adjusted EBITDA of $1,811 million.

Our Value Proposition. We are a critical partner for the delivery of innovative, high-quality aluminum solutions that help our customers achieve their long-term growth strategies and sustainability targets. We are strategically positioned to deliver our value proposition due to the following attributes of our business model:

Global Footprint and Scale. We are the world’s largest global aluminum rolled products producer with a broad portfolio of high-value aluminum products designed to meet our customers’ technical, quality and sustainability requirements. We believe our scale, recycling capabilities, research and development (“R&D”) competencies, and global footprint across four continents underpin our highly resilient business model, which is characterized by attractive growth opportunities, the ability to add new capacity, and the capability to support our customers with innovative and sustainable solutions.

 

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Sustainability. The virtually infinite recyclability of aluminum positions us at the focal point of the circular economy. We believe we recycle more aluminum than any other company in the world, having recycled approximately 2.3 mt in fiscal 2023, our all-time high. Since fiscal 2012, we have invested heavily to innovate and expand our aluminum recycling operations to increase the recycled content of our solutions to an industry leading level. We are an essential partner to our blue-chip customers to enable the achievement of their sustainability goals, which are being driven, in part, by end-consumers. Key components of our innovative circular business model include:

 

  •  

High Recycled Content. We have steadily increased recycled content to approximately 61% on average across our diverse portfolio. This represents approximately a 2x increase since we established a baseline in 2009. Our target is to achieve an average of 75% recycled content across our product portfolio by 2035.

 

  •  

Recycling Capacity and Capabilities. We have invested approximately $800 million to expand our recycling capabilities since 2012, including new recycling and casting centers under construction in the U.S. and South Korea and other expansions under evaluation.

 

  •  

End-of-Life Packaging Recycling. Today, we recycle more than 82 billion used beverage cans (“UBCs”) annually. Through investments such as the new recycling capacity being added in Bay Minette, Alabama, we expect to increase this to more than 95 billion at full production.

 

  •  

Closed Loop Recycling. We have established programs with our beverage packaging customers to recycle their production scrap. Additionally, we believe we are the world’s largest closed loop aluminum recycling partner to the automotive industry, recycling production scrap of aluminum supplied to some of the world’s largest automotive original equipment manufacturers (“OEMs”). We have two of the world’s largest closed loop recycling programs in the U.S. and Europe.

 

  •  

Sustainable Sourcing. We partner with suppliers that align with our values to drive sustainability throughout our value chain related to carbon reduction, limiting waste produced, and providing a positive community impact.

 

  •  

Low CO2 Operations. We are actively developing and implementing new technologies to reduce our CO2 footprint, such as programs in Switzerland and North America with utility companies to explore new technologies to decarbonize the aluminum manufacturing process. Beyond direct manufacturing

 

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emissions, we are continuously exploring options to reduce carbon emissions in logistics, such as closed loop rail systems in Europe created in collaboration with automotive customers.

 

LOGO

Innovation. Utilizing our industry-leading technology, we partner with customers to support market development for innovative and sustainable solutions across all end-markets. We focus our innovation efforts on pushing the limits on aluminum alloys, advancing customers’ product designs and improving our own process engineering and production techniques. Key components that support the needs of our customers include:

 

  •  

Customer Solution Centers (“CSCs”). Through our robust global network of automotive and beverage packaging CSCs, we collaborate with customers and others across the value chain to accelerate the adoption of aluminum in next-generation products.

 

  •  

Research & Development. Leveraging our global network of R&D centers, we develop new alloys and techniques to keep aluminum at the forefront of materials and pioneer new technologies to expedite the materials innovation cycle, including artificial intelligence (“AI”) and machine learning. We also have a dedicated team of recycling, casting, rolling, and finishing experts who pioneer advancements in aluminum manufacturing.

Customer Testimonial

 

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Ball Corporation –

“Aluminum beverage packaging has always been a more sustainable alternative to plastic and glass that not only benefits our customers and end consumers, but also the planet. For us at Ball Corporation, our ‘Vision for a Perfect Circle’ guides our efforts to advance the circular economy for aluminum beverage packaging. Novelis is critical to our ability to achieve our sustainability ambitions and working with us to develop innovative solutions that further reduce our carbon footprint. In addition, Novelis has been a longstanding strategic supplier supporting our growth globally through investments to expand their can sheet capacity.”

– Dan Fisher, CEO, Ball Corporation

 

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Jaguar Land Rover –

“Novelis’ expertise in high-volume aluminum production and willingness to invest to better serve the automotive industry drove our decision to collaborate with the company when transitioning many of our marque vehicles to aluminum-intensive designs. We have benefitted from Novelis’ proven ability to bring innovative, circular, and long-lasting quality products to market. Jaguar led the way as an earlier adopter of aluminum in the automotive industry, so it was critical for us to select the right partner as our primary aluminum sheet supplier. That’s why it was so important for our teams to

 

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collaborate and build infrastructure with the circular economy in mind from the start – ensuring JLR’s aluminum process scrap is recycled directly back into automotive sheet. Together, we created a truly closed-loop-recycling system utilizing low-carbon rail that embodies JLR’s vision – Engage for Good and Responsible Business programmes

– Andrew Smith, Procurement Director Raw Materials, Jaguar Land Rover

 

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Trane Technologies –

“As a global climate innovator, Trane Technologies brings efficient and sustainable climate solutions to buildings, homes, and transportation. Novelis has been a strategic supplier of ours for many years. Building on our shared commitment to sustainability and a solid foundation of quality and reliability, Trane Technologies and Novelis are jointly developing new alloys that incorporate a higher recycled content in support of a circular economy, which helps us reduce embodied carbon in the products we provide to our customers.”

– Dave Regnery, Chair and CEO Trane Technologies

Our Portfolio Optimization. Since becoming a subsidiary of Hindalco Industries in 2007, we have undergone a significant transformation. We have made numerous strategic investments that we believe position us well to achieve long-term growth and profitability:

 

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Breadth of Offering. We made calculated portfolio changes through M&A and organic investments to diversify and optimize our capacity across end-markets by (i) becoming, to our belief, the world leader in automotive aluminum solutions, (ii) expanding high recycled content in our specialties business and pruning the portfolio of lower margin products, and (iii) adding aerospace in key geographic regions.

 

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Operational Flexibility. We have been at the forefront of aluminum manufacturing advancements and adoption of new processes, which has enabled maximum flexibility in our operations. Our footprint and market segment positioning are continuously evaluated based on regional supply and demand dynamics with a focus on margin expansion.

 

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M&A. We acquired global aluminum producer Aleris Corporation (“Aleris”) in 2020, diversifying and strengthening our portfolio with entry into high-value aerospace and expansion of our high-recycled-content building and construction business. We currently have potential investments under evaluation for the integration of legacy Aleris’ rolling mill in China, which would enable automotive rolling and recycling in China for Novelis and allow us to offer closed-loop recycling to our customers in China. These investments would also further increase circularity in the Chinese automotive market and reduce our CO2 footprint. Additionally, increasing rolling capacity in China will free up existing rolling capacity in South Korea, enabling us to better serve the growing specialties market in the region.

Our Track Record. We have experienced substantial growth over the last decade, driven by our own initiatives that have contributed to robust end-market growth and strong operational performance. As a result, we increased our net income from a loss of $38 million in fiscal 2016 to net income of $657 million in fiscal 2023 and increased net income per tonne from $(12) in fiscal 2016 to $173 in fiscal 2023. We also increased Adjusted EBITDA per tonne from $308 in fiscal 2016 to $478 in fiscal 2023. Key components of our historical growth and margin expansion include:

 

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Transformational Organic Investment. We invested approximately $3.2 billion from fiscal 2012 through fiscal 2023 in organic growth capex, expanding our rolling and recycling capacity, as well as automotive finishing capacity, to meet market demand. Looking forward, we have approximately $4.9 billion of investments under construction through 2027 to further increase recycling and rolling capacity and profitability. Of this $4.9 billion we plan to invest through 2027, approximately $350 million was spent in fiscal 2023. The largest of these investments currently under construction is a greenfield recycling and rolling plant in Bay Minette, Alabama, to primarily serve the North American beverage packaging and

 

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automotive markets. We have materially contracted or committed our beverage packaging capacity that will be available in North America through the ramp-up of operations of our Bay Minette, Alabama plant. Beyond the approximately $4.9 billion of announced investments, we continue to evaluate further opportunities based on financial returns and underlying market conditions.

 

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Proven Resilience Through Recent Macroeconomic Headwinds and Destocking. Our industry experienced an unprecedented period of short-term demand softness and increased cost pressure driven by inflation and energy volatility and supply disruptions in fiscal 2023. We also experienced end-market challenges with supply chain disruption and beverage packaging destocking actions, which negatively impacted shipment volumes and profitability, leading to a trough in net income per tonne and Adjusted EBITDA per tonne in the third quarter of fiscal 2023, as compared to highs in the first quarter of fiscal 2023. Due to the diversity of the end-markets in which we operate, our global scale, and operational excellence, we proved our resilience and sequentially improved profitability again in the second quarter of fiscal 2024.

 

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M&A. The acquisition of Aleris in 2020 has been highly accretive both in terms of market positioning and synergies, with cost synergies exceeding expectations.

 

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End-Market Growth. We believe our strategic initiatives have shaped the global aluminum flat-rolled products (“FRP”) industry and enabled robust growth as FRP consumption grew more than 70% over the past 15 years to approximately 30 million tonnes in 2023, per CRU.2 Aluminum FRP consumption is forecasted to grow at a 4% compound annual growth rate from 2023 to 2028, which Novelis is well positioned to capture.

 

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Advantaged Recycling Cost Position. We believe our efficiencies in recycling operations, industry-leading technology and buying power will position us well to the extent scrap prices fluctuate. Our vast footprint provides us the ability to benefit from economies of scale when procuring scrap, expertise to develop and implement best practices to reduce costs, and the ability to influence scrap generation.

 

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Production Efficiencies. We have implemented digital technologies and advanced analytics to improve recovery, throughput, and quality, driving operational efficiencies and improving profitability. We are implementing a “Plant of the Future” model that will further utilize digital technologies, AI, and robotics in new and existing plants.

Our Business Segments

We report our results of operations in four segments: North America, Europe, Asia, and South America. Due in part to the regional nature of supply and demand for aluminum solutions and to best serve our customers, we manage our activities based on geographic areas. The following charts show net sales by geography and net sales and shipments by end-product market for fiscal 2023.

 

Novelis Global Net Sales by Geographic Region

 

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Novelis Global Net Sales by End-Market

 

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Source: CRU Aluminium Rolled Products Market Outlook, November 2023. All CRU references to the broader aluminum rolled products market are derived from this report.

 

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Novelis Global Shipments by End-Market

 

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North America Segment

Headquartered in Atlanta, Georgia, Novelis North America consists of 16 plants, including recycling operations, across two countries. We consider ourselves the leader in aluminum recycling and production in North America. In North America, we generated $7,550 million in net sales, $673 million in Adjusted EBITDA, and 1,515 kt in rolled product shipments, resulting in $444 in Adjusted EBITDA per tonne for fiscal 2023. Compared to fiscal 2016, our fiscal 2023 performance saw increases of $335 million in Adjusted EBITDA, 483 kt in rolled product shipments, and $116 in Adjusted EBITDA per tonne across our North American segment.

We believe we hold the number one position in the beverage packaging and automotive markets in North America. Beverage packaging represents our largest market within North America, selling 672 kt in fiscal 2023. The specialties segment is the second largest end-market in the region, selling 463 kt in fiscal 2023. The balance of the portfolio is from our leading position in the automotive market, selling 380 kt in fiscal 2023.

Across our 16 plants, our aluminum rolling capacity is approximately 1.5 mt. In addition, we have both R&D centers and CSCs strategically located across North America. Our global casting, engineering and technology center in Spokane, Washington, specializes in molten metal processing. This group seeks to ensure Novelis is always developing and adopting best practices related to recycling and molten aluminum processing, globally. Our global research and technology center in Kennesaw, Georgia, offers state of the art research and development capabilities to help us meet the global long-term demand for aluminum used across all our product markets and geographies. Kennesaw, Georgia is also home to our beverage packaging CSC and can-making pilot line, where we test our products on pre-production lines similar to those used by our beverage packaging customers. We also operate an automotive CSC in Detroit, Michigan.

Due to strong consumer demand for sustainable aluminum products, particularly beverage packaging and automotive sheet, we currently have various debottlenecking, recycling, and new capacity capital investment projects under construction, including projects to expand rolling capacity in Oswego, New York, and Logan, Kentucky, and to construct a highly advanced automotive recycling facility in Guthrie, Kentucky. We have also broken ground on an investment of approximately $4.1 billion to build a fully integrated, greenfield rolling and recycling plant in Bay Minette, Alabama, with an annual rolled aluminum production capacity of 600 kt. We have materially contracted or committed our beverage packaging capacity that will be available in North America through the ramp-up of operations of our Bay Minette, Alabama plant, including with decades-long customer partners such as Ball Corporation, Coca-Cola and Ardagh Metal Packaging, underscoring the strong demand for high-recycled-content beverage packaging sheet.

 

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Novelis North America End-Market Shipment Mix

 

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Europe Segment

Headquartered near Zurich, Switzerland, Novelis Europe operates 10 plants across four countries, including recycling operations. We consider ourselves the leader in aluminum recycling and rolling in Europe. We generated $5,059 million in net sales, $286 million in Adjusted EBITDA, and 1,030 kt in rolled product shipments, resulting in $278 in Adjusted EBITDA per tonne in Europe for fiscal 2023. Compared to fiscal 2016, our fiscal 2023 performance saw increases of $83 million in Adjusted EBITDA, 52 kt in rolled product shipments, and $70 in Adjusted EBITDA per tonne across our European segment. We hold a leading position within the European beverage packaging and automotive end-markets.

The beverage packaging end-market represents our largest market within Europe, selling 476 kt in fiscal 2023. The second largest end-market is the automotive market, selling 255 kt in fiscal 2023. The specialties market is the third largest end-market, selling 232 kt in fiscal 2023. The remainder of sales are from the aerospace industry, selling 67 kt in fiscal 2023.

Across our European plants, our aluminum rolling capacity is approximately 1.2 mt. These manufacturing plants produce a broad range of sheet, plate, and foil products. We believe our Nachterstedt plant is one of the largest aluminum recycling plants in the world. Additionally, we have multiple centers dedicated to innovation in Europe. We have an automotive R&D center in Sierre, Switzerland and an R&D center in Göttingen, Germany, which specializes in the development of new products and processes for our beverage packaging and specialties customers. We also have an automotive CSC in Stuttgart, Germany. Due to strong consumer demand for sustainable aluminum products, we are evaluating additional rolling and recycling capacity expansion in Europe moving forward.

Novelis Europe End-Market Shipment Mix

 

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Asia Segment

Headquartered in Seoul, South Korea, Novelis Asia operates four plants, including recycling operations, in two countries. We are a leading aluminum producer and believe we are the largest recycler of aluminum in Asia. We generated $3,014 million in net sales, $339 million in Adjusted EBITDA, and 721 kt in rolled product shipments, resulting in $470 in Adjusted EBITDA per tonne in Asia for fiscal 2023. Compared to fiscal 2016, our fiscal 2023 performance saw an increase of $197 million in Adjusted EBITDA, a decrease of 39 kt in rolled product shipments, and an increase of $283 in Adjusted EBITDA per tonne across our Asian segment.

We hold a leading position within the Asian beverage packaging and automotive end-markets. Beverage packaging represents our largest market in Asia, selling 509 kt in fiscal 2023. The automotive end-market represents the second largest end-market in the region, selling 121 kt in fiscal 2023. Specialties is the third largest end-market, selling 52 kt in fiscal 2023. The remainder of sales are from the aerospace industry, selling 39 kt in fiscal 2023.

Across our plants, our rolling capacity is approximately 0.8 mt. These manufacturing plants produce a broad range of aluminum sheet, plate, and light gauge products. In fiscal 2022, we completed a 100 kt automotive finishing capacity expansion at our Changzhou, China facility. In South Korea, we are currently expanding our recycling capacity and capabilities with an approximately $65 million recycling capacity expansion as part of our Ulsan Aluminum joint venture. We also have plans under evaluation to invest in our plant in Zhenjiang, China, aimed at enabling domestic automotive rolling and recycling capabilities. We have an aerospace innovation center in Zhenjiang, an R&D center and an automotive CSC in Shanghai, China, and an R&D center as part of our joint venture in Ulsan, South Korea.

Novelis Asia End-Market Shipment Mix

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South America Segment

Headquartered in São Paulo, Brazil, Novelis South America operates two plants, including recycling operations, in one country. We consider ourselves the leader in aluminum recycling and production in South America. We hold a top position within the South American beverage packaging market. In South America, we generated $2,893 million in net sales, $522 million in Adjusted EBITDA, and 616 kt in rolled product shipments for fiscal 2023, resulting in $847 in Adjusted EBITDA per tonne. Compared to fiscal 2016, our fiscal 2023 performance saw increases of $242 million in Adjusted EBITDA, 126 kt in rolled product shipments, and $276 in Adjusted EBITDA per tonne across South America. Beverage packaging represents our largest market in the region, selling 591 kt in fiscal 2023. Additionally, we produce products to serve the specialties end-market, selling 25 kt in fiscal 2023.

 

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Across our plants, our rolling capacity is approximately 0.7 mt. In fiscal 2022, we completed a $150 million investment to expand both rolling and recycling capacity by 100 kt each at our Pindamonhangaba facility. In March 2023, we opened our newest CSC, which is focused on supporting the South American beverage packaging market and is located in São José dos Campos, Brazil. Due to strong consumer demand for sustainable aluminum products, in fiscal 2022, we announced an approximately $50 million debottlenecking investment at our Pindamonhangaba plant to unlock approximately 70 kt of additional rolling capacity in a two-phase project, with full completion expected in fiscal 2026. We are evaluating additional rolling and recycling capacity expansions.

Novelis South America End-Market Shipment Mix

 

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Our Industry

The aluminum market represents the global supply of, and demand for, aluminum sheet, plate and foil produced either from sheet ingot or continuously cast roll-stock in rolling mills operated by both independent aluminum rolled products producers and integrated aluminum companies. Specifically, aluminum rolled products are semi-finished aluminum products that constitute the raw material for the manufacturing of finished goods, ranging from beverage packaging, which includes cans, cups and bottles, to automotive structures and body panels.

There are two major types of manufacturing processes for aluminum products, differing mainly in the process used to achieve the initial stage of processing: hot mills, which require sheet ingot, a rectangular slab of aluminum, as starter material; and continuous casting mills, which can convert molten metal directly into semi-finished sheet.

Sources of Metal

There are two sources of input material: (i) primary aluminum, produced from alumina (extracted from bauxite), processed in a smelter; and (ii) recycled aluminum, produced by remelting post-industrial and post-consumer scrap.

Primary aluminum can generally be purchased at prices set on the London Metal Exchange (“LME”), plus a local market premium (“LMP”) that varies by geographic region of delivery, alloying material, form (ingot or molten metal) and purity. Recycled aluminum is generally produced internally from procured scrap or purchased at a discount compared to the price of primary aluminum depending on type and quality of the scrap, geographic region, and other market factors. A significant amount of our business is conducted under a conversion model, which allows us to pass through increases or decreases in the price of aluminum to our customers.

We believe Novelis is a global leader in sustainable aluminum product manufacturing, recycling 2.3 mt of aluminum in fiscal 2023. We have invested approximately $800 million in our recycling capabilities since 2012,

 

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increasing the recycled content of our products to be one of the highest levels in the industry. We have announced additional recycling investments to increase our leadership position. By utilizing recycled aluminum for much of our manufacturing, we limit the carbon intensity of our operations because using recycled aluminum is 95% less carbon intensive than making primary aluminum. Incorporating as much recycled aluminum as possible into products is one of the most impactful ways to reduce carbon emissions across the global aluminum value chain. To secure Novelis’ access to scrap, we design alloys with the flexibility to use multiple sources of scrap, partner with our customers and suppliers through long-term relationships including closed-loop-recycling partnerships, support the development of scrap sorting technologies, educate consumers on the value of recycling and support legislation aimed at increasing recycling rates.

Industry End-Markets

Due to aluminum’s lightweight characteristics, recyclability, and formability properties, aluminum product companies serve a diverse set of end-markets including beverage packaging, automotive, aerospace, and a variety of other end-markets.

Beverage Packaging. Aluminum is one of the most sustainable packaging materials for beverage brands. In addition to its recyclability, aluminum beverage cans and bottles offer advantages in fabricating efficiency and drink product shelf life. Beverage packaging manufacturers produce and fill beverage cans at very high speeds, and non-porous aluminum cans provide longer shelf life than glass or plastic containers. Aluminum beverage packaging is light and stackable and uses space efficiently, making it convenient and cost-efficient to ship.

According to CRU, global demand (excluding China) for beverage packaging is forecasted to increase at a compound annual growth rate of approximately 4% from 2023 to 20313 mainly driven by:

 

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Sustainability trends. Consumers are increasingly demanding more sustainable packaging options, driving increased adoption of virtually infinitely recyclable aluminum.

 

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Growth in beverage markets. New beverage types, such as energy drinks, sparkling and flavored water, and ready-to-drink cocktails are increasingly released in aluminum packaging, with even further potential growth in aluminum-packaged water.

 

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Substitution against glass, steel and plastic. Package mix shift from other materials like glass, steel and plastic into aluminum is continuing.

 

2023 Global Beverage Packaging Consumption (kt)

 

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Source: CRU Aluminium Beverage Can Sheet Market Outlook October 2023

Note: Excludes China

  

2023 Global Beverage Packaging Market Share

 

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Source: CRU Aluminium Beverage Can Sheet Market Outlook October 2023

Note: Excludes China

 

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Source: CRU Aluminium Beverage Can Market Outlook, October 2023. All CRU references to the broader aluminum beverage can market are derived from this report.

 

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We are the global leader in beverage packaging sheet with 39% global market share (excluding China) in the 2023 calendar year according to CRU, while also being the leading buyer and recycler of UBCs globally – recycling more than 82 billion cans annually and we expect this to increase to more than 95 billion cans upon completion of the Bay Minette, Alabama plant. We view our global footprint as an advantage as we believe geopolitical instability and supply chain risk have increased beverage packaging manufacturers’ desire for local supply. Aluminum beverage packages are the model of sustainable packaging as the average “can-to-can” lifecycle enables a beverage package that is recycled today and which could be back on store shelves in just 60 days. Aluminum’s properties enable a circular recycling process without meaningful downgrading, which contributes to a circular economy. With aluminum being one of the most sustainable packaging materials for beverages, demand for recyclable aluminum remains strong, despite potential substitutes for our products that customers may be willing to accept, such as glass or plastics. Novelis works with its customers to develop improved and more sustainably efficient aluminum solutions at dedicated beverage packaging innovation facilities, including our global research and technology center in Kennesaw, Georgia, as well as our R&D centers in Göttingen, Germany and as part of our joint venture in Ulsan, South Korea, and our new customer solution center in São José dos Campos, Brazil. Enabled by our global manufacturing and recycling footprint, Novelis serves some of the world’s most recognizable brands including Coca-Cola, AB InBev, PepsiCo and Heineken, as well as leading beverage packaging manufacturers Ball Corporation, Crown, Ardagh Metal Packaging and CanPack.

Automotive. Aluminum utilization is positioned for continued growth through increased adoption of electric vehicles (“EVs”), which require higher amounts of aluminum. This is compounded by government regulations requiring improved emissions for internal combustion engine (“ICE”) vehicles, while also maintaining and improving vehicle performance and safety through lightweighting. Aluminum products are used in vehicle structures (also known as “body-in-white”) as well as automotive body panel applications, including hoods, doors, deck lids, fenders, and lift gates. Aluminum sheet is also used in battery enclosures for the growing EV market and aluminum foil is used in the batteries themselves.

Global Light Vehicle Production

North America, Europe, and Greater China (millions of vehicles)

 

 

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Source: S&P Global Mobility, Global Light Vehicle Production based Powertrain Forecast for Europe, Greater China and North America, December 2023

Based on management estimates, we believe that global automotive aluminum sheet demand is set to grow at a compound annual growth rate of 7% from calendar year 2023 to calendar year 2028. Further, based on our projections, we believe that during the same period, demand in North America is set to grow at a compound annual growth rate of 5%, demand in Europe is set to grow at 7% and demand in Asia is set to grow at 11%. Automotive demand is expected to be resilient across major markets regardless of elevated interest rates, with pent-up consumer demand driving growth in vehicle build rates. In addition, lightweighting of traditional ICE

 

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vehicles to increase fuel efficiency and performance, as well as the switch to EVs, will drive higher aluminum content in vehicles, as well as in new systems like battery enclosures. According to Ducker Carlisle, battery electric vehicle (“BEV”) growth and a shift to larger vehicles in North America will lead to an increase of aluminum sheet demand of approximately 40% between calendar year 2022 and calendar year 2030. EVs are projected to contain 28% more aluminum sheet per vehicle compared to ICE vehicles in North America in 2030.

 

Calendar Year 2023 Global Automotive Demand (kt)

 

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Source: Novelis Management Estimates     

 

Calendar Year 2023 Global Automotive Aluminum Market Shares

 

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Source: Novelis Management Estimates – Share based on approximate capacity

We believe Novelis is the world’s largest supplier of aluminum sheet to the automotive industry, with a global market share of 36% and finishing capacity of approximately 1mt. Novelis leverages aluminum’s properties to deliver safer, more sustainable, and more cost-effective solutions for OEMs to lightweight their fleets, improving fuel efficiency and vehicle performance. Our automotive products, including our high-performing Advanz™ alloys, are featured across hundreds of models on the road today. Novelis provides high-strength aluminum sheet for EVs, enabling increased battery range while giving automakers the ability to add in-vehicle content that enhances the user experience. A lighter EV requires a smaller battery for the same range, which significantly reduces the vehicle cost and the demand for rare elements. Continuously innovating, Novelis has dedicated automotive R&D centers in Sierre, Switzerland and Shanghai, China, as well as CSCs in Detroit, Michigan, Stuttgart, Germany, and Shanghai, China. We enjoy long-standing partnerships with automotive customers globally, including Ford, Jaguar Land Rover, Hyundai, Volvo, Nissan, BMW, Daimler, GM, NIO and Toyota.

Aerospace. The aerospace industry is building new aircraft to serve a growing number of air passengers and to replace older, less efficient planes with newer, more fuel-efficient models. Aluminum offers a high strength-to-weight ratio, energy efficiency, and high tolerance to extreme temperatures, making it an ideal material for the manufacturing of aircraft. According to Oliver Wyman’s Global Fleet & MRO Forecast 2023-2032, aircraft production and delivery will remain strong through the end of the forecast in 2032. Based on management estimates, we believe aerospace aluminum demand will grow at a compound growth rate of 5% between 2023 and 2030. Aluminum demand is expected to be above pre-COVID levels in 2024 based on management estimates. In particular, we believe Novelis and aluminum are well positioned with a large share of supply on single-aisle aircraft, which is the fastest growing aerospace segment and today has a significant backlog. According to Boeing’s Commercial Market Outlook, 76% of aircraft needed over the next 20 years will be single aisle.

 

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Source: Oliver Wyman’s Global Fleet & MRO Forecast 2023-2032

Based on management estimates, we believe Novelis is a leading supplier of aluminum sheet to the aerospace industry. Novelis specializes in the production of aluminum plate and sheet materials for fuselage and wing structure components, and we are qualified at all major aerospace OEMs. Novelis can produce very wide and ultra-thick plates, either heat-treated or non-heat treated. We have also introduced new low-density alloys that translate into better fuel efficiency and lower operating costs for the airline industry. The Aleris acquisition has given us outstanding innovation centers geared specifically toward aerospace solutions in both Koblenz, Germany and Zhenjiang, China. Our Koblenz, Germany plant has been serving the aerospace industry for over 40 years and acted as a technical enabler for the Zhenjiang plant during its ramp-up. Our plant in Zhenjiang allows Novelis to hold the position of being, we believe, the only western aluminum supplier to the aerospace industry with domestic production capabilities in China. We continue to strengthen our relationships with global customers like Airbus, Boeing, Bombardier, and Embraer.

Specialties. Aluminum’s applications are present in many components of our everyday lives. Aluminum is relied on to create sustainable solutions across markets, including building and construction, commercial transportation, foil & packaging, and commercial & consumer products. These industries continue to increase aluminum material adoption due to its many desirable characteristics. This diverse market is poised for growth due to a fundamentally undersupplied U.S. housing market, growing medium-duty van production driven by e-commerce growth, and consumer demands in coffee capsule and container packaging. In this category, we provide a variety of products across various market segments:

 

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Building & Construction. Anodized and pre-painted aluminum designed to meet the exacting requirements of the construction industry, while enabling architects to bring their most innovative and ambitious designs to life in an eco-friendly and cost-effective way. We believe Novelis is a leading supplier of aluminum sheet to the North American building and construction aluminum market.

 

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Signage. Commercial signs, license plates and traffic and road signs.

 

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Foil & Packaging. Containers and lids, trays and complementary accessories, converter foil, bottles, caps & closures, and cartridges.

 

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Commercial Transportation. Mass transportation, such as rail and commercial truck and trailer. We believe Novelis is a leading supplier of aluminum sheet to the commercial transportation industry.

 

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Commercial & Consumer. Durable and attractive finishes on goods ranging from smartphones to appliances.

 

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Our Competitive Strengths

A Leading, High-Value Added, Global Aluminum Solutions Provider and Aluminum Recycler

Novelis is a leading global provider of aluminum solutions for the beverage packaging and automotive markets and holds leading positions in global aerospace and the diverse specialties markets (e.g., building & construction, commercial transportation, foil & packaging, and commercial & consumer products). Our integrated network of 32 production plants strategically located across North America, South America, Europe, and Asia, 14 of which are enabled with recycling capabilities, support approximately 4.2 mt of rolling capacity, which is approximately double the capacity of the next largest producer. We believe our global footprint positions us as the largest flat-rolled products producer and pre- and post-consumer aluminum recycler, driving our industry-leading recycled content levels.

We believe our scale gives us the widest reach and penetration across our end-markets, allowing us to invest in developing unique solutions in collaboration with customers and others in the value chain. We do this through our leading R&D platform, sourcing economies of scale, a reliable and proven supply chain to secure recycled aluminum, attracting and retaining excellent talent and expertise, and being a valued partner to our customers.

We protect our leadership position by striving to deliver best-in-class customer service with high-quality, sustainable, and innovative solutions. Additionally, our strong balance sheet supports strategic investments to accommodate rapidly increasing demand across our product portfolio.

Essential, Long-Standing Partner to Premium Global Manufacturing Corporations

Through strategic partnerships with our global blue-chip customer base, we have innovated and developed industry-leading solutions that are critical to our customers’ needs. Importantly, we also help our customers achieve their announced sustainability goals, which are extremely important to end-consumers. Our expansive recycling network and comprehensive solutions make us the partner of choice for companies pursuing ambitious sustainability goals and developing products for the circular economy. Our sophisticated R&D capabilities and innovation featured in our customer partnerships require meaningful time and investment, resulting in increased customer retention. These collaborative efforts have led to industry-defining breakthroughs in beverage packaging, automotive, and recycling.

We co-design and innovate with our customers through R&D centers on all our operating continents, which are differentiated through superior design capabilities, pilot lines, CSCs for beverage packaging and automotive, and a dedicated group focused on recycling and casting advancements.

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Premier Recycling Footprint Driving Lower CO2 Emissions and Reduced Waste to Landfills

We are at the forefront of the sustainability shift, increasing the average recycled content in our products to approximately 61% across our entire portfolio. We continue to actively invest in and expand our recycling footprint to enhance our leadership position in the circular economy. Our largest end-markets have industry-leading recycled content rates: approximately 82% in beverage packaging, 36% in automotive, and more than 90% in North American building & construction. By investing approximately $800 million in recycling capacity over the past 10 years, we increased our recycling capacity and capabilities and doubled the average amount of recycled aluminum in our products. Utilizing recycled material ensures we have highly sustainable metal inputs for our products and reduces our CO2 footprint and the CO2 footprint of our customers and end-consumers. This is because using recycled aluminum reduces the CO2 footprint by 95% compared to using primary aluminum, due to the avoidance of carbon intensive smelting.

We believe that the most sustainable product lifecycle is one based on a circular recycling process. Aluminum’s circular recycling properties positions us, as compared to producers of other materials, to achieve a circular business model. We partner with customers, suppliers, governments, nonprofits, and communities to reduce the amount of aluminum going into landfills by improving end-of-life recycling rates, especially as it relates to UBCs. We recycled more than 82 billion UBCs in fiscal 2023, and, based on management estimates, anticipate that this number will increase to more than 95 billion once our Bay Minette, Alabama plant is fully operational. We have extensive closed-loop-recycling systems with beverage packaging customers and several automakers. In advance of aluminum-intensive vehicles starting to reach the end of their lifecycle, we are actively developing solutions to increase end-of-life automotive aluminum sheet recycling. We will continue to invest in solutions to meet the growing demand for low CO2 products from our customers, their consumers and the world.

Examples of Our Circular Business Model:

LOGO

Diversified Portfolio Growth Driven by Under-Supplied Markets and Sustainability Trends

We believe our product portfolio is the broadest in the industry and penetrates a wide range of end-markets particularly in the premium, high-value-added space. While current economic conditions, including inflationary cost pressures on consumers and high interest rates, may impact our growth, our broad end-market participation creates a diversified portfolio of sustainable aluminum solutions, which we believe makes our product offering

 

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resilient against periods of macroeconomic volatility. Beverage packaging sheet provides a historically stable revenue stream given the relatively inelastic demand for canned beverages due to customer consumption dynamics. Coupled with our beverage packaging business, we have strong positions in premium end-markets, such as automotive (both ICE and EVs) and aerospace, which both have near-and long-term secular growth trends. Novelis has a diverse customer mix and high share of luxury vehicles and classes of vehicles that are less impacted by market downturns and that are experiencing higher growth. Commercial aerospace companies have multi-year backorders fueled by increasing air-passenger traffic and a need for new aircraft to modernize their fleets. Our specialties end-markets are diverse and cover a wide range of industries from building and construction, signage, foil and packaging, commercial transportation and commercial and consumer products, among others. The U.S. building and construction market is structurally undersupplied and has a favorable long-term demand outlook.

Since inception, we have invested to match the growth of our end-markets and needs of our customers. All our end-markets are forecasted to continue to grow, propelled mainly by the secular shift in consumer demand for sustainable materials like virtually infinitely recyclable, lightweight aluminum. The global FRP aluminum market has grown more than 70% in the past 15 years and is forecasted to grow at a healthy 4% compounded annual growth rate between 2023 and 2028, according to CRU.

Our largest end-market, beverage packaging, is structurally under-supplied today in key geographies, including North America and Europe. North America has been a net importer of beverage packaging sheet since at least 2015, leading to a supply shortfall of approximately 650 kt in 2022, per CRU. At the same time, our customers have announced and begun implementing significant capacity expansions. Ball, Crown, and Ardagh Metal Packaging have announced new beverage packaging manufacturing expansion investments in North America in light of consumption trends. Considering geo-political instability, supply chain disruptions, long lead times, quality concerns, and the higher carbon footprint of imports, beverage packaging makers prefer domestic supply, which supports our investment in Bay Minette, Alabama. We have materially contracted or committed our beverage packaging capacity that will be available in North America through the ramp-up of operations of our Bay Minette, Alabama plant, including with decades-long customer partners such as Ball Corporation and Coca-Cola, underscoring the strong demand for high-recycled-content beverage packaging sheet.

Proven Track Record of Portfolio Reinvention, Recycling Investments, and Operational Excellence

We continue to drive operational efficiencies in our inorganic and organic capacity expansions, enabled by broad operational excellence, and digital and advanced analytics initiatives. We believe these efficiencies, along with shifting our portfolio to premium applications and making investments in recycling, contribute to industry-leading shipments, financial performance, and margins as our net income expanded to $657 million, or $173 per tonne, and our Adjusted EBITDA per tonne expanded to $478 in fiscal 2023, from a net loss of $38 million and Adjusted EBITDA per tonne of $308 in fiscal 2016, enabled by broad operational excellence and our digital/advanced analytics teams.

Our acquisition of Aleris in 2020 further underscores our ability to identify and successfully integrate inorganic capacity, enhance our sustainability efforts, expand our product portfolio with additional high-value solutions, and achieve above expected cost synergies.

 

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Net Income per Tonne(1)

 

LOGO

 

(1)

Net income per tonne is calculated by dividing net income by rolled product shipments (in tonnes) for the corresponding period. Net income for certain years presented in the chart above includes charges and expenses that management believes are not part of normal day-to-day operations of our business.

(2)

Not meaningful because we had a net loss of $38 million for fiscal 2016, or $(12) per tonne.

Adjusted EBITDA per Tonne(1)

 

LOGO

 

(1)

Adjusted EBITDA per tonne reported for the Company on a consolidated basis is a non-U.S. GAAP financial measure. Adjusted EBITDA per tonne is calculated by dividing Adjusted EBITDA by rolled product shipments (in tonnes) for the corresponding period. For a reconciliation of net income to Adjusted EBITDA, see “—Summary Historical Condensed Consolidated Financial Information.” See also “Non-U.S. GAAP Financial Measures” and “Presentation of Shipment Information” for more information.

Attractive Financial Profile with Sustainable Margins and Cash Flow Generation

We have a proven history of attractive and highly profitable growth due to disciplined capital deployment, strategic vision, and a steady, experienced leadership team. Between fiscal 2012 and fiscal 2023, we invested approximately $3.2 billion in strategic growth capex and an additional $2.8 billion on the Aleris acquisition, which was completed in 2020, in order to expand rolling and recycling capacity, and significantly expand automotive finishing sheet production.

 

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Overall, we believe our first mover advantage in responsible capacity expansion, operational expertise, R&D investment, and the successful acquisition and integration of Aleris have allowed us to diversify and optimize our portfolio and has led to:

 

  •  

Net income growth, demonstrated by net income of $657 million in fiscal 2023, or $173 per tonne, compared to a net loss of $38 million in fiscal 2016, or $(12) per tonne.

 

  •  

Flat-rolled products shipments growth from 3,123 kt in fiscal 2016 to 3,790 kt in fiscal 2023.

 

  •  

Adjusted EBITDA growth from $963 million in fiscal 2016, to $1,811 million in fiscal 2023.

 

  •  

Consistent Adjusted EBITDA per tonne expansion from $308 per tonne in fiscal 2016 to $478 per tonne in fiscal 2023.

 

  •  

Robust net cash provided by operating activities and Adjusted Free Cash Flow generation of $6.9 billion and $3.4 billion, respectively, on a cumulative basis since fiscal 2016, including $1.2 billion and $431 million in fiscal 2023, respectively. Our robust operating cash flow generation enables us to allocate capital to the highest return uses, which could include internally funding capital projects and R&D, retaining a strong and flexible balance sheet, and distributing capital to shareholders.

 

  •  

While funding growth through organic and inorganic initiatives, we reduced financial leverage (which represents the ratio of our total debt less cash and cash equivalents to our Adjusted EBITDA for the trailing twelve-month period) from 4.7x as of March 31, 2016, to 2.3x as of March 31, 2023.

Experienced, Stable Management Team with Proven Track Record, Backed by Best-In-Class Global Corporation

Our strong, stable management team has significant experience across the aluminum industry and all relevant end-markets. Our executive officers have served in meaningful leadership positions in diverse industries, as well as in the aluminum industry, with many of them serving for 15 years or more at Novelis. The average tenure at Novelis across our executive officer team is 16 years. The leadership at Novelis has a proven track record of executing through a significant period of transformation. Combined with the strategic, financial, and leadership support of the Aditya Birla Group, we have increased profitability, capacity, and recycled content, propelling Novelis to be the global market leader in aluminum solutions. Our historical track record and experience in successfully executing growth projects provides us with the expertise to identify, build, and execute on our future growth initiatives.

Our Strategy

Drive Growth by Capitalizing on Customer Partnerships to Advance the Adoption of Aluminum.

As a virtually infinitely recyclable material, the demand for aluminum is growing rapidly in response to consumer preference for more sustainable products.

 

  •  

Support secular shift toward aluminum as the sustainable material of choice. All our end-markets benefit from megatrends that offer tailwinds for growth. Consumer preference for sustainable products is driving a secular shift toward virtually infinitely recyclable and lightweight aluminum, particularly in the beverage packaging and automotive industries. We expect the material substitution trends from plastic, steel and glass to recycled aluminum to persist across our key geographies.

 

  •  

Grow beverage packaging and automotive capacity alongside customer demand. Building on decades-long customer partnerships and innovation capabilities, we are strategically positioned to foster and

 

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invest in advance of customer needs. With a strong balance sheet, we believe Novelis is well-positioned to be the first mover in our industry, investing to meet demand when the time is right. We employ advanced modeling to optimize timing, sequencing, and sizing of expansion projects so that we align our rolling and recycling capacity additions with validated commercial demand outlooks driven by market supply-demand balance scenarios. We have identified significant capacity expansion opportunities that support our customer growth plans, of which the largest is an announced approximately 600 kt, $4.1 billion expansion in Bay Minette, Alabama to create a state-of-the-art, fully integrated rolling and recycling mill that will primarily serve the growing beverage packaging and automotive markets. Projects like this will enable us to scale our capacity in our effort to match increased customer demand.

 

  •  

Capture above market growth in automotive based on OEM desire to lightweight. Aluminum is an attractive material for OEMs to increase performance through lightweighting of both ICE and EVs. In addition, the adoption of EVs correlates with higher aluminum content because, according to Ducker Carlisle, EVs average more aluminum content per vehicle compared to ICE vehicles. We believe we are in the leading position to meet this demand due to our extensive geographic footprint and innovation capabilities, including engagement with OEMs on future battery designs.

 

  •  

Strong demand for premium aerospace aluminum. A growing middle class in developing markets and a need to modernize fleets and build more sustainable aircraft in developed markets is driving OEM build rates in single-aisle aircraft, which favor aluminum. In addition, Airbus’ and Boeing’s multi-year production backlogs provide confidence in the market outlook.

We believe our track record of well-timed first mover investments and culture of operational excellence enable rolling and recycling efficiencies to promote the adoption of aluminum across all of our end-markets.

Build on Existing Sustainability Leadership to Grow Recycling in Beverage Packaging and Automotive.

We have set an ambition to be the world’s leading provider of low-carbon, sustainable aluminum solutions that advance our business, industry, and society toward the benefits of a circular economy.

To enable the below activities, we actively invest in facilities and technologies to increase our use of recycled material, which has a significantly lower carbon footprint than primary aluminum. According to the Aluminum Association, recycled aluminum’s carbon footprint is 95% less intensive than that of primary aluminum. While we are already an industry leader in aluminum recycling, with a recycled content rate of 61% in fiscal 2023, we are actively developing new alloys that accept higher amounts of recycled material. Our strategic actions today are essential for the achievement of our target of an average of 75% recycled content across our product portfolio, which we aim to reach by 2035.

 

  •  

Expand our recycling footprint for carbon reduction. We have announced projects to further grow our recycling capacity and capability. This includes two new recycling centers in the U.S. and South Korea. We began construction of the new recycling centers in Guthrie, Kentucky, and at our joint venture in Ulsan, South Korea, in early 2022. Combined, these two projects are expected to reduce our carbon emissions by nearly 1.5 million tonnes annually. Because increasing our use of recycled material is our biggest lever for reducing our carbon footprint, we will continue to pursue further investments to add recycling capacity. We believe we hold a competitive advantage in recycling through a robust and diverse supplier network, leading recycling efficiencies, and best in-class technology. Beyond recycling, we constantly seek ways to reduce carbon across our supply chain, such as utilizing rail transportation and clean energy sources.

 

  •  

Implement closed-loop-recycling partnerships with customers in beverage packaging and automotive. Closed-loop-recycling partnerships are contractual relationships with customers where the customer

 

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returns their production scrap to Novelis. These partnerships enable us to keep aluminum in the loop and maximize the metal’s contribution in the circular economy by preserving the integrity of the alloy and ensuring it is not downgraded into a less valuable form. Currently, we have programs in place with all our leading beverage packaging customers, as well as our largest automotive customers, and we are actively working to implement closed-loop-recycling programs with others.

 

  •  

Capture aluminum from vehicles at the end-of-life. We are actively working to develop advanced sorting and separation technologies to capture more aluminum from vehicles at the end of their useful life. We have recently completed an investment in a technology company that uses advanced AI and optical technology to sort aluminum alloys, enabling more pre-consumer closed-loop and end-of-life aluminum recycling. End-of-life automotive is an untapped market, as today the different forms of aluminum in a vehicle are not separated and our products end up being downgraded into lower value uses, such as castings for engine blocks.

 

  •  

Increase consumer recycling rates across key geographies. To increase recycling rates, we are collaborating with customers, industry associations, nonprofits, governments, and communities to improve recycling rates. We see significant opportunity for UBCs in particular, given the low recycling rates across select geographies, such as the U.S.’s 45% recycling rate.

Lead Through Innovative Customer Collaborations & Operational Excellence.

Our R&D assets and activities not only distinguish us, but also keep us at the forefront of innovation, making Novelis the partner of choice for our customers.

 

  •  

Continued innovation across product markets. We invest in R&D to continue to develop aluminum alloy solutions to continue to increase our use of recycled content, raise the adoption rates of aluminum, and solve customer challenges. We take a diverse approach to innovation through partnering with customers, suppliers, universities, non-governmental organizations, start-ups, and industry associations to complement our in-house innovation capabilities. This is evident through an innovation-focused, non-profit consortium called Alumobility that Novelis co-founded.

 

  •  

Partner with customers to accelerate innovation. Through our robust global network of automotive CSCs located in Detroit, Michigan, Stuttgart, Germany and Shanghai, China, we have collaborated with customers and other players in the automotive value chain to accelerate the adoption of sustainable, lightweight, high-strength aluminum for the next generation of vehicles. We have recently established a CSC for beverage packaging in Brazil, which complements our can-making pilot line at our beverage packaging CSC in Kennesaw, Georgia.

 

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Our Innovation Centers

 

LOGO

 

  •  

Push the boundaries on operational excellence. Innovation also plays a key role in how we operate our facilities and maintain a lower cost structure. Our internal team of data analytics and machine learning experts execute projects in conjunction with our plants to improve productivity, throughput, efficiency and product quality, reduce the time to market for innovations, and drive cost savings. We also apply our expertise in this area to our customers’ operations, as we aim to make it easier and more cost-effective for them to use our aluminum. Finally, through our “Plant of the Future” model, we will further utilize digital technologies, AI, and robotics in new and existing plants.

Corporate Information; Reorganization

We are a Canadian corporation, formed on September 21, 2004. On May 15, 2007, we were acquired by Hindalco Industries Limited, and became a direct and wholly owned subsidiary of AV Metals, Inc., a wholly owned subsidiary of Hindalco. Prior to giving effect to this offering, all of the outstanding shares of Novelis are owned by AV Minerals (Netherlands) N.V., a wholly owned subsidiary of Hindalco.

On September 1, 2022, Novelis Inc. and AV Metals, Inc. (which, prior to such date, was our sole shareholder and a wholly owned subsidiary of AV Minerals (Netherlands) N.V.) completed a plan of arrangement, pursuant to which AV Metals Inc. merged with and into Novelis Inc., with Novelis Inc. surviving the merger. Following the effectiveness of the plan of arrangement, we are a direct, wholly owned subsidiary of AV Minerals (Netherlands) N.V.

The following chart is a summary of our organizational structure as of the date of this prospectus, prior to giving effect to the sale of any shares offered hereby.

 

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LOGO

 

  *

NSE-listed (India)

  **

Issuer

Our principal executive offices are located at 3550 Peachtree Road NE, Suite 1100, Atlanta, GA 30326 and our telephone number at that address is (404) 760-4000. Our internet address is www.novelis.com. Please note that any references to www.novelis.com in this prospectus are inactive references only and that our website, and the information contained on, or accessible through, our website is not part of nor incorporated into this prospectus.

Our Shareholder

We are indirectly owned by Hindalco, through its wholly owned subsidiary AV Minerals (Netherlands) N.V. Hindalco is an industry leader in aluminum and copper and is the metals flagship company of the Aditya Birla Group, a multinational conglomerate based in Mumbai, India. Immediately prior to this offering, Hindalco beneficially owned 100% of our outstanding common shares, and will beneficially own approximately % of our common shares immediately following consummation of this offering, assuming no exercise of the underwriters’ option to purchase additional common shares. We currently expect that, following this offering,    of the nine members of our board of directors will be employees or affiliates of Hindalco. Accordingly, Hindalco will be able to influence fundamental and significant corporate matters and transactions, and the interests of Hindalco may supersede ours, causing it or its affiliates to compete against us or to pursue opportunities which would otherwise be available to us, for which we will have no recourse. We also expect to be a “controlled company” under NYSE corporate governance standards and to take advantage of certain corporate governance exceptions related thereto. See “Risk Factors—Risks Related to this Offering and Ownership of our Common Shares.”

Risk Factors

Our business is subject to a number of risks and uncertainties, as more fully described under “Risk Factors” in this prospectus. These risks could materially and adversely impact our business, financial condition, results of

 

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operations and future prospects, which could cause the trading price of our common shares to decline and could result in a loss of your investment. Some of these risks include:

 

  •  

while we have long-standing strategic partnerships with global corporations and other customers, certain of our customers are significant to our revenues, and we could be adversely affected by disruptions or changes in the business or financial condition of these significant customers or by the loss of their business or reduction in their requirements;

 

  •  

we face significant price and other forms of competition from other aluminum rolled products producers and potential new market entrants, which may adversely impact our competitive positions in our end-markets and our financial profile;

 

  •  

while we have a diversified product portfolio across various end-markets, our end-markets are highly competitive and customers may be willing to accept substitutes for our products, including steel, plastics, composite materials, and glass, and such willingness could adversely affect the demand for certain of our products and our results of operations;

 

  •  

we may not realize the anticipated benefits of strategic investments;

 

  •  

our business has been, and may in the future be, adversely affected by increases in the cost or volatility in the availability of primary aluminum, scrap aluminum, sheet ingot, or other raw materials used in the production of our products;

 

  •  

our operations are energy-intensive, and our profitability and cash flows may decline if energy costs were to rise, or if our energy supplies were disrupted;

 

  •  

downturns in the automotive and ground transportation industries or changes in consumer demand could adversely affect our business;

 

  •  

we could be adversely affected by unplanned disruptions at operating facilities;

 

  •  

the impact of labor disputes and strikes on our customers could have material adverse effects on our business and financial results;

 

  •  

loss of our key management and other personnel, or an inability to attract and retain such management and other personnel, could adversely impact our business;

 

  •  

we are currently operating in a period of economic uncertainty, capital markets disruption, and supply chain interruptions, which have been significantly impacted by geopolitical instability due to the ongoing military conflict between Russia and Ukraine, attacks on shipping vessels in the Red Sea, and the ongoing conflicts in the Gaza Strip and the surrounding region. Our business may be materially adversely affected by any negative impact on the global economy, capital markets, or supply chain resulting from these conflicts or any other geopolitical tensions, or otherwise.

 

  •  

our results and short-term liquidity can be negatively impacted by timing differences between the prices we pay under purchase contracts and metal prices we charge our customers;

 

  •  

as a foreign private issuer, we are subject to different U.S. securities laws and rules than a domestic U.S. issuer, which may limit the information publicly available to our shareholders;

 

  •  

we will be a “controlled company” within the meaning of the rules of the NYSE and will therefore qualify for, and intend to rely on, exemptions from certain corporate governance requirements. You will therefore not have the same protections afforded to shareholders of companies that are subject to such requirements; and

 

  •  

following the completion of this offering, Hindalco will control a majority of the voting power of our common shares, which will prevent you and other shareholders from influencing significant decisions.

 

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As a result of these risks and other risks described under “Risk Factors,” there is no guarantee that we will be able to successfully execute our business strategy or experience growth or profitability in the future or that our common shares will trade at or above the initial public offering price.

 

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The Offering

 

Issuer

Novelis Inc.

 

Selling shareholder

AV Minerals (Netherlands) N.V., a wholly owned subsidiary of Hindalco.

 

Common shares offered by the selling shareholder

   shares.

 

Public offering price

$   per common share, which is the mid-point of the price range set forth on the cover page of this prospectus.

 

Voting rights

The common shares will be entitled to one vote per share.

 

Option to purchase additional common shares

The selling shareholder has granted the underwriters an option, exercisable within 30 days from and including the date of closing of the offering, to purchase up to an additional    common shares to cover over-allotments, if any, in connection with this offering.

 

Listing

We intend to apply to list our common shares on the New York Stock Exchange under the symbol “NVL.”

 

Common shares outstanding immediately after this offering

    shares.

 

Use of proceeds

We will not receive any of the net proceeds from the sale of common shares by the selling shareholder in this offering. Please see “Use of Proceeds” and “Principal and Selling Shareholder.”

 

Dividend policy

We currently intend to pay quarterly dividends of approximately $    , distributed to our shareholders on a pro-rata basis. Payments to our shareholders are at the discretion of our board of directors. Any such payments depend on, among other things, our financial resources, cash flows generated by our business, our cash requirements, restrictions under the instruments and agreements governing our indebtedness, and other relevant factors. Please see “Dividend Policy” for additional information.

 

Lock-up agreements

We have agreed with the underwriters, subject to certain exceptions, not to offer, sell, or dispose of any shares of our share capital or securities convertible into or exchangeable or exercisable for any shares of our share capital during the 180-day period following the date of this prospectus. Members of our board of directors and our executive officers, Hindalco and the selling shareholder have agreed to substantially similar lock-up provisions, subject to certain exceptions. See “Underwriting.”

 

Risk factors

You should carefully read the section entitled “Risk Factors” and other information included in this prospectus for a discussion of factors that you should consider before deciding to invest in our common shares.

 

Controlled company exemption

Immediately following the completion of this offering, Hindalco will own   % of the voting power of our outstanding common shares.

 

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Accordingly, we will be considered a “controlled company” under the NYSE rules. Under these rules, a “controlled company” may elect not to comply with certain corporate governance requirements. We intend to take advantage of certain of these exemptions following the completion of this offering. See “Management—Director Independence and Controlled Company Exception.”

 

  Accordingly, we will be exempt from certain rules that would otherwise require that our board of directors consist of a majority of independent directors and that our Compensation Committee and Nominating and Corporate Governance Committee be composed entirely of independent directors. The “controlled company” exemption does not modify the independence requirements for the Audit Committee, and we intend to comply with the requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and the listing rules of the NYSE, provided that we intend to avail ourselves of an exemption available to foreign-private issuers to allow one non-independent, non-voting observer to serve on the committee. See “Management—Director Independence and Controlled Company Exception.”

Except as otherwise indicated, all information in this prospectus, including information regarding the number of common shares outstanding:

 

  •  

assumes an initial public offering price of $    per share (the midpoint of the price range set forth on the front cover of this prospectus);

 

  •  

assumes the underwriters’ option to purchase     additional common shares has not been exercised; and

 

  •  

other than with respect to share and per share information in our historical financial results, reflects a   -for-1 forward share split to occur immediately prior to the closing of this offering (the “share split”).

 

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Summary Historical Condensed Consolidated Financial Information

The following table presents our summary historical consolidated financial data as of December 31, 2023, March 31, 2023 and March 31, 2022, and for the nine months ended December 31, 2023 and 2022 and for the fiscal years ended March 31, 2023, 2022 and 2021. The summary historical consolidated financial data as of March 31, 2023 and 2022, and for the fiscal years ended March 31, 2023, 2022 and 2021, has been derived from our audited annual consolidated financial statements and accompanying notes included elsewhere in this prospectus. The summary historical consolidated financial data as of December 31, 2023 and for the nine months ended December 31, 2023 and 2022 has been derived from our unaudited interim condensed consolidated financial statements and accompanying notes included elsewhere in this prospectus. The results for the nine months ended December 31, 2023 are not necessarily indicative of the results for the fiscal year ending March 31, 2024, or for any future period. On April 14, 2020, we acquired Aleris. The financial results of Aleris are not reflected in our historical results for the periods prior to that date.

The information set forth below is only a summary. You should read the following information together with our audited annual consolidated financial statements and the accompanying notes thereto, our unaudited interim condensed consolidated financial statements included elsewhere in this prospectus and accompanying notes thereto, and the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus.

Our historical consolidated financial information may not be indicative of the future performance or financial condition of Novelis Inc. as a standalone public company. For more information, see “Where You Can Find More Information.”

 

    Nine Months Ended
December 31,
    Year Ended
March 31,
 
     2023       2022       2023       2022       2021   
Statement of Operations Data:   (in millions)  

Net Sales

  $  12,133     $  14,089     $  18,486     $  17,419     $  12,276  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost of goods sold (exclusive of depreciation and amortization)

    10,287       12,199       15,996       14,354       9,980  

Selling, general and administrative expenses

    545       509       679       631       551  

Depreciation and amortization

    406       405       540       550       543  

Interest expense and amortization of debt issuance costs

    228       198       274       227       267  

Research and development expenses

    72       69       95       92       83  

Loss on extinguishment of debt, net

    5       —       —       64       14  

Restructuring and impairment expenses, net

    33       7       33       1       29  

Equity in net income of non-consolidated affiliates

    (1     (14     (16     (8     (1

Business acquisition and other integration related costs

    —       —       —       —       11  

Other (income) expenses, net

    (35     67       79       (61     103  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    11,540       13,440     $ 17,680     $ 15,850     $ 11,580  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations before income tax provision

    593       649       806       1,299       696  

Income tax provision

    159       146       147       281       238  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income from continuing operations

    434       503       659       1,018       458  

Loss from discontinued operations, net of tax

    —       (2     (2     (63     (51

Loss on sale of discontinued operations, net of tax

    —       —       —       —       (170
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss from discontinued operations

    —       (2     (2     (63     (221
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

    434       501       657       955       237  

Net income attributable to noncontrolling interests

    —       (1     (1     1       1  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to our common shareholder

  $ 434     $ 502     $ 658     $ 954     $ 236  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents
Index to Financial Statements

Confidential Treatment Requested by Novelis Inc.

Pursuant to 17 C.F.R. Section 200.83

 

     Nine Months Ended
December 31,
    Year Ended
March 31,
 
      2023       2022       2023       2022       2021   
Statement of Cash Flows Data:    (in millions)
 

Net cash provided by operating activities – continuing operations

   $ 420     $ 321     $ 1,220     $ 1,132     $ 1,209  

Net cash used in investing activities – continuing operations

     (935     (478     (775     (473     (3,079

Net cash provided by (used in) financing activities – continuing operations

     (189     263       24       (615     182  

Effect of exchange rate changes on cash

     (6 )       (39     (30     2       40  

 

     As of
December 31,

2023
     As of
March 31,
 
     2023      2022  
Balance Sheet Data (at period end):(1)    (in millions)  

Cash and cash equivalents

   $ 787      $ 1,498      $ 1,070  
  

 

 

    

 

 

    

 

 

 

Total assets

     14,331        14,364        15,096  

Long-term debt (including current portion)

     4,914        4,969        4,993  

Short-term borrowing

     552        671        529  

Shareholder’s equity of our common shareholder

     3,875        3,442        2,502  

 

(1)

On August 1, 2023, our board of directors approved a return of capital to our common shareholder of up to $100 million, expected to be paid during fiscal 2024. The timing and the final amount of the return of capital is subject to change based upon final shareholder approval and, as such, has not been recognized in our financial statements as of December 31, 2023.

     Nine Months Ended
December 31,
    Year Ended
March 31,
 
      2023       2022       2023        2022        2021   
Other Financial and Operating Data:    (in millions, except per tonne information)
 

Total Rolled Products Shipments (in kt)

     2,722       2,854       3,790        3,858        3,613  
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

EBITDA(1)

   $ 1,210     $ 1,236     $ 1,598      $ 2,004      $ 1,276  
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Adjusted EBITDA(1)

     1,359       1,408       1,811        2,045        1,714  

Adjusted EBITDA per tonne(2)

     499       493       478        530        474  

Capital Expenditures

     960       462       786        446        485  

Adjusted Free Cash Flow(3)

     (517     (170     431        660        612  

 

(1)

EBITDA and Adjusted EBITDA are non-U.S. GAAP financial measures. For additional information regarding our use of EBITDA and Adjusted EBITDA and limitations on their usefulness as analytical tools, see “Non-U.S. GAAP Financial Measures.”

(2)

Adjusted EBITDA per tonne reported for the Company on a consolidated basis is non-U.S. GAAP financial measure. Adjusted EBITDA per tonne is calculated by dividing Adjusted EBITDA by rolled product shipments (in tonnes) for the corresponding period. See “Non-U.S. GAAP Financial Measures” and “Presentation of Shipment Information” for more information.

(3)

Adjusted Free Cash Flow is a non-U.S. GAAP financial measure. For additional information regarding our use of Adjusted Free Cash Flow and limitations on its usefulness as an analytical tool, see “Non-U.S. GAAP Financial Measures.”

 

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Table of Contents
Index to Financial Statements

Confidential Treatment Requested by Novelis Inc.

Pursuant to 17 C.F.R. Section 200.83

 

The following tables reconcile Net income (loss) attributable to our common shareholder to EBITDA and Adjusted EBITDA for the periods presented:

 

     Nine Months Ended
December 31,
    Year Ended
March 31,
 
     2023     2022     2023     2022     2021  
     (in millions)
 

Net income attributable to our common shareholder

   $  434     $ 502     $ 658     $ 954     $ 236  

Net income attributable to noncontrolling interests

     —       (1     (1     1       1  

Income tax provision

     159       146       147       281       238  

Interest, net

     211       184       254       218       258  

Depreciation and amortization

     406       405       540       550       543  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

   $ 1,210     $  1,236     $  1,598     $  2,004     $  1,276  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjustment to reconcile proportional consolidation(A)

     33       40       53       56       56  

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

     4       (20     (23     28       11  

Realized gains (loss) on derivate instruments not included in Adjusted EBITDA(B)

     (4     (3     (4     (2     1  

Loss on extinguishment of debt, net

     5       —       —       64       14  

Restructuring and impairment expenses, net(C)

     33       7       33       1       29  

Gain on sale of business(D)

     —       —       —       (15     —  

Loss on sale or disposal of assets, net

     4       1       1       8       1  

Loss from discontinued operations, net of tax(E)

     —       2       2       63       51  

Metal price lag(F)

     62       130       130       (166     6  

Purchase accounting adjustments(G)

     —       —       —       —       29  

Loss on sale of discontinued operations, net of tax

     —       —       —       —       170  

Business acquisition and other integration related costs(H)

     —       —       —       —       11  

Other, net(I)

     12       15       21       4       59  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $  1,359     $  1,408     $  1,811     $  2,045     $  1,714  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

     Year Ended
March 31,
 
     2020     2019     2018     2017     2016  
     (in millions)
 

Net income attributable to our common shareholder

   $ 420       434     $ 635     $ 45     $ (38

Net income attributable to noncontrolling interests

     —       —       (13     1       —  

Income tax provision

     178       202       233       151       46  

Interest, net

     234       258       246       283       314  

Depreciation and amortization

     361       350       354       360       353  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

   $  1,193     $ 1,244     $ 1,455     $  840     $ 675  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjustment to reconcile proportional consolidation(A)

     57       58       51       28       30  

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

     (4     10       (20     (5     4  

Realized gains (loss) on derivate instruments not included in Adjusted EBITDA(B)

     —       (2     —       (5     1  

Loss on extinguishment of debt, net

     71       —       —       134       13  

Restructuring and impairment expenses, net(C)

     43       2       34       10       48  

Gain (loss) on sale of business(D)

     —       —       (318     27       —  

Loss on sale of assets, net

     1       6       7       6       4  

Loss from discontinued operations, net of tax(E)

     —       —       —       —       —  

Metal price lag(F)

     38       4       (4     31       172  

Purchase accounting adjustments(G)

     —       —       —       —       —  

Loss on sale of discontinued operations, net of tax

     —       —       —       —       —  

Business acquisition and other integration related costs(H)

     63       33       —       —       —  

Other, net(I)

     10       13       10       19       16  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $  1,472     $  1,368     $  1,215     $  1,085     $  963  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents
Index to Financial Statements

Confidential Treatment Requested by Novelis Inc.

Pursuant to 17 C.F.R. Section 200.83

 

 

  (A)

Adjustment to reconcile proportional consolidation relates to depreciation, amortization, and income taxes of our equity method investments. Income taxes related to our equity method investments are reflected in the carrying value of the investment and not in our consolidated income tax provision.

  (B)

Realized gains (loss) on derivative instruments not included in Adjusted EBITDA represents foreign currency derivatives not related to operations.

  (C)

Restructuring and impairment, net for fiscal 2020 primarily relates to the closure of certain non-core operations in Europe, impairment charges on intangible software assets and certain long-lived assets unrelated to restructuring activities in North America and Asia, and the closure of smelter facilities in South America. Restructuring and impairment, net for fiscal 2021 primarily relates to the reorganization and right sizing of the acquired Aleris business. Restructuring and impairment expense, net for fiscal 2022 primarily related to reorganization activities resulting from the Aleris acquisition, mostly offset by a partial release of certain restructuring liabilities as a result of changes in estimated costs. Restructuring and impairment expense, net for fiscal 2023 primarily relates to reorganization activities resulting from the closure of certain outdated processes at our Richmond plant in North America. Restructuring and impairment expense, net for the nine months ended December 31, 2023 relates to a $24 million charge for restructuring activities related to the closure of the Clayton plant in North America and other expenses for impairment of assets held of sale, environmental reserves, and restructuring reserves. Restructuring and impairment expense, net for the nine months ended December 31, 2022 primarily relates to various expenses for environmental and restructuring reserves.

  (D)

In September 2017, Novelis Korea Ltd., a subsidiary of Novelis Inc., sold a portion of its shares in Ulsan Aluminum, Ltd. (UAL) for $314 million, which resulted in a gain on sale of investments.

  (E)

Discontinued operations result from Aleris’ North American and European operations, including the automotive assets of the Duffel plant, located in Duffel, Belgium (“Duffel”) and the Lewisport plant, located in Lewisport, Kentucky (“Lewisport”), which we were required to divest as part of the antitrust review processes in the European Union and the U.S., respectively. The Lewisport divestiture was completed on November 30, 2020. The Duffel sale was completed on September 30, 2020, with a €100 million ($117 million as of September 30, 2020) receivable that was deemed to be contingent consideration subject to the results of a binding arbitration proceeding. The Company reached a settlement with relation to the contingent consideration with the Duffel’s current owner, American Industrial Partners Capital Fund VII, L.P., as a result of which the arbitration was dismissed in January 2023. The settlement did not have a material impact on the Company’s consolidated statement of operations. See Note 3 – Discontinued Operations to our audited annual consolidated financial statements included elsewhere in this prospectus for more information.

  (F)

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. We adjust for the impact of metal price lag because we use derivative instruments to directly hedge against the economic risk of metal price lag. A favorable net metal price lag impact results from increases in base aluminum prices and LMPs between our purchases of aluminum from suppliers and the delivery of finished product to customers during the year, while an unfavorable net metal price lag impact is a result of falling base aluminum prices and LMPs.

  (G)

Purchase price accounting adjustments for fiscal 2021 primarily relates to the relief of the inventory step-up related to the acquired Aleris business.

  (H)

Business acquisition and other related costs are primarily legal and professional fees associated with our acquisition of Aleris.

  (I)

For the nine months ended December 31, 2023 and 2022 and for fiscal 2023, other, net, consists primarily of interest income. For fiscal 2022, other, net includes $36 million of interest income recognized as a result of Brazilian tax litigation settlements and interest income, partially offset by $18 million from the release of certain outstanding receivables. For fiscal 2021, other, net primarily relates to a charitable contribution for COVID-19 relief as well as interest income.

 

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Table of Contents
Index to Financial Statements

Confidential Treatment Requested by Novelis Inc.

Pursuant to 17 C.F.R. Section 200.83

 

The following tables reconcile Net cash provided by (used in) operating activities – continuing operations to Adjusted Free Cash Flow for the periods presented:

 

     Nine Months Ended
December 31,
    Year Ended
March 31,
 
     2023     2022     2023     2022     2021  
     (in millions)
 

Net cash provided by operating activities – continuing operations

   $  420     $  321     $  1,220     $  1,132     $  1,209  

Net cash used in investing activities – continuing operations

     (935     (478     (775     (473     (3,079

Plus: Cash used in the acquisition of business and other investments, net of cash(A)

     —       4       7       —       2,614  

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

     (2     (5     (9     (10     (4
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted free cash flow from continuing operations

     (517 )       (158     443       649       740  

Net cash provided by (used in) operating activities – discontinued operations

     —       (12     (12     11       (82

Net cash provided by investing activities – discontinued operations

     —       —       —       —       357  

Less: Proceeds from sales of assets and business, net of transaction fees, cash income taxes and hedging discontinued operations(B)

     —       —       —       —       (403
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted Free Cash Flow

   $ (517   $ (170   $ 431     $ 660     $ 612  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

  (A)

For fiscal 2021, the total of acquisition of business and other investments, net of cash represents $2.8 billion of merger consideration plus $4 million related to the translation adjustment of the €55 million capital improvement investment for Duffel upon payout, net of $105 million of cash and cash equivalents, $41 million of discontinued operations cash and cash equivalents acquired, $9 million of restricted cash, and $9 million in contingent consideration paid in the acquisition of business. For fiscal 2023 and for the nine months ended December 31, 2022, the total of acquisition of business, net of cash and restricted cash acquired represents immaterial equity investments in entities that we do not control.

  (B)

Proceeds from the sales of assets and business, net of transaction fees, cash income taxes and hedging—discontinued operations represents the proceeds from the sale of Duffel, net of cash sold of $23 million and the proceeds from the sale of Lewisport.

 

     Year Ended
March 31,
 
     2020     2019     2018     2017     2016  
     (in millions)
 

Net cash provided by operating activities

   $ 973     $ 730     $ 573     $ 563     $ 541  

Net cash (used in) provided by investing activities

     (586     (559     96       (200     (378

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

     —       239       —       —       —  

Less: Proceeds from sales of assets and business, net of transactions fees, cash income taxes and hedging(B)

     (3     (2     (263     (2     (3
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted Free Cash Flow

   $  384     $  408     $  406     $  361     $  160  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

  (A)

This line item includes $239 million of outflows related to the acquisition of operating assets that we historically leased at our Sierre, Switzerland rolling facility during the year ended March 31, 2019. The impact is recognized as “Acquisition of assets under a capital lease.”

 

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Index to Financial Statements

Confidential Treatment Requested by Novelis Inc.

Pursuant to 17 C.F.R. Section 200.83

 

  (B)

This line item includes the proceeds from the sale of shares in Ulsan Aluminum Ltd., to Kobe Steel Ltd. during the year ended March 31, 2018 in the amount of $314 million, net of $42 million and $11 million, in cash taxes and transaction fees paid, respectively. This line item also includes “Outflows from the sale of a business, net of transaction fees” which is comprised of cash of $13 million held by ALCOM, which was a consolidated entity sold during fiscal 2017.

 

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Table of Contents
Index to Financial Statements

Confidential Treatment Requested by Novelis Inc.

Pursuant to 17 C.F.R. Section 200.83

 

LOGO

 


Table of Contents
Index to Financial Statements

Confidential Treatment Requested by Novelis Inc.

Pursuant to 17 C.F.R. Section 200.83

 

RISK FACTORS

This offering and investing in our common shares involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all of the other information contained in this prospectus, before deciding to invest in our common shares. Other risks and uncertainties that we do not presently consider to be material, or of which we are not presently aware, may become important factors that affect our future financial condition and results of operations. If any of the following risks actually occur, our business, financial condition, results of operations, liquidity and prospects could suffer materially, the trading price of our common shares could decline and you could lose all or part of your investment. See also “Special Note Regarding Forward-Looking Statements.”

Competitive and Strategic Risks

While we have long-standing strategic partnerships with global corporations and other customers, certain of our customers are significant to our revenues, and we could be adversely affected by disruptions or changes in the business or financial condition of these significant customers or by the loss of their business or reduction in their requirements.

Our 10 largest customers accounted for approximately 48% and 50% of our total net sales for the nine months ended December 31, 2023 and 2022, respectively, and 49%, 54% and 55% of our total net sales for fiscal 2023, fiscal 2022, and fiscal 2021, respectively. A significant disruption in the business or downturn in the financial condition of our significant customers could adversely affect our results of operations and cash flows. Some of our customers are dependent upon the continued ability of their suppliers to deliver key components necessary for the manufacturing of their products, and a disruption of such supply chains could cause such customers to alter production schedules or suspend production entirely.

In addition, some of our customer contracts are subject to renewal and renegotiation at periodic intervals or upon changes in competitive supply conditions. Our failure to successfully renew or renegotiate such agreements could result in a reduction or loss in customer purchase volume or revenue. Additionally, consolidation among our customers may enable them to use increased leverage in negotiating prices and other contractual terms. Consolidation in our customer base may also lead to reduced demand for our products or cancellations of sales orders. Furthermore, certain of our customer contracts do not impose any minimum purchase volume conditions, and a customer could elect to purchase less of our products than they have historically, at their discretion.

We also factor trade receivables to manage working capital. Any deterioration of the financial condition or downgrade of the credit rating of certain of our customers may make it more difficult or costly for us to engage in these activities, which could negatively impact our cash flows and liquidity.

We face significant price and other forms of competition from other aluminum rolled products producers and potential new market entrants, which may adversely impact our competitive positions in our end-markets and our financial profile.

The markets in which we operate are highly competitive. We compete primarily on the basis of our value proposition, including price, product quality, ability to meet customers’ specifications, range of products offered, global footprint, sustainability and recycling, technical support, and customer service. Some of our competitors may benefit from more efficient technologies, lower raw material and energy costs, and lower labor costs. Increases in competition resulting from new market entrants or increases in production capacity by our competitors could cause us to lose market share or a large customer or force us to reduce prices to remain competitive. In addition, because of extensive competition in all of our key markets, large customers may be able to exert influence to extract favorable future pricing terms. These risks could also be exacerbated by new market participants in the industry or a surplus supply of aluminum rolled products in the industry, which could result in additional competitive pricing pressures. Any such developments could adversely affect our business, financial condition, or results of operations.

 

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Index to Financial Statements

Confidential Treatment Requested by Novelis Inc.

Pursuant to 17 C.F.R. Section 200.83

 

While we have a diversified product portfolio across various end-markets, our end-markets are highly competitive and customers may be willing to accept substitutes for our products, including steel, plastics, composite materials, and glass, and such willingness could adversely affect the demand for certain of our products and our results of operations.

Aluminum competes with other materials, such as steel, plastics, composite materials, and glass for various applications, including packaging, automotive, aerospace, architectural, industrial, and consumer durables end-use markets. Our customers may choose materials other than aluminum to achieve desired attributes for their products. For example, customers in the automotive industry may increase their use of high-strength steel rather than aluminum for certain applications due to the price differential between steel and aluminum. The packaging industry continues to experience advances in alternative materials, such as plastics, glass, and organic or compostable materials, which could lead to higher margins for our customers than our products and which may compare favorably to aluminum with respect to preservation of food and beverage quality and recyclability. The willingness of customers to accept other materials in lieu of aluminum, as well as broader consumer movements toward multi-use forms of packing over single-use packaging, could adversely affect the demand for certain of our products, and thus adversely affect our business, financial condition, or results of operations.

We may not realize the anticipated benefits of strategic investments.

As part of our strategy for growth, we have in the past and may in the future pursue acquisitions, divestitures, joint ventures or other strategic investments. Since fiscal 2021, we have completed a $180 million investment in automotive finishing capacity in Changzhou, China, a $150 million investment in recycling and casting capacity at our plant in Pindamonhangaba, Brazil, and a $315 million greenfield automotive finishing expansion in Guthrie, Kentucky. We also have announced plans to further invest significantly in strategic capacity expansions across geographic locations. For example, announced projects now under construction include an approximately $4.1 billion greenfield rolling mill in Bay Minette, Alabama, a $365 million recycling and casting capacity expansion in Guthrie, Kentucky, a $65 million recycling and casting capacity expansion at our joint venture in Ulsan, South Korea, and a number of smaller rolling capacity debottlenecking investments. If our production levels and margins do not grow in line with our current expectations, or are adversely impacted by new competing strategic investments, we may not realize a return on such announced projects that is commensurate with our investment. Further, there are numerous risks commonly encountered in strategic transactions, including the risk that management’s time and energy may be diverted, disrupting our existing businesses, and the risk that we may not be able to complete a project that has been announced, complete such project on time, incur higher or unforeseen costs, or generate the synergies and other benefits that we anticipated.

Operational Risks

Our business has been, and may in the future be, adversely affected by increases in the cost or volatility in the availability of primary aluminum, scrap aluminum, sheet ingot, or other raw materials used in the production of our products.

The supply risks relating to our metal inputs vary by input type. For example, we produce some of our sheet ingot requirements internally and source the remainder from multiple third parties in various jurisdictions, usually under contracts having a duration of at least one year. If our suppliers are unable to deliver sufficient quantities of aluminum and other raw materials to the necessary locations on a timely basis, including as a result of global supply chain issues, our production could be disrupted and our net sales, profitability and cash flows could be adversely affected.

As a result of macroeconomic headwinds, such as inflationary cost pressures, supply chain disruptions, the impact of public health crises and geopolitical conflicts, we have been adversely affected, and may continue to be adversely affected in the future, by changes in the cost of these or other raw materials as well as labor costs, energy costs and freight costs associated with transportation of raw materials. Prices of certain raw materials may fluctuate due to a number of factors, including general economic conditions, commodity price fluctuations

 

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Index to Financial Statements

Confidential Treatment Requested by Novelis Inc.

Pursuant to 17 C.F.R. Section 200.83

 

(particularly aluminum on the London Metal Exchange), the demand by other industries for the same raw materials, the availability of complementary and substitute materials, inflationary pressures, supply shortages and disruptions caused by a public health crisis or geopolitical factors relating to Russia’s ongoing military conflict with Ukraine, attacks on shipping vessels in the Red Sea and the ongoing conflict in the Gaza Strip. The availability and costs of certain raw materials necessary for the production of our products may also be influenced by private or governmental entities, and may be impacted by mergers and acquisitions, changes in world politics or regulatory requirements (such as human rights regulations or environmental, health and safety laws and regulations or production curtailments), regulations, labor relations between the producers and their work forces, labor shortages, unstable governments in exporting nations, export quotas, sanctions, new or increased import duties, countervailing or anti-dumping duties, infrastructure and transportation issues, market forces of supply and demand, and inflation. We may be unable to offset fully the effects of material shortages or higher costs through customer price increases, productivity improvements or cost reduction programs. In addition, the failures of financial institutions and any related liquidity crises, and any resultant impact on depositor’s access to their cash deposits, could negatively impact the ability of our customers to pay amounts owed to us on a timely basis or at all, cause reductions in the liquidity of our suppliers impacting raw material product availability, and cause fluctuations in the costs of raw materials, which could in turn have a material adverse effect on our business or financial condition.

We employ a number of strategies to manage raw material pricing volatility such as pass through contracts with customers and hedging of metal prices, but there is no assurance that these activities will be sufficient in fully mitigating raw material cost volatility. Our hedging strategies may be insufficient and our results could be materially impacted if costs of materials increase. Delayed timing in recovering the pass-through of increasing raw material costs may also impact our short-term profitability and certain costs due to price increases or supply chain inefficiencies may be unrecoverable, which would also impact our profitability.

Our operations are energy-intensive, and our profitability and cash flows may decline if energy costs were to rise, or if our energy supplies were disrupted.

We consume substantial amounts of energy in our rolling and casting operations. The factors affecting our energy costs and supply reliability tend to be specific to each of our facilities. A number of factors could materially affect our energy position adversely including:

 

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increases in costs of natural gas;

 

  •  

increases in costs of supplied electricity;

 

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increases in fuel oil related to transportation;

 

  •  

prices affected by regional markets, governmental regulations, and taxes;

 

  •  

interruptions in energy supply due to equipment failure or other causes; and

 

  •  

the inability to extend energy supply contracts upon expiration on favorable terms.

If energy costs continue to rise, or if energy supplies or supply arrangements were disrupted, our profitability and cash flows could decline.

Downturns in the automotive and ground transportation industries or changes in consumer demand could adversely affect our business.

The demand for our automotive products and other industrial products is dependent on the production of internal combustion engine and electric cars, light trucks, SUVs and heavy-duty vehicles and trailers. The automotive industry is highly cyclical, as new vehicle demand is dependent on consumer spending and is tied closely to the overall strength of the economy. Even with the automotive industry’s growing use of aluminum to reduce vehicle weight, weak demand for, or lower production of, new cars, light trucks, SUVs and heavy-duty vehicles and trailers could adversely affect the demand for our products and have an adverse effect on our financial position, results of operations and cash flows.

 

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Confidential Treatment Requested by Novelis Inc.

Pursuant to 17 C.F.R. Section 200.83

 

Our business and operations, and the operations of our suppliers and customers, may be adversely affected by public health crises.

We face risks related to public health crises, including outbreaks of communicable diseases. The outbreak of such a communicable disease could result in a widespread health crisis that could adversely affect general commercial activity and the economies and financial markets of many countries. A public health crisis poses the risk that we or our employees, contractors, suppliers, customers, or other business partners may be prevented from conducting business activities for an indefinite period of time, including due to shutdowns that may be requested or mandated by governmental authorities, or that such crisis may otherwise interrupt or impair business activities.

Outbreaks of contagious diseases, public health epidemics or pandemics, or other adverse public health developments in countries in which our employees, contractors, customers, suppliers and other business partners operate could have a material and adverse effect on our business, results of operations, financial condition, liquidity and/or cash flows. The extent to which such an outbreak affects our operations over time is highly uncertain and beyond our control, and is dependent on a variety of factors, including the duration and severity of the initial outbreak or subsequent variants, the imposition of governmental quarantine or other public health measures, the availability of vaccines or other medical remedies and preventive measures, and determinations regarding, among other things, health and safety, demand for specific products, and broader economic conditions. Many of the actions that may be taken to mitigate the impact of an epidemic or pandemic, including declarations of states of emergency, governmental quarantines, shelter-in-place and stay-at-home orders, social distancing requirements, business closures and staged procedures for reopening, manufacturing restrictions and a prolonged period of travel, commercial and/or other similar restrictions and limitations, are highly likely to impact our business and the business of many of our customers and therefore are likely to magnify the risks of a material adverse impact on our business, results of operations, financial condition, liquidity, and/or cash flows, as well as on our business strategies and initiatives. In addition, the impact of any epidemic or pandemic, and the related restrictions, may differ in the areas in which our products are manufactured, distributed or sold, or may change on short notice in response to new variants or other circumstances and, accordingly, any such impact on our operations or the operations of our customers and suppliers is difficult to predict. Because we rely on supply chain continuity, restrictions in one location may materially impact operations in multiple locations, and the impact of an epidemic or pandemic in one location may have a disproportionate effect on our operations in the future.

The recovery from any public health crises may also negatively impact our operations in the future. For instance, during the height of the COVID-19 pandemic, the beverage packaging sheet market experienced high demand resulting from increased at-home consumption of beverage products that use aluminum packaging. However, following the COVID-19 pandemic, demand has moderated as the beverage supply chain has reduced excess inventory, which was built up to account for high demand during the COVID-19 pandemic. Fluctuations in demand and supply chain variability resulting from future public health crises may in the future impact our business, results of operations, and financial condition.

An epidemic or pandemic may also exacerbate other risks disclosed in this prospectus, including, but not limited to, risks related to global economic conditions and inflation, competition, loss of customers, costs of supplies, manufacturing difficulties and disruptions, our credit profile, our credit ratings and interest rates. In addition, a future epidemic or pandemic may also affect our operating and financial results in a manner that is not presently known to us, or present significant risks to our business, results of operations, financial condition, liquidity and/or cash flows that are different from the risks presented by prior epidemics or pandemics.

A majority of our facilities are staffed by a unionized workforce, and union disputes and other employee relations issues could materially adversely affect our financial results.

In each geographic region where we have operating facilities, a substantial portion of our employees are represented by labor unions under collective bargaining agreements with varying durations and expiration dates.

 

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Confidential Treatment Requested by Novelis Inc.

Pursuant to 17 C.F.R. Section 200.83

 

From time to time, we experience strikes or work stoppages. We may not be successful in preventing such an event from occurring in the future at one or more of our manufacturing facilities. In addition, we may not be able to satisfactorily renegotiate our collective bargaining agreements when they expire. 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.

The impact of labor disputes and strikes on our customers could have material adverse effects on our business and financial results.

Certain of our customers have a substantial number of employees who are members of industrial trade unions and are employed under the terms of collective bargaining agreements. These customers have experienced, and may in the future experience, labor disputes, work stoppages or strikes if they fail to successfully negotiate collective bargaining agreements and/or labor contracts with their employees, as necessary. For example, three of our North American customers, Ford Motor Company, General Motors, and Stellantis recently experienced prolonged work stoppages at certain of their facilities as a result of the United Auto Workers strikes. The duration and scope of any future labor disputes or strikes by employees of our customers, and the resultant impact on our business and financial results cannot be predicted with any certainty at this time. However, in the event that our customers are unable to successfully negotiate collective bargaining agreements and/or other labor contracts with their employees as necessary, and their plants experience prolonged slowdowns, closures, or idling as a result of the strikes, the demand from these customers for our flat-rolled aluminum products and our financial results could be materially adversely impacted as a result. While we would seek to mitigate any such reduction in demand by increasing supply to other customers, there can be no assurance that sufficient replacement demand will exist, and the ultimate impact of labor disputes and strikes on our business and financial results will depend on factors beyond our control.

Loss of our key management and other personnel, or an inability to attract and retain such management and other personnel, could adversely impact our business.

We employ all of our senior executive officers and other highly skilled key employees on an at-will basis, and their employment can be terminated by us or them at any time, for any reason and without notice, subject, in certain cases, to severance payment obligations. Competition for qualified employees among companies that rely heavily on engineering and technology is intense, and if our highly skilled key employees leave us, we may be unable to promptly attract and retain qualified replacement personnel, which could result in our inability to improve manufacturing operations, conduct research activities successfully, develop marketable products and compete effectively for growth in key markets.

Competition for qualified employees may continue, and as a result, we may continue to experience increased employee turnover. The continuity of key personnel and preservation of institutional knowledge are important to our business. The loss of qualified employees, or an inability to attract, retain, and motivate employees representing diverse backgrounds, experiences and skillsets would materially adversely affect our business, results of operations, and financial condition and impair our ability to grow. We have increased, and expect to continue to increase, our employee compensation levels in response to competition, as necessary. In addition, the pressures of inflation have increased our costs of labor and may continue to do so.

We could be adversely affected by unplanned disruptions at operating facilities.

In the past, we have experienced production interruptions at our plants due to the breakdown of equipment, fires, weather events, public health crises, and other causes.

We may experience such disruptions in the future due to similar or unrelated uncontrollable events. Because many of our customers are, to varying degrees, dependent on planned deliveries from our plants, any customers that must reschedule their own production due to our missed deliveries could pursue claims against us and reduce

 

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Index to Financial Statements

Confidential Treatment Requested by Novelis Inc.

Pursuant to 17 C.F.R. Section 200.83

 

their future business with us. In addition to facing claims from customers, we may incur costs to remedy any of these problems. Further, our reputation among actual and potential customers may be harmed, possibly resulting in loss of business. While we maintain insurance policies covering, among other things, physical damage, business interruptions and product liability, these policies may not cover all of our losses.

Our business has been and will continue to be exposed to various economic and political risks associated with our global operations.

Due to the global reach of our business, we are subject to financial, political, economic, and other business risks in connection with doing business abroad. Operating in diverse geographic regions exposes us to a number of risks and uncertainties, such as changes in international trade regulation, including duties and tariffs; political instability that may disrupt economic activity; economic and commercial instability; and geopolitical tensions, civil unrest, war, or terrorist activities.

We have experienced, and continue to experience, inflationary pressures on the prices of aluminum, materials, transportation, energy, and labor. In an inflationary environment, such as the current economic environment, our ability to implement customer pricing adjustments or surcharges to pass-through or offset the impacts of inflation may be limited. Continued inflationary pressures could reduce our profit margins and profitability. Russia’s ongoing military conflict with Ukraine, attacks on shipping vessels in the Red Sea, the ongoing conflict in the Gaza Strip, and other geopolitical conflicts, as well as any related international response, may exacerbate inflationary pressures, including causing increases in raw material prices as well as fuel and other energy costs, and may further cause reduced manufacturing and industrial demand. Other economic factors, including fluctuations in foreign currency exchange rates and interest rates, competitive factors in the countries in which we operate, and continued volatility or deterioration in the global economic and financial environment could affect our revenues, expenses and results of operations.

Our financial condition and results of operations depend significantly on worldwide economic conditions. Future adverse developments in the U.S. or global economy, including continued inflationary pressure, pose a risk because our customers may postpone purchases in response to demand reductions, negative financial news and tighter credit.

We are currently operating in a period of economic uncertainty, capital markets disruption, and supply chain interruptions, which have been significantly impacted by geopolitical instability due to the ongoing military conflict between Russia and Ukraine, attacks on shipping vessels in the Red Sea and the ongoing conflicts in the Gaza Strip and the surrounding region. Our business may be materially adversely affected by any negative impact on the global economy, capital markets, or supply chain resulting from these conflicts or any other geopolitical tensions, or otherwise.

In February 2022, Russian troops began a military invasion of Ukraine. Global markets continue to experience volatility and disruption following the escalation of geopolitical tensions and the continuation of the military conflict between Russia and Ukraine. We have not experienced significant direct impacts from the Russia-Ukraine conflict, but we have experienced indirect impacts, as the conflict has driven up energy prices globally, beginning in the fourth quarter of fiscal 2022, and we expect these costs will remain elevated until energy prices stabilize. Although the length and impact of the ongoing military conflict is unpredictable, the conflict could lead to market disruptions, including significant volatility in commodity prices, credit and capital markets, as well as supply chain interruptions, shipping and trade route restrictions, inflationary pressures on raw materials, rising interest rates, and lack of availability of energy. In addition, the conflict in Ukraine has led to sanctions and other measures being levied by the United States, the European Union (the “EU”), and other countries against Russia. In February 2023, the United States government announced a new round of trade actions targeting goods and entities from Russia, including a 200% duty on aluminum articles of Russian origin.

Russian military actions and the resulting sanctions could adversely affect the global economy, national economies in which we operate and financial markets and lead to instability and lack of liquidity in capital markets, potentially making it more difficult for us to obtain additional funds, as well as further disrupting the

 

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Index to Financial Statements

Confidential Treatment Requested by Novelis Inc.

Pursuant to 17 C.F.R. Section 200.83

 

supply chain. One of our suppliers of metal is Rusal, a Russian aluminum company. Although we source metal from a diverse global portfolio of metal suppliers and are not dependent on Rusal for a significant portion of our metal supply, sanctions, tariffs, a ban or similar actions impacting Rusal or the supply of Russian aluminum could disrupt global aluminum supply. Any of the foregoing factors could have a material adverse effect on our business, prospects, financial condition, results of operations, and cash flows. The extent and duration of the military action, sanctions, and resulting market and/or supply disruptions are impossible to predict but could be substantial. Any such disruptions may also magnify the impact of other risks described herein.

Our board of directors oversees the management of risks related to the Russia-Ukraine conflict. Our ERM team (as defined below) monitors developments and potential impacts of the conflict and reports them to the Audit Committee of our board at least quarterly. Despite this monitoring process, there can be no assurance that the conflict will not have a material adverse effect on our business, including as it relates to the risks outlined above, as well as potential impacts to our relationship with Russian-based suppliers and potential impacts on the reliability of energy supplies to our European manufacturing sites and potential supply chain disruptions. For additional information on our ERM team and our board’s oversight of risks related to the Russia-Ukraine conflict, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Business and Industry Climate—Board Oversight regarding risks related to Russia’s invasion of Ukraine.”

Further, in November 2023, attacks on shipping vessels related to Yemen’s Houthi movement have impacted shipping routes in the Red Sea. In addition, on October 7, 2023, Hamas, a U.S. designated terrorist organization, launched a series of coordinated attacks from the Gaza Strip onto Israel. On October 8, 2023, Israel formally declared war on Hamas, and the armed conflict is ongoing as of the date of this prospectus. Hostilities between Israel and Hamas could escalate and involve surrounding countries in the Middle East, a region in which we operate. Although the length, impact, and outcome of the military conflict between Israel and Hamas are highly unpredictable, this conflict could similarly lead to market disruptions, including volatility in commodity prices, credit and capital markets, as well as supply chain interruptions, shipping and trade route restrictions, inflationary pressures on raw materials, interest rate fluctuations, energy price fluctuations, as well as political, social and economic instability and other material and adverse effects on macroeconomic conditions. At this time, it is not possible to predict or determine the ultimate consequence of this regional conflict. The conflict in the Red Sea and the conflict between Hamas and Israel and their broader impacts could have a lasting effect on the short- and long-term operations and financial condition of our business and the global economy.

We face risks relating to certain joint ventures, subsidiaries and assets that we do not entirely control.

Some of our activities are, and will in the future be, conducted through entities that we do not entirely control or wholly own. These entities include our joint ventures located in Neuss, Germany; Ulsan, Korea; Russellville, Kentucky; and Sierre, Switzerland. Under the governing documents of these businesses, we share decision making authority and operational control, which may result in conflicts over management over these businesses. In addition, because we do not have control over the business practices of our joint venture partners, we could be subject to reputational damage or other consequences of improper conduct by our joint venture partners or their inability to fulfill their obligations under the joint venture. As a result, our business, financial condition, cash flows, results of operations and prospects could be adversely affected.

Increased freight costs on imported products could decrease earnings and liquidity.

We have experienced, and may in the future continue to experience, increases in freight costs and shortages in capacity. We continue to monitor freight costs and capacity because they can negatively impact our ability to ship volume predictably and on a low-cost basis. We may not be able to obtain sufficient freight capacity on a timely basis or at favorable shipping rates and, therefore, we may not be able to receive products from suppliers or deliver products to customers in a timely and cost-effective manner. There can be no assurance that we will be successful in increasing prices or recouping increased freight surcharges in the future. Continued freight cost increases; delivery disruptions, including compliance with the Export Administration Regulations and other trade laws; and the sanctions, regulations, and embargoes administered by the U.S. Department of Treasury’s Office of Foreign Assets Control, could adversely affect our business, financial condition, or results of operations.

 

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Confidential Treatment Requested by Novelis Inc.

Pursuant to 17 C.F.R. Section 200.83

 

Financial Risks

Our results and short-term liquidity can be negatively impacted by timing differences between the prices we pay under purchase contracts and metal prices we charge our customers.

Our purchase and sales contracts for primary aluminum are based on the LME price plus a regional market premium, which is a surcharge in addition to the LME price. There are typically timing differences between the pricing periods for purchases and sales. This creates a price exposure we call “metal price lag,” which exists due to: (i) the period of time between the pricing of our purchases of metal, holding and processing the metal, and the pricing of the sale of finished inventory to our customers and (ii) certain customer contracts containing fixed forward price commitments, which result in exposure to changes in metal prices for the period of time between when our sales price fixes and the sale actually occurs. We use derivative instruments to manage the metal price lag risk associated with the LME base aluminum prices. We generally do not hedge more than a small fraction of our regional market premium exposure because we do not believe the derivatives markets are sufficiently robust and efficient to meet our needs. As such, volatility in regional market premiums can have a significant impact on our results of operations and cash flows. The timing difference associated with metal price lag could positively or negatively impact our operating results and short-term liquidity.

A deterioration of our financial condition, a downgrade of our ratings by a credit rating agency or other factors could limit our ability to enter into, or increase our costs of, financing and hedging transactions, and our business relationships and financial condition could be adversely affected.

A deterioration of our financial condition or a downgrade of our credit ratings for any reason could increase our borrowing costs, limit our access to the capital or credit markets, adversely affect our ability to obtain new financing on favorable terms or at all, result in more restrictive covenants, and have an adverse effect on our business relationships with customers, suppliers and financial counterparties. We enter into various forms of hedging activities against currency, interest rate, energy and metal price fluctuations. Our financial strength and credit ratings are important to the availability and terms of these hedging activities. As a result, any deterioration of our financial condition or downgrade of our credit ratings may make it more difficult or costly for us to engage in these activities in the future.

Variable rate indebtedness subjects us to interest rate risk, which could cause our debt service obligations to increase.

Borrowings under our senior secured credit facilities are at variable rates of interest and expose us to interest rate risk. If interest rates continue to increase, our debt service obligations on any variable rate indebtedness could increase even though the amount borrowed remained the same, which could adversely impact our results of operations. In order to manage our exposure to interest rate risk, in the future, we may enter into derivative financial instruments, typically interest rate swaps and caps, involving the exchange of floating for fixed rate interest payments. If we are unable to enter into interest rate swaps, it may adversely impact our results of operations, and, even if we use these instruments to selectively manage risks, there can be no assurance that we will be fully protected against material interest rate fluctuations.

Adverse changes in currency exchange rates could negatively affect our financial results or cash flows and the competitiveness of our aluminum rolled products relative to other materials.

We are exposed to the effects of changes in the exchange rates of the U.S. dollar, the Euro, the British pound, the Brazilian real, the Korean won, the Swiss franc and other currencies. We have implemented a hedging policy to manage currency exchange rate risks to an acceptable level based on management’s judgment of the appropriate trade-off between risk, opportunity and cost; however, this hedging policy may not successfully or completely eliminate the effects of currency exchange rate fluctuations, which could have a material adverse effect on our financial results and cash flows.

 

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Confidential Treatment Requested by Novelis Inc.

Pursuant to 17 C.F.R. Section 200.83

 

We prepare our consolidated financial statements in U.S. dollars, but a portion of our earnings and expenditures are denominated in other currencies, primarily the euro, the Korean won, and the Brazilian real. Changes in exchange rates may result in increases or decreases in our operating results and may also affect the book value of our assets located outside the U.S.

Our results of operations, cash flows and liquidity could be adversely affected if we were unable to transact in derivative instruments, if our exposure to price fluctuations were not adequately hedged under derivative instruments, or if counterparties to our derivative instruments fail to honor their agreements.

We use various derivative instruments to manage the risks arising from fluctuations in aluminum prices, exchange rates, energy prices and interest rates. If for any reason we were unable to transact in derivative instruments to manage these risks, or if our exposure to fluctuations in such prices and rates were not fully or adequately hedged under such derivative instruments, our results of operations, cash flows, and liquidity could be adversely affected. In addition, we may be exposed to losses in the future if the counterparties to our derivative instruments fail to honor their agreements. In particular, deterioration in the financial condition of our counterparties and any resulting failure to pay amounts or perform obligations owed to us could have a negative effect on our business and financial condition. Further, if major financial institutions consolidate and are forced to operate under more restrictive capital constraints and regulations, there could be less liquidity, or higher costs to transact, in the derivative markets, which could have a negative effect on our costs or our ability to hedge and transact with creditworthy counterparties.

An adverse decline in the liability discount rate, lower-than-expected investment return on pension assets and other factors could affect our results of operations or amount of pension funding contributions in future periods.

Most of our pension obligations relate to funded defined benefit pension plans for our employees in the U.S., the U.K., Switzerland, and Canada, funded and unfunded pension benefits in Germany and lump sum indemnities payable to our employees in France, Italy, and South Korea upon retirement or termination. Our pension plan assets primarily consist of funds invested in stocks and bonds. Our estimates of liabilities and expenses for pensions and other postretirement benefits incorporate a number of assumptions. The most significant year-end assumptions used by Novelis to estimate pension or other postretirement benefit income or expense for the following year are the discount rate applied to plan liabilities and the expected long-term rate of return on plan assets. Our results of operations, liquidity, or shareholder’s (deficit) equity in a particular period could be adversely affected by capital market returns that are less than their assumed long-term rate of return or a decline of the rate used to discount future benefits. These factors or others may require us to make unexpected cash contributions to the pension plans in the future, preventing the use of such cash for other purposes.

Our goodwill, other intangible assets and other long-lived assets could become impaired, which could require us to take non-cash charges against earnings.

We assess, at least annually and potentially more frequently, whether the value of our goodwill has been impaired. We assess the recoverability of finite-lived other intangible assets and other long-lived assets whenever events or changes in circumstances indicate we may not be able to recover the asset’s carrying amount. Any impairment of goodwill, other intangible assets, or long-lived assets as a result of such analysis would result in a non-cash charge against earnings, which could materially adversely affect our reported results of operations. A significant and sustained decline in our future cash flows, a significant adverse change in the economic environment, or slower growth rates could result in the need to perform additional impairment analysis in future periods.

Additional tax expense, tax liabilities or tax compliance costs could adversely impact our profitability.

We are subject to income taxation in many jurisdictions. Judgment is required in determining our worldwide income tax provision and accordingly there are many transactions and computations for which our final income

 

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Confidential Treatment Requested by Novelis Inc.

Pursuant to 17 C.F.R. Section 200.83

 

tax determination is uncertain. We are routinely audited by income tax authorities in many tax jurisdictions. Although we believe the recorded tax estimates are reasonable, the ultimate outcome from any audit (or related litigation) could be materially different from amounts reflected in our income tax provisions and accruals. Future settlements of income tax audits may have a material effect on earnings between the period of initial recognition of tax estimates in the financial statements and the point of ultimate tax audit settlement. Additionally, it is possible that future income tax legislation in any jurisdiction to which we are subject may be enacted that could have a material impact on our worldwide income tax provision beginning with the period that such legislation becomes effective. Currently, there are several tax proposals in the jurisdictions in which we operate that could, if enacted into law, significantly impact the tax position of the Company. We will continue to evaluate the overall impact of current, future, and proposed regulations and interpretive guidance from tax authorities on our effective tax rate and consolidated balance sheets.

The covenants in our credit facilities and the indentures governing our Senior Notes impose operating and financial restrictions on us.

Our credit facilities and the indentures governing our Senior Notes impose certain operating and financial restrictions on us. These restrictions limit our ability and the ability of our restricted subsidiaries, among other things, to:

 

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incur additional debt and provide additional guarantees;

 

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pay dividends and make other restricted payments, including certain investments;

 

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create or permit certain liens;

 

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make certain asset sales;

 

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use the proceeds from the sales of assets and subsidiary stock;

 

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create or permit restrictions on the ability of our restricted subsidiaries to pay dividends or make other distributions to us;

 

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engage in certain transactions with affiliates;

 

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make certain acquisitions;

 

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enter into sale and leaseback transactions; and

 

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consolidate, merge, or transfer all or substantially all of our assets or the assets of our restricted subsidiaries.

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Description of Outstanding Indebtedness” for more information.

Risks Related to Cybersecurity and Data Privacy

Security breaches and other disruptions to our information technology networks and systems could interfere with our operations and could compromise the confidentiality of our proprietary information.

We rely upon information technology networks and systems, some of which are managed by third parties, to process, transmit and store electronic information, and to manage or support a variety of business and manufacturing processes and activities. Additionally, we collect and store sensitive data, including intellectual property, proprietary business information, and personally identifiable information of our employees, in data centers and on information technology networks. These activities are subject to various laws and regulations in the United States and abroad regarding privacy and data security.

Information technology networks and systems (our own as well as those managed by third parties) are susceptible to damage, disruptions and shutdowns due to programming errors, defects, or other vulnerabilities,

 

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power outages, hardware failures, computer viruses, cyber-attacks, ransomware attacks, malware attacks, attacks by foreign governments and state-sponsored actors, theft, misconduct by employees or other insiders, telecommunications failures, misuse, human errors or other catastrophic events. The costs of attempting to protect against cybersecurity risks and events such as the foregoing are significant, and as cyber-attacks and similar events have become more frequent and sophisticated, these costs have increased and will likely increase further in the future. We have in the past and may in the future experience security breaches and other disruptions to our information technology networks and systems, so we have increased our management focus on and financial investments in systems and processes intended to secure our information technology systems, prevent unauthorized access to or loss of sensitive data, provide security and privacy awareness training, ensure business continuity and comply with applicable laws. These efforts include engaging third-party providers from time to time to test the vulnerability of our systems and recommend solutions to upgrade the security of our systems. We also employ a number of measures to protect and defend against cyber-attacks, including technical security controls, data encryption, firewalls, intrusion prevention systems, anti-malware software and frequent backups. New data security laws and regulations are being implemented rapidly and are evolving, and we may not be able to timely comply with such requirements, and such requirements may not be compatible with our current processes. Changing our processes could be time consuming and expensive, and failure to timely implement required changes could subject us to liability for non-compliance.

Cyber-attacks continue to evolve in sophistication and volume and may remain undetected for an extended period. Hardware, software or applications we utilize may contain defects in design or manufacture or other problems that could unexpectedly compromise information security, potentially resulting in the unauthorized disclosure and misappropriation of sensitive data, including intellectual property, proprietary business information, and personal data. In addition, techniques used to obtain unauthorized access to information or to sabotage information technology systems change frequently, including as a result the intensification of state-sponsored cybersecurity attacks during periods of geopolitical conflict, such as the ongoing conflict in Ukraine. We have seen, and will continue to see, industry-wide vulnerabilities, which could in the future affect our or other parties’ systems. We expect to continue to experience such zero-day vulnerabilities in the future. Despite our best efforts, we cannot fully anticipate, detect, repel or implement fully effective preventative measures against all cybersecurity threats, especially in light of increasingly sophisticated techniques used in cybersecurity attacks, as discussed above. Although to date, we are unaware of any material data breach or system disruption, including a cyber-attack, we cannot provide any assurances that such events will not occur and impacts therefrom will not be material in future.

The occurrence of a significant cybersecurity event, including an event impacting one of our third-party providers, could compromise our networks and the information stored there could be accessed, publicly disclosed, lost or stolen. Any such access, disclosure, or other loss of information could result in legal claims or proceedings, liability, or regulatory penalties under privacy laws. In addition, we could incur significant costs in notifying affected persons and entities and otherwise complying with the multitude of foreign, federal, state and local laws and regulations relating to the unauthorized access to, or use or disclosure of, personal information. Operational disruptions or any perceived or actual unauthorized access to, or disclosure of, sensitive information could reduce the competitive advantage in new or proprietary business initiatives and damage our reputation and our relationship with our customers. Although we are insured against cyber risks and security breaches up to an annual aggregate limit, our liability insurance may be inadequate and may not fully cover the costs of any claims or damages that we might be required to pay. In the future, we may not be able to obtain adequate liability insurance on commercially desirable or reasonable terms or at all. Any of the foregoing could have a material adverse effect on our business, financial condition, or results of operations.

Failure to comply with current or future federal, state and foreign laws and regulations and industry standards relating to privacy, data protection, advertising and consumer protection could adversely affect our business, financial condition, or results of operations.

We are subject to various privacy, information security, and data protection laws, rules, and regulations that present an ever-evolving regulatory landscape across multiple jurisdictions and industry sections. Federal, state,

 

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and foreign legislators and regulators are increasingly adopting or revising privacy, information security, and data protection laws, rules, and regulations that potentially could have a significant impact on our current and planned privacy, data protection, and information security-related practices our collection, use, storing, sharing, retention and safeguarding and otherwise processing of certain types of consumer or employee information and some of our current or planned business activities, which could further increase our costs of compliance and business operations and could reduce income from certain business initiatives.

Compliance with current or future privacy, information security, and data protection laws, rules, and regulations (including those regarding security breach notification) could result in higher compliance and technology costs. Additionally, regulators may attempt to assert authority over our business in the area of privacy, information security, and data protection. If our vendors also become subject to new and additional laws, rules, and regulations in the more stringent and expansive jurisdictions, this could result in increasing costs to our business. We cannot predict the effect compliance with any such laws or regulations may have on our operating environment.

Many jurisdictions have established their own data security and privacy legal frameworks, including data localization and storage requirements, with which we may need to comply. For example, the EU and many countries in Europe have stringent privacy laws and regulations, which may affect our ability to operate cost effectively in certain European countries. In particular, the EU has adopted the General Data Protection Regulation (“EU GDPR”) which went into effect on May 25, 2018 and contains numerous requirements and changes from previously existing EU law, including more robust obligations on data processors and heavier documentation requirements for data protection compliance programs by companies. Specifically, the EU GDPR introduced numerous privacy-related changes for companies operating in the EU, including greater control for data subjects (e.g., the “right to be forgotten”), increased data portability for EU consumers, data breach notification requirements, and increased fines. In particular, under the EU GDPR, fines of up to 20 million Euros or up to 4% of the annual global revenue of the noncompliant company, whichever is greater, could be imposed for violations of certain of the EU GDPR’s requirements. Similarly, following the UK’s exit from the EU, the UK General Data Protection Regulation and the UK Data Protection Act 2018 (“UK GDPR”) came into effect, which currently imposes the same obligations as the EU GDPR in most material respects. The EU GDPR, UK GDPR, the CCPA and similar laws and regulations may require us to modify our data processing practices and policies and to incur substantial costs and expenses in an effort to comply.

The EU GDPR and UK GDPR also impose strict rules on the transfer of personal information to countries outside of the European Economic Area (“EEA”) and the UK. Legal developments in Europe have created further complexity and uncertainty regarding such transfers, in particular in relation to transfers to the United States. On July 16, 2020, the Court of Justice of the European Union (“CJEU”) invalidated the EU-US Privacy Shield Framework, or Privacy Shield, under which personal information could be transferred from the EEA (and the UK) to relevant self-certified United States entities. The CJEU further noted that reliance on the standard contractual clauses (a standard form of contract approved by the European Commission as an adequate personal information transfer mechanism and potential alternative to the Privacy Shield) alone for transfers of personal information outside the EEA (and the UK) may not necessarily be sufficient in all circumstances, and that transfers must be assessed on a case-by-case basis. On July 11, 2023, the European Commission entered into force its adequacy decision for the EU-US Data Privacy Framework (a new framework for transferring personal information from the EEA to the United States), having determined that such framework ensures that the protection of personal information transferred from the EEA to the United States will be comparable to the protection offered in the EU. However, this decision will likely face legal challenges and ultimately may be invalidated by the CJEU just as the Privacy Shield was. As a result of changes in the laws, rules and regulations governing cross-border transfers of personal information, we have had to make, and continue to make, certain operational changes, conduct assessments of our data transfer policies and procedures, and update and implement revised standard contractual clauses and other relevant documentation and measures for intragroup, customer and vendor arrangements requiring transfers of personal information outside the EEA and the UK, including to the United States, within required time frames. We may be adversely impacted as the enforcement landscape further develops, and supervisory authorities issue further guidance on international data transfers.

 

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Confidential Treatment Requested by Novelis Inc.

Pursuant to 17 C.F.R. Section 200.83

 

Because the interpretation and application of many privacy and data protection laws, rules and regulations along with contractually imposed industry standards are uncertain, it is possible that these laws may be interpreted and applied in a manner that is inconsistent with our existing data management practices. If so, in addition to the possibility of substantial fines, lawsuits and other claims and penalties, we could be required to fundamentally change our business activities and practices, which could have an adverse effect on our business. Any inability to adequately address privacy and security concerns, even if unfounded, or comply with applicable privacy and data security laws, rules, regulations and policies, could result in additional cost and liability to us, damage our reputation, inhibit growth, and otherwise adversely affect our business. If we are not able to adjust to changing laws, rules and information security, our business may be harmed.

Risks Related to Intellectual Property

If we are unable to protect our intellectual property, the confidentiality of our know-how, trade secrets, technology, and other proprietary information, our business and competitive position could be harmed.

We rely on a combination of patent, trademark, copyright, trade secret and unfair competition laws, as well as confidentiality agreements, license agreements and other contractual provisions, to establish, maintain, protect and enforce our intellectual property and other proprietary rights. Such means may afford only limited protection of our intellectual property and may not prevent our competitors from duplicating our processes or technology, prevent our competitors from gaining access to our proprietary information and technology, or permit us to gain or maintain a competitive advantage. Any of our direct or indirect intellectual property rights could be challenged, invalidated, circumvented, infringed or misappropriated, which could result in costly product redesign efforts, discontinuance of certain product offerings or other competitive harm. Further, the laws of certain countries do not protect proprietary rights to the same extent as the laws of the United States. Therefore, in certain jurisdictions, we may be unable to protect our proprietary technology adequately against unauthorized third party copying, infringement or use, which could adversely affect our competitive position. To prevent substantial unauthorized use of our intellectual property and proprietary rights, it may be necessary to prosecute actions for infringement, misappropriation or other violation of our intellectual property and proprietary rights against third parties. Litigation, whether we are a plaintiff or a defendant, can be expensive and time consuming and may divert the efforts of our management and other personnel, which could harm our business, whether or not such litigation results in a determination favorable to us. Litigation also puts our patents or other intellectual property at risk of being invalidated or interpreted narrowly and puts our patent applications or applications for other intellectual property registrations at risk of not issuing. If we are sued by a third party that claims that our technology infringes, misappropriates or violates their rights, the litigation, whether or not successful, could be costly to defend, divert our management’s time, attention and resources, damage our reputation and brand and substantially harm our business. Claims of intellectual property infringement also might require us to redesign affected products, enter into costly settlement or license agreements or pay costly damage awards, or face a temporary or permanent injunction prohibiting us from marketing or selling certain of our products. Even if we have an agreement to indemnify us against such costs, the indemnifying party may be unable to uphold its contractual obligations.

We rely on nondisclosure agreements to protect our unpatented know-how, trade secrets, technology and other proprietary information. We seek to protect this information, in part, by entering into nondisclosure and confidentiality agreements with parties who have access to it, such as our employees, consultants, and other third parties. However, we cannot guarantee that we have entered into such agreements with each party that has or may have had access to our proprietary information. Moreover, no assurance can be given that these agreements will be effective in controlling access to, distribution, use, misuse, misappropriation, or disclosure of our proprietary information. Further, these agreements may not prevent our competitors from independently developing substantially equivalent or superior proprietary information. These agreements may be breached, and we may not have adequate remedies for any such breach. Additionally, such agreements may not effectively prevent unauthorized access to or unauthorized use, disclosure, misappropriation or reverse engineering of, our confidential information, intellectual property, or technology. Enforcing a claim that a party illegally disclosed or

 

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misappropriated know-how is difficult, expensive, and time-consuming, and the outcome is unpredictable. Know-how, technology, and other proprietary information can be difficult to protect and some courts inside and outside the U.S. are less willing or unwilling to protect such information. If we develop any trade secrets that were to be lawfully obtained or independently developed by a competitor or other third-party, we would have no right to prevent them from using that technology or information to compete with us, and our competitive position would be materially and adversely harmed. The loss of trade secret protection could make it easier for third parties to compete with our products. Any of the foregoing could have a material adverse effect on our business, financial condition, or results of operations.

Legal and Regulatory Risks

Our global operations are subject to increasingly complex and stringent laws and government regulations that may adversely affect our business and operations.

We operate in complex regulated environments in the U.S. and in the other countries in which we operate and could be adversely affected by changes to existing legal requirements, including related interpretations and enforcement practices, new legal requirements, and/or any failure to comply with applicable regulations.

Compliance with U.S. and foreign laws and regulations, such as those requiring supply chain transparency, import and export requirements, embargoes and trade sanctions laws, anti-corruption laws, tax laws, foreign exchange controls, and cash repatriation restrictions, increases our costs of doing business outside the U.S. We are also subject to data privacy and protection laws regulating the collection, use, retention, disclosure, transfer, and processing of personal information, such as the EU GDPR. The potential effects of these laws are far-reaching and may require us to modify our data processing practices and policies and to incur substantial costs and expenses to comply. In recent years, a number of new laws and regulations have been adopted, there has been expanded enforcement of certain existing laws and regulations, and the interpretation of certain laws and regulations have become increasingly complex.

In addition, the global scale of our operations exposes us to risks relating to international trade policies, including import quotas, tariffs, and taxes on goods imported from countries where we procure or manufacture products or raw materials, as well as retaliatory policies by governments against such policies. In addition, determinations by destination countries about unfairly priced and subsidized products can normalize prices, benefiting the company in some instances, while potentially disrupting supply chains. The impact and duration of such tariffs and other trade restrictions, as well as the potential for additional tariffs by the U.S., China, or other countries, remain uncertain. Our ability to implement strategies to mitigate the impact of such restrictions and our exposure to the risks described above as well as the impact of changes in regulations and policies could impact the competitiveness of our products and negatively impact our business, results of operations, and financial condition.

The impact of new laws, regulations, and policies or decisions or interpretations by authorities applying those laws and regulations, cannot be predicted. Compliance with any new laws, regulations, or policies may increase our operating costs or require significant capital expenditures. Any failure to comply with applicable laws, regulations, or policies in the U.S. or in any of the other countries in which we operate could result in substantial fines or possible revocation of our authority to conduct our operations, which could adversely affect us.

We may be affected by global climate change or by legal, regulatory, or market responses to such change.

Climate change, and evolving customer and stakeholder expectations, legal, regulatory and policy requirements, and market dynamics driven by climate change, could adversely affect our business, financial condition or results of operations. Increased concern over climate change has led to new and proposed legislative and regulatory initiatives, such as cap-and-trade systems, limits on emissions of greenhouse gases, and Corporate Average Fuel Economy standards and requirements to disclose greenhouse gas emissions and other climate change-related

 

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information in the United States, as well as similar standards or requirements in the EU or in other jurisdictions. For example, the SEC has proposed a rule requiring disclosure of a broad range of climate change-related information, and similar laws have been enacted in the U.S. State of California and jurisdictions such as the EU. New or revised laws and regulations in this area could directly and indirectly affect us and 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, including increased monitoring and reporting costs. Also, we rely on natural gas, electricity, fuel oil, and transport fuel to operate our facilities. Any increased costs of these energy sources because of new laws or regulations could be passed along to us and our customers and suppliers, which could also have a negative impact on our profitability. Any increased frequency and intensity of extreme weather events resulting from climate change impacting our facilities, our suppliers or critical infrastructure in the United States and abroad could disrupt our supply chain or impact our ability to timely produce and deliver our products.

There are inherent climate-related risks in various regions where we conduct business. Global climate change is resulting, and is expected to continue to result, in natural disasters and adverse weather conditions, such as drought, wildfires, storms, tornados, hurricanes, blizzards, changes in sea-levels, flooding, and extreme temperatures, occurring more frequently or with greater intensity and unpredictability. Such conditions could result in disruptions to any facility or surrounding community directly impacted by a climate-related event, including physical damage resulting in shutdowns and requiring repair and/or our employees’ unavailability to work, and could also adversely impact our suppliers, customers, and shipping and transportation networks. These disruptions could make it more difficult and costly for us to produce and deliver our products, obtain raw materials or other supplies, maintain our critical corporate functions, and could reduce customer demand for our products.

In addition, governments, customers and other stakeholders are increasingly focused on corporate environmental, social and governance (“ESG”) practices and disclosures, may evaluate our business or other practices according to a variety of ESG targets, standards, and expectations. We define our own corporate purpose, in part, by the sustainability of our practices and our impact on all of our stakeholders. As a result, our efforts to conduct our business in accordance with some or all these expectations may result in increased demands regarding, among other matters, the source of aluminum, alloying metals and other materials used in our products, demand for increased use of recycled materials in our products, the manner in which power we consume is generated, our use and treatment of water and other natural resources, and the packing materials and shipping methods we use to deliver our products. In order to respond to these demands, we may need to make changes to our facilities, operations or production methods, or increase research and development efforts, any of which could result in significant additional costs. Our policies and processes to evaluate and manage ESG targets and standards in coordination with other business priorities, including our use of carbon offsets, may not prove completely effective. In addition, although we have established public targets with respect to our carbon footprint, energy and water usage and waste generation, we may be unable to meet them or be required to revise them for a variety of reasons, including due to cost increase, (including the cost of carbon offsets), the availability of valuable scrap (which could be downgraded or lost to competitors as demand increases), the availability of cleaner energy sources, sufficient supply of ‘low carbon’ primary aluminum, or our ability to innovate recycle-friendly alloys. As a result, we may face adverse regulatory, investor, media, or public scrutiny that may adversely affect our business, results of operations, or financial condition. Furthermore, with regard to public targets we have disclosed relating to certain ESG initiatives (including as disclosed within our 2023 Sustainability Report), the criteria by which our ESG practices, including these initiatives and public targets, are assessed may change due to the evolution of the sustainability landscape, which could result in greater expectations of us and may cause us to undertake costly initiatives to satisfy new criteria. Our selection of disclosure standards and ESG targets, and the interpretation or application of those standards and targets, may also change from time to time, or differ from those of others. Methodologies for reporting ESG data, including for Scope 1, 2 and 3 greenhouse gas emissions, may be updated and previously reported ESG data may be adjusted to reflect developments in the availability and

 

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quality of third-party data, changing assumptions, changes in the nature and scope of our operations and other changes in circumstances. If we are unable to respond effectively to these changes to the sustainability landscape, governments, customers and other stakeholders may conclude that our policies and/or actions with respect to ESG matters are inadequate. If we fail or are perceived to have failed to achieve previously announced public targets or to accurately disclose our progress on such targets or initiatives, our reputation, business, financial condition and results of operations could be adversely impacted.

We are subject to a broad range of environmental, health and safety laws and regulations, and we may be exposed to substantial environmental, health and safety costs and liabilities.

We are subject to a broad range of environmental, health and safety laws and regulations in the jurisdictions in which we operate. These laws and regulations impose stringent environmental, health and safety protection standards and permitting requirements regarding, among other things, air emissions, wastewater storage, treatment and discharges, the use and handling of hazardous or toxic materials, waste disposal practices, the remediation of environmental contamination, post-mining reclamation and working conditions for our employees. The costs of complying with these laws and regulations, including participation in assessments and remediation of contaminated sites and installation of pollution control facilities, have been, and in the future could be, significant, and may prove to be more costly than we anticipate. These laws and regulations may also result in substantial environmental liabilities associated with current sites, divested assets, third-party locations, and past activities. Under certain of these laws and regulations, we could incur liability for contamination at our current or former sites (or those of our predecessors) or at sites to which we or our predecessor sent waste for disposal even if the contamination resulted from conduct that was legal at the time or of third parties. The impact that our operations may have on the environment, as well as exposures to hazardous substances or wastes associated with our past and/or current operations, could result in civil or criminal fines or penalties and enforcement actions issued by regulatory or judicial authorities enjoining, curtailing or closing operations or requiring corrective measures, any of which could materially and adversely affect us. Evolving regulatory standards and expectations can result in increased litigation and/or increased costs, including increased remediation costs, all of which can have a material and adverse effect on our financial condition, results of operations and cash flows.

We may be exposed to significant legal proceedings or investigations.

From time to time, we are involved in, or the subject of, disputes, proceedings and investigations with respect to a variety of matters, including intellectual property, environmental, health and safety, product liability, employee, tax, personal injury, contractual and other matters, as well as other disputes and proceedings that arise in the ordinary course of business.

Any claims against us or any investigations involving us, whether meritorious or not, could be costly to defend or comply with and could divert management’s attention as well as operational resources. Any such dispute, litigation or investigation, whether currently pending or threatened in the future, may have a material adverse effect on our financial results and cash flows. We generally maintain insurance against many product liability risks, but there can be no assurance that this coverage will be adequate for any liabilities ultimately incurred. In addition, there is no assurance that insurance will continue to be available on terms acceptable to us.

Risks Related to this Offering and Ownership of our Common Shares

An active, liquid and orderly trading market for our common shares may not develop, and you may not be able to resell your shares at or above the initial public offering price.

We intend to submit an application to have our common shares listed on the NYSE under the symbol “NVL.” There is currently no market through which our common shares may be sold and, if a market for our common shares does not develop or is not sustained, you may not be able to resell your common shares purchased in this

 

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offering. This may affect the pricing of the securities in the secondary market, the transparency and availability of trading prices, the liquidity of the securities and the extent of issuer regulation. The initial public offering price of our common shares will be determined through negotiations between our sole shareholder and the underwriters. This initial public offering price may not be indicative of the market price of our common shares after the offering. In addition, because the substantial majority of our common shares will continue to be held indirectly by Hindalco immediately following the consummation of this offering, the number of our common shares available for trading among public shareholders, or our public float, will be limited, and could remain limited for an extensive period of time. As a result, our common shares may have lower trading volume and less market liquidity, and our share price could be more volatile, in each case as compared to companies with a larger public float. In the absence of an active trading market for our common shares, investors may not be able to sell their shares at or above the initial public offering price. We cannot predict the prices at which our common shares will trade.

The market price of our common shares may be volatile, which could result in substantial losses for investors purchasing shares in this offering.

The market price of our common shares could be subject to significant fluctuations after this offering, and it may decline below the initial public offering price. Some of the factors that may cause the market price of our common shares to fluctuate include:

 

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significant volatility in the market price and trading volume of comparable companies;

 

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actual or anticipated changes or fluctuations in our operating results or in the expectations of market analysts;

 

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adverse market reaction to any indebtedness we may incur or securities we may issue in the future;

 

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short sales, hedging and other derivative transactions in our shares;

 

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announcements of technological innovations, new products, strategic alliances or significant agreements by us or by our competitors;

 

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changes in the prices of our solutions or the prices of our competitors’ solutions;

 

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litigation or regulatory action against us;

 

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investors’ general perception of us and the public’s reaction to our press releases, our other public announcements and our filings with the U.S. Securities and Exchange Commission, or the SEC;

 

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publication of research reports or news stories about us, our competitors or our industry, or positive or negative

 

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recommendations or withdrawal of research coverage by securities analysts;

 

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changes in general political, economic, industry and market conditions and trends;

 

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sales of our common shares by our directors, executive officers and existing shareholders;

 

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recruitment or departure of key personnel; and

 

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the other risk factors described in this section of the prospectus.

In addition, the stock markets have historically experienced substantial price and volume fluctuations. Broad market and industry factors may harm the market price of our common shares. Hence, the price of our common shares could fluctuate based upon factors that have little or nothing to do with us, and these fluctuations could materially reduce the share price of our common shares regardless of our operating performance. In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has been instituted against that company. If we were involved in any similar litigation, we could incur substantial costs, our management’s attention and resources could be diverted and it could harm our business, operating results and financial condition.

 

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Confidential Treatment Requested by Novelis Inc.

Pursuant to 17 C.F.R. Section 200.83

 

Future sales or distributions of our shares by Hindalco could depress the market price of our common shares.

After this offering, and subject to the lock-up period described in this prospectus, Hindalco may, directly or indirectly, sell all or a portion of its remaining shares of our common shares or distribute those shares to its shareholders. Additional direct or indirect sales by Hindalco in the public market or distributions to its shareholders of substantial amounts of our common shares could depress the market price of our common shares.

In addition, Hindalco will have the right, subject to certain conditions, to require us to file one or more registration statements covering the shares it beneficially owns or to include such shares in other registration statements that we may file. In the event Hindalco exercises its registration rights and sells all or a portion of such common shares, the market price for our common shares could decline. See “Description of Share Capital—Registration Rights” for more information.

Purchasers in this offering will incur immediate and substantial dilution in the net tangible book value of their investment as a result of this offering.

The initial public offering price will be substantially higher than the net tangible book value per share immediately after this offering. If you purchase common shares in this offering, you will incur immediate and substantial dilution of $   per share, representing the difference between the assumed initial public offering price of $   per share and our pro forma net tangible book value per share as of   , 2023. For more information, see “Dilution.”

We will incur increased costs and regulatory burden and devote substantial management time as a result of being a public company listed on the NYSE.

Prior to this offering, we voluntarily furnished reports to the SEC on Forms 10-K, 10-Q and 8-K to satisfy certain requirements under our indentures governing certain of our outstanding indebtedness, but we were not otherwise subject to the disclosure requirements of U.S. securities laws or the rules, regulations and policies of the NYSE. The reports we have previously furnished to the SEC are not incorporated by reference in this prospectus. As a public company listed on the NYSE, we will incur increased legal, accounting and other costs not incurred as a private company operating as a wholly owned subsidiary of Hindalco. In particular, as a public company, we will be required to, among other things:

 

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comply with the rules and regulations implemented by the SEC, the Sarbanes-Oxley Act, the Dodd-Frank Act, the Public Company Accounting Oversight Board and the NYSE;

 

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maintain an internal audit function;

 

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enhance our own financial reporting function;

 

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maintain an investor relations function; and

 

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establish certain internal policies, including those relating to trading in our securities.

We expect that compliance with these requirements will increase our legal and financial compliance costs and will make some activities more time consuming and costly. In addition, we expect that our management and other personnel will need to divert attention from operational and other business matters to devote substantial time and other resources to these requirements. We have made, and will continue to make, changes to our financial management control systems and other areas to manage our obligations as a public company listed on the NYSE, including corporate governance, corporate controls, disclosure controls and procedures and financial reporting and accounting systems. However, we cannot assure you that these and other measures that we might take will be sufficient to allow us to satisfy our obligations as a public company on a timely basis. As a result of these additional costs and other requirements, our historical financial information included in this prospectus is not necessarily indicative of our future results of operations, financial condition or cash flows, nor does it reflect what our results of operations, financial condition or cash flows would have been as a public company during the periods presented.

 

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Pursuant to 17 C.F.R. Section 200.83

 

Although we may pay dividends to holders of our common shares, our ability to do so is subject to the discretion of our board of directors.

We currently intend to pay quarterly dividends of approximately $   , distributed to our shareholders on a pro-rata basis. Although we intend to pay dividends pursuant to this policy, our common shares will have no contractual or other legal right to dividends. The payment of any such future dividends will be at the discretion of our board of directors and will depend on, among other things, our financial resources, cash flows generated by our business, our cash requirements, restrictions under the instruments and agreements governing our indebtedness, and other relevant factors. Accordingly, we may not declare or make, or may have to reduce or eliminate, payments of any dividends. As a result, investors in this offering may not receive future dividends and the market price of our common shares may be adversely affected. See “Dividend Policy,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Capital Allocation Framework,” “Material U.S. Federal Income Tax Considerations—Taxation of Distributions” and “Material Canadian Federal Income Tax Considerations—Dividends” for additional information.

As a foreign private issuer, we are subject to different U.S. securities laws and rules than a domestic U.S. issuer, which may limit the information publicly available to our shareholders, or otherwise result in less protection than is accorded to investors under rules applicable to domestic U.S. issuers.

We are a “foreign private issuer,” as such term is defined in Rule 405 under the Securities Act, and are not subject to the same requirements that are imposed upon U.S. domestic issuers by the SEC. Under the Exchange Act, we will be subject to reporting obligations that, in certain respects, are less detailed and less frequent than those of U.S. domestic reporting companies. While we currently intend to continue to voluntarily file reports on domestic forms to satisfy certain requirements of our indentures governing certain of our outstanding indebtedness, we will not be subject to all of the rules that would apply to a domestic issuer. For instance, officers, directors, and principal shareholders are exempt from the reporting and “short swing” profit recovery provisions of Section 16 of the Exchange Act. Therefore, our shareholders may not know on as timely a basis when our officers, directors and principal shareholders purchase or sell shares.

As a foreign private issuer, we will also be exempt from the rules and regulations under the Exchange Act related to the furnishing and content of proxy statements. We will also be exempt from Regulation FD, which prohibits issuers from making selective disclosures of material non-public information. As a foreign private issuer in the United States, we are not required to disclose executive compensation according to the requirements of Regulation S-K that apply to U.S. domestic issuers (including disclosure provisions requiring pay-versus-performance and CEO pay ratio disclosures), and we are otherwise not required to comply with the U.S. requirements relative to certain other proxy disclosures and requirements. While we will comply with the requirements relating to proxy statements (including as it relates to executive compensation disclosures) under the Canadian Business Corporations Act (the “CBCA”), which are generally similar, these requirements differ from those under the Exchange Act and Regulation FD and shareholders may not receive the same information at the same time as such information is provided by U.S. domestic companies.

In addition, as a foreign private issuer, we have the option to follow certain Canadian corporate governance practices, except to the extent that such laws would be contrary to U.S. securities laws, and provided that we disclose the requirements we are not following and describe the Canadian practices we follow instead. We intend to rely on this exemption with respect to requirements regarding the quorum for any meeting of our shareholders. We may in the future elect to follow home country practices in Canada with regard to other matters. As a result, our shareholders may not have the same protections afforded to shareholders of U.S. domestic companies that are subject to all corporate governance requirements. See “Management—Corporate Governance.”

We may lose foreign private issuer status in the future, which could result in significant additional costs and expenses to us.

We may in the future lose our foreign private issuer status if a majority of our shares are held in the United States, among other possible occurrences. Although we have elected to comply with certain U.S. regulatory

 

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provisions that are optional for foreign private issuers, our loss of foreign private issuer status would make such provisions mandatory. Although we currently intend to continue filing current and periodic reports on domestic forms, the regulatory and compliance costs to us under U.S. securities laws as a U.S. domestic issuer would be more burdensome than the costs incurred as a Canadian foreign private issuer. For instance, should we lose our foreign private issuer status, we would lose our ability to rely on the exemption from the reporting and “short swing” profit recovery provisions of Section 16 of the Exchange Act. Further, we would become subject to the rules and regulations under the Exchange Act related to the furnishing and content of proxy statements. Additionally, if we are not a foreign private issuer, we may lose our ability to rely upon exemptions from certain corporate governance requirements on U.S. stock exchanges that are available to foreign private issuers.

Our amended bylaws will provide that any derivative actions, actions relating to breach of fiduciary duties and other matters relating to our internal affairs will be required to be litigated in Canada, which could limit your ability to obtain a favorable judicial forum for disputes with us.

We will adopt a forum selection bylaw that provides that, unless we consent in writing to the selection of an alternative forum, the Superior Court of Justice of the Province of Ontario, Canada and appellate Courts therefrom (or, failing such Court, any other “court” as defined in the CBCA having jurisdiction, and the appellate Courts therefrom), will be the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf; (ii) any application for an oppression remedy; (iii) any action or proceeding asserting a claim of breach of the fiduciary duty owed by any of our directors, officers or other employees to us or any of our stakeholders; (iv) any action or proceeding asserting a claim of breach of the duty of care owed by us or by any of our directors, officers or other employees to us or any of our stakeholders; (v) any action or proceeding asserting a claim or seeking a remedy arising pursuant to any provision of the CBCA or our amended articles or bylaws; or (vi) any action or proceeding asserting a claim otherwise related to our “affairs” (as defined in the CBCA). Our forum selection bylaw also provides that our securityholders are deemed to have consented to personal jurisdiction in the Province of Ontario and to service of process on their counsel in any foreign action initiated in violation of our bylaw. Therefore, it may not be possible for securityholders to litigate any action relating to the foregoing matters outside of the Province of Ontario. Notwithstanding the foregoing, our forum selection bylaw does not apply to any action brought to enforce any liability or duty created by the Exchange Act or the Securities Act, including the respective rules and regulations promulgated thereunder, or any other claim under U.S. securities law for which the United States federal or state courts have exclusive jurisdiction.

Our forum selection bylaw seeks to reduce litigation costs and increase outcome predictability by requiring derivative actions and other matters relating to our affairs to be litigated in a single forum. While forum selection clauses in corporate charters and bylaws are becoming more commonplace for public companies in the United States and have been upheld by courts in certain states, they are untested in Canada. It is possible that the validity of our forum selection bylaw could be challenged and that a court could rule that such bylaw is inapplicable or unenforceable. If a court were to find our forum selection bylaw inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions and we may not obtain the benefits of limiting jurisdiction to the courts selected.

Provisions of our charter documents and certain Canadian legislation could delay or deter a change of control, limit attempts by our shareholders to replace or remove our current senior management and affect the market price of our common shares.

Our amended articles of incorporation will authorize our board of directors to issue an unlimited number of preferred shares without shareholder approval and to determine the rights, privileges, restrictions and conditions granted to or imposed on any unissued series of preferred shares. Those rights may be superior to those of our common shares. For example, preferred shares may rank prior to our common shares as to dividend rights, liquidation preferences or both, may have full or limited voting rights and may be convertible into common shares. If we were to issue a significant number of preferred shares, these issuances could deter or delay an

 

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attempted acquisition of us or make the removal of management more difficult, particularly in the event that we issue preferred shares with special voting rights. Issuances of preferred shares, or the perception that such issuances may occur, could cause the trading price of our common shares to drop.

In addition, provisions in the CBCA and in our amended articles of incorporation and bylaws may have the effect of delaying or preventing changes in our corporate governance, including provisions that:

 

  •  

require that any action to be taken by our shareholders be effected at a duly called annual or special meeting and not by written consent;

 

  •  

establish an advance notice procedure for shareholder proposals to be brought before an annual meeting, including proposed nominations of persons for election to our board of directors; and

 

  •  

require the approval of a two-thirds majority of the votes cast by shareholders present in person or by proxy in order to amend certain provisions of our amended articles of incorporation.

These provisions may frustrate or prevent any attempts by our shareholders to launch a proxy contest or replace or remove our current senior management by making it more difficult for shareholders to replace members of our board of directors, which is responsible for appointing the members of our senior management. Any of these provisions could have the effect of delaying, preventing or deferring a change in control which could limit the opportunity for our common shareholders to receive a premium for their common shares, and could also affect the price that investors are willing to pay for common shares.

Our constating documents permit us to issue an unlimited number of common shares.

Our amended articles of incorporation permit us to issue an unlimited number of common shares. We anticipate that we will, from time to time, issue additional common shares in the future. Subject to the requirements of the NYSE, as a foreign private issuer, we will not be required to obtain the approval of shareholders for the issuance of additional common shares. Any further issuances of common shares will result in immediate dilution to existing shareholders and may have an adverse effect on the value of their shareholdings.

Following the completion of this offering, Hindalco will control a majority of the voting power of our common shares, which will prevent you and other shareholders from influencing significant decisions.

Immediately following the completion of this offering, Hindalco, through its wholly owned subsidiary AV Minerals (Netherlands) N.V., Inc., will own approximately % of our outstanding common shares (or % if the underwriters exercise their option to purchase additional shares in full). As long as Hindalco beneficially controls a majority of the voting power of our outstanding common shares with respect to a particular matter, it will generally be able to determine the outcome of all corporate actions requiring shareholder approval, including the election and removal of directors. Even if Hindalco were to control less than a majority of the voting power of our outstanding common shares, it may be able to influence the outcome of such corporate actions so long as it owns a significant portion of our outstanding common shares. Unless Hindalco were to dispose of a substantial portion of our common shares following the completion of this offering, it could remain our controlling shareholder for an extended period of time or indefinitely.

Hindalco’s interests may not be the same as, or may conflict with, the interests of our other shareholders. Investors in this offering will not be able to affect the outcome of any shareholder vote while Hindalco controls the majority of the voting power of our outstanding common shares.

Because Hindalco’s interests may differ from ours or from those of our other shareholders, actions that Hindalco takes with respect to us as our controlling shareholder may not be favorable to us or our other shareholders.

 

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Pursuant to 17 C.F.R. Section 200.83

 

We will be a “controlled company” within the meaning of the rules of the NYSE and, as a result, will qualify for, and intend to rely on, exemptions from certain corporate governance requirements. You will not have the same protections afforded to shareholders of companies that are subject to such requirements.

Upon completion of this offering, Hindalco, through its wholly owned subsidiary AV Minerals (Netherlands) N.V., Inc., will continue to control a majority of the voting power of our outstanding common shares. As a result, we will be a “controlled company” within the meaning of the corporate governance standards of the NYSE. Under these rules, a listed company of which more than 50% of the voting power is held by an individual, group or another company is a “controlled company” and it may elect not to comply with certain corporate governance requirements, including:

 

  •  

the requirement that a majority of the board of directors consist of independent directors;

 

  •  

the requirement that our nominating and corporate governance committee be composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities; and

 

  •  

the requirement that our compensation committee be composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities.

While Hindalco controls a majority of the voting power of our outstanding common shares, we may not have a majority of independent directors or our Nominating and Corporate Governance and Compensation Committees may not consist entirely of independent directors. Accordingly, you will not have the same protections afforded to shareholders of companies that are subject to all of the corporate governance requirements of the NYSE. See “Management—Director Independence and Controlled Company Exception.”

Conflicts of interest and disputes may arise between Hindalco and us that could be resolved in a manner unfavorable to us.

Questions relating to conflicts of interest and actual disputes may arise between Hindalco and us in a number of areas relating to our past and ongoing relationships. Areas in which conflicts of interest or disputes between Hindalco and us could arise include, but are not limited to, the following:

 

  •  

Competing business activities and business opportunities. Hindalco is a large global company with businesses spanning a wide range of industries, including other businesses relating to aluminum manufacturing. In the ordinary course of its business activities, Hindalco may engage in activities where its interests conflict with our interests or those of our other shareholders. In addition, our directors who are employed by or otherwise affiliated with Hindalco may have or make investments in other companies that may compete with us. Hindalco also may pursue acquisition opportunities that may be complementary to our business, and, as a result, those acquisition opportunities may not be available to us. As a result, our future competitive position and growth potential could be adversely affected.

 

  •  

Cross officerships, directorships and share ownership. The ownership interests of our directors or executive officers in the equity shares of Hindalco or service as a director or officer of both Hindalco and us could create, or appear to create, conflicts of interest when directors and executive officers are faced with decisions that could have different implications for the two companies. For example, these decisions could relate to (i) disagreement over the desirability of a potential business or acquisition opportunity or business plans, (ii) employee retention or recruiting or (iii) our dividend policy.

Any such conflicts of interest or disputes that are not resolved in favor of our business could adversely affect our financial condition and results of operations.

 

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Pursuant to 17 C.F.R. Section 200.83

 

If Hindalco sells a controlling interest in our company to a third party in a private transaction, you may not realize any change-of-control premium on our common shares and we may become subject to the control of a presently unknown third party.

On the completion of this offering, Hindalco, through its wholly owned subsidiary AV Minerals (Netherlands) N.V., Inc., will own a controlling equity interest in our company. Hindalco will have the ability, should it choose to do so, to sell some or all of the common shares it beneficially owns in a privately negotiated transaction, which, if sufficient in size, could result in a change of control of our company.

The ability of Hindalco to privately sell the common shares that it beneficially owns, with no requirement for a concurrent offer to be made to acquire all of our common shares that will be publicly traded after the completion of this offering, could prevent you from realizing any change-of-control premium on your common shares that may otherwise accrue to Hindalco on its private sale of our common shares. Additionally, if Hindalco privately sells its equity interests in our company, we may become subject to the control of a presently unknown third party. Such third party may have interests that conflict with those of other shareholders.

If securities or industry analysts do not publish research, or publish inaccurate or unfavorable research, about our business, our share price and trading volume could decline.

The trading market for our common shares will depend, in part, on the research and reports that securities or industry analysts publish about us or our business. We do not have any control over these analysts. Securities and industry analysts do not currently, and may never, publish research on our company. If no securities or industry analysts commence or maintain coverage of our company, the trading price for our shares would likely be negatively impacted. In the event securities or industry analysts initiate coverage, if one or more of the analysts who cover us downgrade our shares or publish inaccurate or unfavorable research about our business, our share price would likely decline. In addition, if our operating results fail to meet the forecast of analysts, our share price would likely decline. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, demand for our shares could decrease, which might cause our share price and trading volume to decline.

There can be no assurance that we will not be a passive foreign investment company (“PFIC”) for any taxable year, which could result in adverse U.S. federal income tax consequences to U.S. holders of our common shares.

In general, a non-U.S. corporation is a PFIC for any taxable year if: (i) 75% or more of its gross income consists of passive income (the “income test”) or (ii) 50% or more of the average value of its assets (generally determined on a quarterly basis) consists of assets that produce, or are held for the production of, passive income (including cash and cash equivalents). Generally, “passive income” includes interest, dividends, rents, royalties and certain gains. For purposes of the above calculations, a non-U.S. corporation that directly or indirectly owns at least 25% by value of the shares of another corporation is treated as if it held its proportionate share of the assets of the other corporation and received directly its proportionate share of the income of the other corporation. We believe that our common shares should not currently be treated as stock of a PFIC for U.S. federal income tax purposes and we do not expect to become a PFIC for the foreseeable future. However, because our PFIC status is an annual determination that can be made only after the end of each taxable year and will depend on the composition of our income and assets and the value of our assets for each such year, there can be no assurance that we will not be a PFIC for the current or any other taxable year.

If we were a PFIC for any taxable year during which a U.S. holder owned our common shares, certain adverse U.S. federal income tax consequences could apply to such U.S. holder. See “—Material U.S. Federal Income Tax Considerations—PFIC Rules.”

 

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Confidential Treatment Requested by Novelis Inc.

Pursuant to 17 C.F.R. Section 200.83

 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements concerning our business, operations and financial performance and condition, as well as our plans, objectives and expectations for our business operations and financial performance and condition. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “aim”, “anticipate”, “assume”, “believe”, “contemplate”, “continue”, “could”, “due”, “estimate”, “expect”, “goal”, “intend”, “may”, “objective”, “plan”, “predict”, “potential”, “positioned”, “pioneer”, “seek”, “should”, “target”, “will”, “would” and other similar expressions that are predictions of or indicate future events and future trends, or the negative of these terms or other comparable terminology.

Before making a decision to purchase our common shares, you should carefully consider all of the factors identified in this prospectus that could cause actual results to differ from these forward-looking statements. Such factors include, among other things:

 

  •  

disruptions or changes in the business or financial condition of our signification customers, or by the loss of their business or reduction in their requirements;

 

  •  

price and other forms of competition from other aluminum rolled products producers and potential new market entrants;

 

  •  

the competitiveness of our end-markets, and the willingness of our customers to accept substitutes for our products, including steel, plastics, composite materials and glass;

 

  •  

our failure to realize the anticipated benefits of strategic investments;

 

  •  

increases in the cost or volatility in the availability of primary aluminum, scrap aluminum, sheet ingot, or other raw materials used in the production of our products;

 

  •  

risks related to the energy-intensive nature of our operations, including increases to energy costs or disruptions to our energy supplies;

 

  •  

downturns in the automotive and ground transportation industries or changes in consumer demand;

 

  •  

union disputes and other employee relations issues;

 

  •  

the impact of labor disputes and strikes on our customers;

 

  •  

the loss of our key management and other personnel, or an inability to attract retain such management and other personnel;

 

  •  

unplanned disruptions at our operating facilities;

 

  •  

economic uncertainty, capital markets disruption and supply chain interruptions related to geopolitical instability, such as the ongoing military conflict between Russia and Ukraine, attacks on shipping vessels in the Red Sea, and the ongoing conflicts in the Gaza Strip and the surrounding region;

 

  •  

security breaches and other disruptions to our information technology networks and systems;

 

  •  

risks related to timing differences between the prices we pay under purchase contracts and metal prices we charge our customers;

 

  •  

a deterioration of our financial condition, a downgrade of our ratings by a credit rating agency, or other factors that could limit our ability to enter into, or increase our costs of, financing and hedging transactions;

 

  •  

adverse changes in currency exchange rates;

 

  •  

our inability to transact in derivative instruments, or our inability to adequately hedge our exposure to price fluctuations under derivative instruments, or a failure of counterparties to our derivative instruments to honor their agreements;

 

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  •  

risks related to the operating and financial restrictions imposed on us by the covenants in our credit facilities and the indentures governing our Senior Notes;

 

  •  

our ability to protect our intellectual property, the confidentially of our know-how, trade secrets, technology, and other proprietary information;

 

  •  

risks related to global climate change, including legal, regulatory, or market responses to such change;

 

  •  

the risk that an active, liquid trading market for our common shares may not develop or that the market for our common shares may be volatile, including as a result of our limited public float;

 

  •  

the depression of the market price of our common shares caused by potential future sales or distributions by Hindalco;

 

  •  

increased costs and regulatory burdens resulting from being a public company listed on the NYSE following this offering; and

 

  •  

conflicts of interest and disputes arising between Hindalco and the company that could be resolved in a manner unfavorable to the Company.

You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this prospectus primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors, including those described above, in “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and elsewhere in this prospectus. Moreover, we operate in a competitive environment, and new risks and uncertainties may therefore emerge from time to time and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this prospectus. We cannot guarantee that the results, events, and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events, or circumstances could differ materially from those described in the forward-looking statements.

Neither we nor any other person assumes responsibility for the accuracy and completeness of any of these forward-looking statements. Moreover, the forward-looking statements made in this prospectus relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this prospectus to reflect events or circumstances after the date of this prospectus or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this prospectus, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.

The forward-looking statements contained in the prospectus are excluded from the safe harbor protection provided by the Private Securities Litigation Reform Act of 1935 and Section 27A of the Securities Act.

 

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Pursuant to 17 C.F.R. Section 200.83

 

USE OF PROCEEDS

The selling shareholder is selling all of the common shares being sold in this offering, including any shares sold upon exercise of the underwriters’ option to purchase additional shares, and will receive all of the net proceeds from the sale of such common shares. Accordingly, we will not receive any proceeds from the sale of our common shares by the selling shareholder in this offering.

 

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DIVIDEND POLICY

We currently intend to pay quarterly dividends of approximately $   , distributed to our shareholders on a pro-rata basis. Payments to our shareholders are at the discretion of our board of directors. Any such payments depend on, among other things, our financial resources, cash flows generated by our business, our cash requirements, restrictions under the instruments and agreements governing our indebtedness, and other relevant factors. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Capital Allocation Framework,” “Material U.S. Federal Income Tax Considerations—Taxation of Distributions” and “Material Canadian Federal Income Tax Considerations—Dividends” for additional information.

On August 1, 2023, our board of directors approved a return of capital to our common shareholder of up to $100 million, expected to be paid during fiscal 2024. The timing and the final amount of the return of capital is subject to change based upon final shareholder approval. During the second quarter of fiscal 2023, we paid a return of capital to our sole shareholder in the amount of $100 million. In addition, during the second quarter of fiscal 2022, we paid a return of capital to our sole shareholder in the amount of $100 million. Past payment of dividends or returns of capital as a private company should not be construed as a guarantee of future declaration or payment of dividends or returns of capital in the same amount or at all.

 

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Confidential Treatment Requested by Novelis Inc.

Pursuant to 17 C.F.R. Section 200.83

 

CAPITALIZATION

The following table sets forth the cash and cash equivalents and capitalization as of   , 2023 for Novelis Inc. and its subsidiaries on an actual basis.

You should read this information together with our audited annual consolidated financial statements, and the accompanying notes thereto, and our unaudited interim condensed consolidated financial statements, and the accompanying notes thereto, appearing elsewhere in this prospectus and the sections titled “Prospectus Summary—Summary Historical Condensed Consolidated Financial Information” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The following amounts are in millions, except per share data.

 

     As of    , 2023  
     Actual  
     (in millions)  

Cash and Cash Equivalents

   $       
  

 

 

 

Short-Term Debt:

  

ABL Revolver

  

China Short-Term Borrowings

  

Brazil Short-Term Borrowings

  

Total Short-Term Debt

   $    

Long-Term Debt:

  

Floating Rate Term Loans, due September 2026

  

Floating Rate Term Loan, due March 2028

  

3.250% Senior Notes due November 2026

  

3.375% Senior Notes due April 2029

  

4.750% Senior Notes due January 2030

  

3.875% Senior Notes due August 2031

  

3.90% China Bank Loans, due August 2027

  

Finance lease obligations and other debt, due through June 2028

  

Total Long-Term Debt (including current portion)

   $    

Total Debt(1)

   $    

Shareholders’ equity:

  

Common shares, no par value:         shares authorized,         issued at         , 2023

  

Additional paid-in capital

  

Retained earnings

  

Accumulated other comprehensive loss

  

Total shareholder equity

   $    

Total Capitalization

   $    
  

 

 

 

 

(1)

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Description of Outstanding Indebtedness” for further detail on our outstanding indebtedness.

 

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Confidential Treatment Requested by Novelis Inc.

Pursuant to 17 C.F.R. Section 200.83

 

DILUTION

Immediately prior to this initial public offering, Hindalco will hold all of our issued and outstanding shares through its wholly owned subsidiary, AV Minerals (Netherlands) N.V. If you invest in our common shares in this offering, your interest will be diluted to the extent of the difference between the initial public offering price per share in this offering and the pro forma as adjusted net tangible book value per share after this offering, after giving effect to the share split. Dilution results from the fact that the initial public offering price per share is substantially in excess of the net tangible book value per share attributable to our existing shareholder for our presently outstanding shares. Our net tangible book value per share represents the amount of our total tangible assets (total assets less intangible assets) less total liabilities, divided by the number of shares issued and outstanding.

After giving effect to the share split, our net tangible book value estimated as of   , 2023 would have been approximately $   per share. This represents an immediate increase in net tangible book value of $  per share to new investors purchasing common shares in this offering, assuming an offering price of $   per common share (the midpoint of the range set forth on the cover of this prospectus). Dilution for this purpose represents the difference between the price per common shares paid by these purchasers and net tangible book value per common share immediately after the completion of this offering.

If you invest in our common shares, your interest will be diluted to the extent of the difference between the initial public offering price per common share and the pro forma net tangible book value per common share.

The following table illustrates this dilution to new investors purchasing common shares in this offering:

 

Assumed initial public offering price

   $       

Pro forma net tangible book value per share immediately after this offering

   $    

Dilution per common share to new investors

   $    

Percentage of dilution in net tangible book value per common share for new investors

     %  

Each $1.00 increase (decrease) in the offering price per common share, respectively, would increase (decrease) the dilution to investors in this offering by $1.00 per common share.

To the extent that we grant options in the future and those options are exercised or other issuances of common shares are made, there will be further dilution to investors.

 

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Pursuant to 17 C.F.R. Section 200.83

 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to assist in understanding and assessing the trends and significant changes in our results of operations and financial condition. Historical results may not be indicative of future performance. The statements in this discussion regarding industry outlook, our expectations regarding our future performance, liquidity and capital resources and all other non-historical statements in this discussion are forward-looking statements and are based on the beliefs of our management, as well as assumptions made by, and information currently available to, our management. Actual results could differ materially from those discussed in or implied by forward-looking statements as a result of various factors, including those discussed below and elsewhere in this prospectus, particularly in “Risk Factors.” This discussion should be read in conjunction with “Prospectus Summary—Summary Historical Condensed Consolidated Financial Data” and our audited annual consolidated financial statements and unaudited interim condensed consolidated financial statements included elsewhere in this prospectus and the notes thereto included elsewhere in this prospectus.

In this discussion, we use certain non-U.S. GAAP financial measures. Explanation of these non-U.S. GAAP financial measures and reconciliation to the most directly comparable U.S. GAAP financial measures are included in this Management’s Discussion and Analysis of Financial Condition and Results of Operations as well as “Prospectus Summary—Summary Historical Condensed Consolidated Financial Data.” Investors should not consider non-U.S. GAAP financial measures in isolation or as substitutes for financial information presented in compliance with U.S. GAAP.

Overview and References

We consider ourselves the leading producer of innovative, sustainable aluminum solutions and the world’s largest recycler of aluminum. Specifically, we believe we are the leading provider of low-carbon aluminum solutions, helping to drive a circular economy by partnering with our suppliers and customers in beverage packaging, automotive, aerospace and specialties (a diverse market including building & construction, signage, foil & packaging, commercial transportation and commercial & consumer products, among others) markets globally. Throughout North America, Europe, Asia, and South America, we have an integrated network of 32 world-class, technologically advanced facilities, including 14 recycling centers, 11 innovation centers, and 13,160 employees.

Prior to giving effect to this offering, all of the outstanding shares of Novelis are owned by AV Minerals (Netherlands) N.V., a wholly owned subsidiary of Hindalco.

The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in these 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 prospectus, particularly in “Special Note Regarding Forward-Looking Statements” and “Risk Factors.”

Discussion and analysis of fiscal 2021 and year-over-year comparisons between fiscal 2022 and fiscal 2021 are not included in this prospectus and can be found in Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the fiscal year ended March 31, 2022, filed with the SEC on May 11, 2022. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited annual consolidated financial statements and unaudited interim condensed consolidated financial statements included elsewhere in this prospectus and the related notes and other financial information included elsewhere in this prospectus.

 

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Pursuant to 17 C.F.R. Section 200.83

 

Business and Industry Climate

Approximately a decade ago, we launched a multi-year strategy to transform and improve the profitability of our business through significant investment in new capacity and capabilities. These investments enabled us to increase the amount of recycled content in our products, capitalize on favorable long-term market trends driving increased consumer demand for lightweight, sustainable aluminum products, and diversify and optimize our product portfolio. As a global leader in the aluminum flat rolled products industry, we leveraged our new capacity, global footprint, scale and solid customer relationships to drive volumes and capture favorable supply and demand market dynamics across all our end-markets. With growth in volumes combined with improved pricing, significant increase in scrap inputs, operational efficiencies and high-capacity utilization rates, we significantly improved the profitability of our beverage packaging and specialties products and maintained high margins for automotive and aerospace products to increase total company net income per tonne from $(12) in fiscal 2016 to $173 in fiscal 2023 and total company Adjusted EBITDA per tonne from $308 in fiscal 2016 to $478 in fiscal 2023, and turn a net loss of $38 million into $657 million in net income.

However, rising inflation and geopolitical instability in Europe in fiscal 2023, led to increased global operating costs, including for energy, freight, labor, coatings, and alloys. While many of these operating cost pressures have lessened in recent months, some costs, including for labor and repairs, and maintenance, remain elevated. Rising interest rates have also increased interest expense on our variable interest rate loans. We believe the challenging inflationary and geopolitical environment is negatively impacting near-term demand in some specialty end-markets, such as building and construction, which is more sensitive to inflation and interest rates. We expect such elevated costs and reduced demand until economic conditions stabilize. Despite our results being negatively impacted by higher costs, we have been able to partially mitigate a portion of the higher inflationary cost impact through a combination of hedging, passing through a portion of the higher costs to customers, favorable pricing environments, and utilizing recycled materials. We have also implemented cost control measures across our global operations, including a focus on employment, professional services, and travel costs. There is no assurance that we will continue to be able to mitigate these higher costs in the future.

We believe that global long-term demand for aluminum rolled products remains strong, driven by anticipated economic growth, material substitution, and sustainability considerations, including increased environmental awareness around polyethylene terephthalate (“PET”) plastics. However, we saw reduced can sheet demand beginning in the second half of fiscal 2023 attributed to the beverage packaging industry reducing excess inventory as supply chains improved and markets adjusted to a more moderated level of beverage packaging demand following the COVID-19 pandemic. We believe inventory levels across the beverage packaging supply chain have now largely normalized.

Increasing customer preference for sustainable packaging options and package mix shift toward infinitely recyclable aluminum are driving higher demand for aluminum beverage packaging worldwide. To support growing demand for aluminum beverage packaging sheet in North America, we broke ground on a 600 kt capacity greenfield rolling and recycling plant in Bay Minette, Alabama in October 2022. We plan to allocate more than half of this plant’s capacity to the production of beverage packaging sheet. We continue to evaluate opportunities for additional capacity expansion across regions, where local can sheet supply is insufficient to meet the rapid expansion in demand.

We believe that long-term demand for aluminum automotive sheet will continue to grow, which drove our recently completed investments in automotive sheet finishing capacity in Guthrie, Kentucky, and Changzhou, China. This demand has been primarily driven by the benefits that result from using lightweight aluminum in vehicle structures and components, as automakers respond to stricter government regulations regarding emissions and fuel economy, while maintaining or improving vehicle safety and performance. We are also seeing increased demand for aluminum for EVs, as aluminum’s lighter weight can result in extended battery range.

 

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We expect long-term demand for building and construction and other specialty products to grow due to increased customer preference for lightweight, sustainable materials and demand for aluminum plate in Asia to grow driven by the development and expansion of industries serving aerospace, rail, and other technically demanding applications.

Demand for aerospace aluminum plate and sheet has strengthened as air-travel demand has recovered toward pre-COVID levels. In the longer-term, we believe significant aircraft industry order backlogs for key OEMs, including Airbus and Boeing, will translate into growth in the future and that our multi-year supply agreements have positioned us to benefit from future expected demand.

Identified Organic Growth Investments

We believe the long-term demand trends for flat-rolled aluminum products remain strong, and we have approximately $6.4 billion of debottlenecking, recycling, and new capacity capital investments identified, focused on increasing capacity and capabilities to meet growing customer demand and align with our sustainability commitments. The approximately $6.4 billion of identified investments consists of approximately $4.7 billion in investments in North America, expected to produce an additional 745kt in incremental rolling capacity, approximately $300-450 million in investments in Europe, expected to produce an additional 200kt in incremental rolling capacity, approximately $450 million in investments in Asia, expected to produce an additional 250kt in incremental rolling capacity, and approximately $850 million in investments in South America, expected to produce an additional 480kt in incremental rolling capacity. We currently have approximately $4.9 billion of investments under construction through 2027 to further increase recycling and rolling capacity and profitability. Of this, approximately $350 million was spent in fiscal 2023, which includes expenditure for specific investments outlined below.

In October 2021, we announced plans to invest approximately $130 million at our Oswego, New York, plant to meet growing customer demand for sustainable, aluminum flat-rolled products. We expect the project to increase hot mill capacity by 124 kt, with a total expected increase of finished goods capacity estimated in the range of 65 kt. The investment also includes enhancements to the plant’s batch annealing capabilities for automotive sheet.

In January 2022, we announced plans to invest approximately $365 million to build a highly advanced recycling center for automotive in the U.S., which will be adjacent to our existing automotive finishing plant in Guthrie, Kentucky. With an expected annual casting capacity of 240 kt of sheet ingot, we expect the facility will reduce the Company’s carbon emissions by more than one million tonnes each year.

In February 2022, we announced plans to build a recycling and casting center at our UAL joint venture in South Korea. This $65 million investment is being fully funded by Novelis and will have an annual casting capacity of 100 kt of low-carbon sheet ingot. Once online, we expect the recycling center to reduce the Company’s carbon emissions by more than 420,000 tonnes each year.

In October 2022, to support growing demand for aluminum beverage packaging sheet in North America, we broke ground on an approximately $4.1 billion greenfield, fully integrated rolling and recycling plant in Bay Minette, Alabama. This new U.S. plant will support strong demand for sustainable, beverage packaging and automotive aluminum sheet and advance a more circular economy.

We also have a number of smaller capacity debottlenecking projects underway in Pindamonhangaba, Brazil and at our Logan JV plant in the United States.

Environmental, Social & Governance

In April 2021, we announced that we will further our longstanding sustainability commitment by aiming to become a carbon neutral company by 2050 or sooner, with an interim goal to reduce our carbon footprint by 30% by fiscal 2026, from our baseline of fiscal 2016. Carbon goals are inclusive of Scope 1 and 2, as well as Scope 3 emissions in categories 1 and 4 of the Greenhouse Gas Protocol. In addition, we have targets to reduce waste intensity to landfills by 20%, energy intensity by 10%, and water intensity by 10%, each by fiscal 2026, from our baseline of fiscal 2020.

 

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We plan to increase the use of recycled content in our products, as appropriate, and engage with customers, suppliers, and industry peers across the value chain as we aim to drive innovation that improves aluminum’s overall sustainability profile. In addition, we intend to evaluate each future expansion project’s carbon impact and plan to include an appropriate carbon cost impact as part of our financial evaluation of future strategic growth investments so that we may appropriately mitigate any negative carbon impacts to meet our goals.

In support of our commitments, we are voluntarily pursuing the certification of all of our plant operations to the Aluminum Stewardship Initiatives’ (“ASI”) certification program. ASI works together with producers, users, and stakeholders in the aluminum value chain to collaboratively foster responsible production, sourcing, and stewardship of aluminum. Currently, we have 22 plants globally, and 14 scrap collection centers across Brazil, with both the Performance Standard Certification and the Chain of Custody Certification. In addition, to support our initiatives, in March 2021 we issued €500 million in aggregate principal amount of senior notes. We have allocated an amount equal to the net proceeds of these notes to eligible “green” projects, such as investments in renewable energy and pollution prevention and control projects. Through March 31, 2023, we have allocated $280 million of the net proceeds to such projects.

Our path to a more sustainable and circular future goes beyond our environmental commitments. We have set targets to be a more diverse and inclusive workforce reflective of our local communities. Globally, we are dedicated to increasing the representation of women in senior leadership, as well as in technical and operational roles. To achieve these goals, the Company has established a global Diversity & Inclusion board of directors, as well as supporting councils in each of our four regions. We will also continue assisting our Employee Resource Groups to help create a more inclusive environment where we seek to provide our employees with a sense of belonging and where different backgrounds and perspectives are embraced and valued.

We are also committed to supporting the communities in which our employees live and work. With firmly established community engagement programs, the Company is committed to advancing its corporate social responsibility efforts by further investing in the Novelis Neighbor program, which gives back to communities through financial contributions and employee volunteerism. The programs emphasize STEM education, recycling education, and local community development.

Board oversight regarding risks related to Russia’s invasion of Ukraine

Our management administers an Enterprise Risk Management (“ERM”) program, which is a comprehensive risk assessment and mitigation process that identifies and addresses all known current and potential material risks to Novelis’ global operations, including legal and regulatory risks. The ERM team is led by an executive officer who delivers an ERM report to the Audit Committee of our board at least quarterly. On an annual basis, the ERM team meets with or interviews about 160 individuals, some of which are interviewed quarterly, to stay abreast of the latest risks we face.

Throughout the escalation of the Russia-Ukraine conflict, our ERM team has monitored developments and gathered information about Novelis contracts with Russian businesses. Novelis’ direct exposure to the conflict has been limited, as we have no operations, assets or employees in either Russia or Ukraine, and we have only immaterial customer relationships in these countries. Sanctions, tariffs, a ban, or similar actions related to the conflict that impact the supply Russian aluminum could disrupt global aluminum supply. While one of our suppliers of metal is UC Rusal PLC (“Rusal”), a Russian aluminum company, we purchase metal from a diverse global portfolio of metal suppliers and are not dependent on Rusal for a significant portion of our metal supply. The ERM team also monitors other potential impacts of Russia’s invasion of Ukraine, including impacts on the reliability of energy supplies to our manufacturing sites and supply chain disruptions. This information is presented to, and discussed with, the Audit Committee of our board at least quarterly, with interim updates from our executive leadership as our board may require. In addition, we manage sanctions compliance through a global sanctions screening program, and our Information Security team monitors cybersecurity matters and makes periodic reports at meetings of our board.

 

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Liquidity Position

We believe we have adequate liquidity to manage the business with dynamic metal prices. Our cash and cash equivalents and availability under committed credit facilities aggregated to $2.1 billion of liquidity as of December 31, 2023.

We maintain a disciplined approach to capital spending, prioritizing maintenance capital for our operations, and organic strategic capacity expansion projects. We are taking a prudent approach to phasing the timing of transformational organic investment spend.

Market Trends in Our End-Markets

Beverage Packaging. Can stock shipments represent the largest percentage of our total rolled product shipments. According to CRU, demand for can stock will increase at a global (excluding China) compound annual growth rate of approximately 4% from calendar year 2023 to 2031, mainly driven by sustainability trends; growth in beverage markets that increasingly use aluminum packaging; and substitution from plastic, glass, and steel. However, we have recently seen reduced can sheet demand, which began during the middle of fiscal 2023 and has continued into early fiscal 2024. We attribute this reduced demand to the beverage packaging industry reducing excess inventory previously stocked in response to unreliable supply chains and unprecedented high levels of beverage packaging demand during the COVID-19 pandemic, as well as low promotional activity at retailers. We anticipate demand will continue to recover over the next couple of quarters as we believe industry inventory levels have now largely normalized and some level of promotional activity is beginning to resume.

Automotive. We believe aluminum is positioned for long-term growth through increased adoption of EVs, which utilize higher amounts of aluminum. Based on management estimates, we believe that global automotive aluminum sheet demand is set to grow at a compound annual growth rate of 7% from calendar year 2023 to calendar year 2028. According to Ducker Carlisle, automotive aluminum sheet demand in North America is set to increase approximately 40% from calendar year 2022 to calendar year 2030, which is directionally in line with our market growth estimates for the region. We estimate that demand in Europe will grow at a slightly higher rate and that the fast-growing Asian automotive aluminum sheet market will increase at a steeper rate from a lower baseline in 2023. Easing supply chain challenges and pent-up consumer demand is supporting strong near-term demand for automotive aluminum sheet.

The United Auto Workers strikes impacting three of our North American customers, Ford Motor Company, General Motors and Stellantis, which commenced in September 2023 were resolved by November 2023 and we did not experience any material impact from these strikes.

Aerospace. Passenger air travel continues to increase, facilitating a faster than anticipated recovery for the aerospace industry post-pandemic. We expect demand for aerospace aluminum plate and sheet to continue to grow driven by increased air traffic and a need for fleet modernization.

Specialties. Specialties includes diverse markets, including building and construction, commercial transportation, foil and packaging, and commercial and consumer products. These industries continue to increase aluminum adoption due to its many desirable characteristics. We believe these trends will keep demand high in the long-term, despite the near-term economic headwinds impacting demand for building and construction and some industrial products.

Business Model and Key Concepts

Conversion Business Model

A significant amount of our business is conducted under a conversion model, which allows us to pass through increases or decreases in the price of aluminum to our customers. Nearly all of our flat-rolled products have a

 

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price structure with three components: (i) a base aluminum price quoted off the LME; (ii) an LMP; and (iii) a “conversion premium” to produce the rolled product that reflects, among other factors, the competitive market conditions for that product. Base aluminum prices are typically driven by macroeconomic factors and global supply and demand for aluminum. LMP tends to vary based on the supply and demand for metal in a particular region and the associated transportation costs.

In North America, Europe, and South America, we pass through LME and LMP to our customers, which are recorded through net sales. In Asia, we purchase our metal inputs based on the LME, which we pass through to our customers, and incur an LMP. Many of our competitors in this region price their metal off the Shanghai Futures Exchange, which does not include an LMP. However, in a majority of the new contracts over the last several quarters, we have been able to fully pass through the LMP in an increasingly favorable demand environment.

LME Base Aluminum Prices and Local Market Premiums

The average (based on the simple average of the monthly averages) and closing prices for aluminum set on the LME for the periods set forth below are as follows:

 

     Nine Months Ended
December 31,
     Percent
Change
    Fiscal      Percent
Change
 
$ in millions    2023      2022     2023      2022  

Aluminum (per metric tonne, and presented in U.S. dollars):

                

Closing cash price as of beginning of period

   $ 2,337      $ 3,503        (33 )%    $ 3,503      $ 2,213        58

Average cash price during the period

     2,203        2,520        (13 )%      2,490        2,769        (10 )% 

Closing cash price as of end of period

     2,336        2,361        (1 )%      2,337        3,503        (33 )% 
The weighted average LMPs for the periods set forth below are as follows:

 

     Nine Months Ended
December 31,
     Percent
Change
    Fiscal      Percent
Change
 
$ in millions    2023      2022     2023      2022  

Weighted average LMP (per metric tonne and presented in U.S. dollars)

   $ 308      $ 404        (24 )%    $ 395      $ 494        (20 )% 

Metal Price Lag and Related Hedging Activities

Increases or decreases in the price of aluminum based on the average LME base aluminum prices and LMPs directly impact net sales, cost of goods sold (exclusive of depreciation and amortization), and working capital. The timing of these impacts varies based on contractual arrangements with customers and metal suppliers in each region. These timing impacts are referred to as metal price lag. Metal price lag exists due to: (i) the period of time between the pricing of our purchase of metal, holding and processing the metal, and the pricing of the sale of finished inventory to our customers and (ii) certain customer contracts containing fixed forward price commitments, which result in exposure to changes in metal prices for the period of time between when our sales price fixes and the sale actually occurs.

We use LME aluminum forward contracts to preserve our conversion margins and manage the timing differences associated with the LME base metal component of net sales and cost of goods sold (exclusive of depreciation and amortization). These derivatives directly hedge the economic risk of future LME base metal price fluctuations to better match the purchase price of metal with the sales price of metal. We have exposure to multiple regional LMPs, however, the derivative markets for those LMPs are generally not robust or efficient enough for us to hedge all of our exposure to price movements beyond a small volume. From time to time, we take advantage of short-term market conditions to hedge a small percentage of our exposure. As a consequence, volatility in LMPs can have a significant impact on our results of operations and cash flows.

 

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Confidential Treatment Requested by Novelis Inc.

Pursuant to 17 C.F.R. Section 200.83

 

We elect to apply hedge accounting to better match the recognition of gains or losses on certain derivative instruments with the recognition of the underlying exposure being hedged in the statement of operations. For undesignated metal derivatives, there are timing differences between the recognition of unrealized gains or losses on the derivatives and the recognition of the underlying exposure in the statement of operations. The recognition of unrealized gains and losses on undesignated metal derivative positions typically precedes inventory cost recognition, customer delivery, and revenue recognition. The timing difference between the recognition of unrealized gains and losses on undesignated metal derivatives and cost or revenue recognition impacts income from continuing operations before income tax provision and net income. Gains and losses on metal derivative contracts are not recognized in Adjusted EBITDA until realized.

Foreign Currency and Related Hedging Activities

We operate a global business and conduct business in various currencies around the world. We have exposure to foreign currency risk as fluctuations in foreign exchange rates impact our operating results when we translate the operating results from various functional currencies into our U.S. dollar reporting currency at current average rates. We also record foreign exchange remeasurement gains and losses when business transactions are denominated in currencies other than the functional currency of that operation. Global economic uncertainty is contributing to higher levels of volatility among the currency pairs in which we conduct business. The following table presents the exchange rates as of the end of each period set forth below and the average of the month-end exchange rates.

 

     Exchange Rate as of      Average Exchange Rate
Nine Months Ended

December 31,
     Average Exchange Rate
Fiscal
 
     December 31,
2023
     March 31,
2023
     2023      2022      2023      2022  

Euro per U.S. dollar

     0.905        0.920        0.922        0.972        0.960        0.862  

Brazilian real per U.S. dollar

     4.841        5.080        4.936        5.159        5.151        5.285  

South Korean won per U.S. dollar

     1,289        1,304        1,317        1,324        1,314        1,168  

Canadian dollar per U.S. dollar

     1.318        1.354        1.347        1.319        1.327        1.253  

Swiss franc per euro

     0.930        0.993        0.962        0.992        0.993        1.064  

Exchange rate movements have an impact on our operating results. In Europe, where we predominantly have local currency selling prices and operating costs, we benefit as the euro strengthens but are adversely affected as the euro weakens. For our Swiss operations, where operating costs are incurred primarily in the Swiss franc and a large portion of revenues are denominated in the euro, we benefit as the Swiss franc weakens but are adversely affected as the franc strengthens. In South Korea, where we have local currency operating costs and U.S. dollar denominated selling prices for exports, we benefit as the South Korean won weakens but are adversely affected as the won strengthens. In Brazil, where we have predominately U.S. dollar selling prices and local currency manufacturing costs, we benefit as the Brazilian real weakens but are adversely affected as the real strengthens. We use foreign exchange forward contracts to manage our exposure arising from recorded assets and liabilities, firm commitments, and forecasted cash flows denominated in currencies other than the functional currency of certain operations, which include capital expenditures and net investment in foreign subsidiaries.

See Segment Review below for the impact of foreign currency on each of our segments.

Results of Operations

For the nine months ended December 31, 2023, we reported net income attributable to our common shareholder of $434 million, a decrease of 14% compared to $502 million in the comparable prior year period, and total Adjusted EBITDA of $1,359 million, a decrease of 3% compared to $1,408 million in the comparable prior year period. The decrease in operational performance was primarily driven by lower beverage packaging, aerospace and specialty shipments, less favorable metal benefit from recycling, and a favorable inventory timing effect

 

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from capitalizing high operating costs in the prior year period. These headwinds were partially offset by higher pricing, including some cost pass-through to customers, higher automotive shipments, some settling of inflationary cost pressures, and favorable foreign exchange.

For fiscal 2023, we reported net income attributable to our common shareholder of $658 million, a decrease compared to $954 million in fiscal 2022. Net income from continuing operations was $659 million for fiscal 2023, a decrease from $1.0 billion in fiscal 2022, and Adjusted EBITDA was $1.8 billion in fiscal 2023, a decrease from $2.0 billion in fiscal 2022. The decrease in operational performance was primarily driven by significantly higher inflationary operating, energy and metal costs as a result of geopolitical instability, supply chain disruptions, rising interest rates, higher SG&A, unfavorable foreign exchange rates, less favorable metal benefit from recycling driven primarily by lower scrap spreads, lower shipments, and a gain of $85 million, net of litigation expenses, from favorable outcomes in a Brazilian tax litigation in the prior year that did not recur during fiscal 2023. These unfavorable factors were partially offset by higher pricing, including some higher cost pass-through to customers, and favorable product mix.

Net cash provided by operating activities – continuing operations was $420 million for the nine months ended December 31, 2023 and $1.2 billion for fiscal 2023. Adjusted Free Cash Flow was $(517 million) for the nine months ended December 31, 2023 and $431 million for fiscal 2023. Refer to “Non-U.S. GAAP Financial Measures” for our definition of Adjusted Free Cash Flow.

Key Sales and Shipment Trends

 

    Fiscal Year
Ended
    Nine Months
Ended
    Fiscal Year
Ended
    Nine Months
Ended
 

in millions, except percentages and
shipments,

which are in kt

  March 31,
2022
    December 31,
2022
    March 31,
2023
    March 31,
2023
    December 31,
2023
 

Net sales

  $  17,149     $    14,089     $   13,397     $  18,486     $    12,133  

Percentage (decrease) increase in net sales versus comparable prior year period

    40     15     1     8     (14 )% 

Rolled product shipments

         

North America

    1,467       1,152       1,129       1,515       1,122  

Europe

    1,067       782       758       1,030       736  

Asia

    763       534       536       721       527  

South America

    617       472       468       616       439  

Eliminations

    (56     (86     (63     (92     (102
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    3,858       2,854       2,828       3,790       2,722  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The following summarizes the percentage (decrease) increase in rolled products shipments versus the comparable prior year period:

         

North America

    9     6     2     3     (3 )% 

Europe

    9     (1 )%      (4 )%      (3 )%      (6 )% 

Asia

    2     (5 )%      (6 )%      (6 )%      (1 )% 

South America

    7     2     2     —       (7 )% 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    7     (1 )%      (2 )%      (2 )%      (5 )% 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Nine Months Ended December 31, 2023, Compared to the Nine Months Ended December 31, 2022

Net sales were $12.1 billion for the nine months ended December 31, 2023, a decrease of 14% from $14.1 billion in the comparable prior year period, primarily driven by lower average aluminum prices and a 5% decline in total shipments compared to the prior year period. The decrease in aluminum prices was driven primarily by a 13%

 

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decrease in average LME prices compared to the prior year period. The main drivers for the decrease in shipments are discussed below under Segment Review.

Income from continuing operations before income tax provision was $593 million for the nine months ended December 31, 2023, compared to $649 million in the comparable prior year period. In addition to the factors noted above, the following items affected income from continuing operations before income tax provision.

Cost of Goods Sold (Exclusive of Depreciation and Amortization)

Cost of goods sold (exclusive of depreciation and amortization) was $10.3 billion for the nine months ended December 31, 2023, a decrease of 16% from $12.2 billion in the comparable prior year period, driven primarily by lower average LME aluminum prices and lower production due to reduced demand. Total metal input costs included in cost of goods sold (exclusive of depreciation and amortization) decreased $1.9 billion over the comparable prior year period.

Selling, General and Administrative Expenses

SG&A was $545 million for the nine months ended December 31, 2023, compared to $509 million for the nine months ended December 31, 2022. The increase is mainly due to higher employment expense resulting from higher employment and variable compensation costs, partially offset by cost control measures across our global operations, including a focus on professional services and travel costs.

Depreciation and Amortization

Depreciation and amortization was $406 million for the nine months ended December 31, 2023, compared to $405 million for the nine months ended December 31, 2022.

Interest Expense and Amortization of Debt Issuance Costs

Interest expense and amortization of debt issuance costs was $228 million and $198 million for the nine months ended December 31, 2023, and 2022, respectively. This increase is primarily due to higher average interest rates on variable interest rate borrowings.

Loss on Extinguishment of Debt, Net

We recorded a $5 million loss on extinguishment of debt, net for the nine months ended December 31, 2023. This relates to the write-off of unamortized debt issuance costs and discount for the partial extinguishment of the 2020 Term Loan. There were no losses on extinguishments of debt for the nine months ended December 31, 2022.

Restructuring and Impairment Expenses, Net

Restructuring and impairment expenses, net was a net expense of $33 million and $7 million for the nine months ended December 31, 2023, and 2022, respectively. The change primarily relates to the Company’s closure of the Clayton, New Jersey plant in December 2023, which resulted in charges for restructuring activities of $24 million in the current period.

Other (Income) Expenses, Net

Other (income) expenses, net was income of $35 million and an expense of $67 million for the nine months ended December 31, 2023, and 2022, respectively. This change primarily due to the Company incurring realized gains on the change in fair value of derivative instruments, net, of $51 million in the current period compared to losses of $71 million in the prior year period and unrealized losses on the change in fair value of derivative instruments, net, of $4 million in the current period compared to gains of $20 million in the prior year period.

 

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Taxes

We recognized $159 million of income tax provision for the nine months ended December 31, 2023. Our effective tax rate was primarily driven by the full-year forecasted effective tax rate that takes into account income taxed at rates that differ from the 25% Canadian rate, including withholding taxes, offset with the availability of tax credits and income not subject to tax. We recognized $146 million of income tax provision in the prior comparable period.

 

Selected Operating Results

Nine Months Ended December 31, 2023

   North
America
    Europe     Asia     South
America
    Eliminations
and Other
    Total  

Net sales

   $  5,031     $  3,342     $  1,952     $  1,831     $    (23)     $  12,133  

Shipments (in kt)

            

Rolled products – third party

     1,122       723       458       419       —       2,722  

Rolled products – intersegment

     —       13       69       20       (102     —  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total rolled products

     1,122       736       527       439       (102     2,722  

Non-rolled products

     12       75       22       82       (1     190  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total shipments

     1,134       811       549       521       (103     2,912  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Selected Operating Results

Nine Months Ended December 31, 2022

   North
America
    Europe     Asia     South
America
    Eliminations
and Other
    Total  

Net sales

   $ 5,816     $ 3,836     $ 2,289     $ 2,254     $ (106   $ 14,089  

Shipments (in kt)

            

Rolled products – third party

     1,152       754       493       455       —       2,854  

Rolled products – intersegment

     —       28       41       17       (86     —  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total rolled products

     1,152       782       534       472       (86     2,854  

Non-rolled products

     10       86       24       103       (21     202  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total shipments

     1,162       868       558       575       (107     3,056  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
The following table reconciles changes in Adjusted EBITDA for the nine months ended December 31, 2022, to the nine months ended December 31, 2023.

 

in millions    North
America
    Europe     Asia     South
America
    Eliminations
and Other(1)
    Total  

Adjusted EBITDA - Nine Months Ended December 31, 2022

   $ 542     $ 195     $ 267     $ 407     $ (3   $ 1,408  

Volume

     (34     (54     —       (30     (26     (144

Conversion premium and product mix

     78       82       (58     (24     57       135  

Conversion costs

     (48     (2     12       (20     (30     (88

Foreign exchange

     4       23       21       (7     (5     36  

Selling, general & administrative and research & development costs(2)

     (27     (13     (2     4       4       (34

Other changes

     24       16       10       (3     (1     46  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA - Nine Months Ended December 31, 2023

   $ 539     $ 247     $ 250     $ 327     $ (4   $ 1,359  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

The recognition of Adjusted EBITDA by a region on an intersegment shipment could occur in a period prior to the recognition of Adjusted EBITDA on a consolidated basis, depending on the timing of when the inventory is sold to the third-party customer. The “Eliminations and Other” column adjusts regional Adjusted EBITDA for intersegment shipments that occur in a period prior to recognition of Adjusted EBITDA on a consolidated basis. The “Eliminations and Other” column also reflects adjustments for

 

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Index to Financial Statements

Confidential Treatment Requested by Novelis Inc.

Pursuant to 17 C.F.R. Section 200.83

 

  changes in regional volume, conversion premium and product mix, and conversion costs related to intersegment shipments for consolidation. “Eliminations and Other” must adjust for proportional consolidation of each line item for our Logan affiliate because we consolidate 100% of the Logan joint venture for U.S. GAAP, but we manage our Logan affiliate on a proportionately consolidated basis.
(2)

Selling, general & administrative and research & development costs include costs incurred directly by each segment and all corporate related costs.

North America

Net sales decreased $785 million, or 13%, driven by lower average LME aluminum prices, and a 3% decrease in shipments. Lower specialty shipments due to softer market demand were partially offset by higher automotive and beverage packaging shipments on good demand for domestic production. Adjusted EBITDA was $539 million, a decrease of 1%, primarily driven by lower volume, higher operating costs including a favorable inventory timing effect from capitalizing high operating costs in the prior year period, and higher labor costs, partially offset by favorable product mix and higher product prices, favorable metal benefit, and lower freight expense.

Europe

Net sales decreased $494 million, or 13%, driven by lower average LME aluminum prices a 6% decrease in shipments. Lower beverage packaging, aerospace and specialty shipments were partially offset by higher automotive shipments. Adjusted EBITDA was $247 million, an increase of 27%, primarily driven by higher product prices, favorable foreign exchange rates, and some normalization in energy prices impacted by the Russia-Ukraine conflict, partially offset by lower volume and less favorable metal benefits.

Asia

Net sales decreased $337 million, or 15%, driven primarily by lower average LME aluminum prices and a 1% decrease in shipments. Lower beverage packaging shipments due to customer destocking activities earlier this fiscal year and softer demand were partially offset by higher specialty and automotive shipments. Adjusted EBITDA was $250 million, a decrease of 6%, primarily due to less favorable metal benefit and unfavorable customer mix, partially offset by favorable foreign exchange. Additionally, we incurred lower freight costs compared to the prior year period, which in turn resulted in a lower freight cost pass through in price to customers.

South America

Net sales decreased $423 million, or 19%, driven by lower average LME aluminum prices and a 7% decrease in shipments, nearly all driven by lower beverage packaging shipments due to customer destocking activities earlier this fiscal year and softer demand this year. Adjusted EBITDA was $327 million, a decrease of 20%, primarily due to lower volume, less favorable metal benefit, lower pricing, and unfavorable foreign exchange, partially offset by lower operating costs such as freight and utilities, and lower SG&A due to lowering factoring expense.

Fiscal 2023 Compared to Fiscal 2022

Net sales were $18.5 billion for fiscal 2023, an increase of 8% from $17.1 billion in fiscal 2022, primarily due to a favorable impact of metal price hedging in fiscal 2023, compared to an unfavorable impact in fiscal 2022, resulting from significant volatility in average LME aluminum prices, with the year-on-year change of $1 billion, as well as higher product pricing. These favorable movements were partially offset by a 10% decrease in average LME aluminum prices and a 2% decrease in total shipments compared to fiscal 2022.

Income from continuing operations before income tax provision was $806.0 million for fiscal 2023, a decrease of 38% from $1.3 billion in fiscal 2022. In addition to the factors noted above, the following items affected the change in income from continuing operations before income tax provision.

 

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Index to Financial Statements

Confidential Treatment Requested by Novelis Inc.

Pursuant to 17 C.F.R. Section 200.83

 

Cost of Goods Sold (Exclusive of Depreciation and Amortization)

Cost of goods sold (exclusive of depreciation and amortization) was $16.0 billion for fiscal 2023, an increase of 11% from $14.4 billion in fiscal 2022, driven primarily by higher average aluminum prices in inventory released to cost of goods sold compared to the prior year, cost inflation and less favorable metal benefits from recycling. Total metal input costs included in cost of goods sold (exclusive of depreciation and amortization) increased $1.3 billion over fiscal 2022.

Selling, General and Administrative Expenses

SG&A was $679 million for fiscal 2023 compared to $631 million for fiscal 2022. The increase is primarily due to higher factoring expense resulting from higher interest rates.

Depreciation and Amortization

Depreciation and amortization was $540 million for fiscal 2023 compared to $550 million for fiscal 2022.

Interest Expense and Amortization of Debt Issuance Costs

Interest expense and amortization of debt issuance costs was $274 million for fiscal 2023 compared to $227 million for fiscal 2022. The increase is primarily due to higher average interest rates on variable interest rate borrowings.

Loss on Extinguishment of Debt, Net

There were no losses on extinguishment of debt in fiscal 2023. We recorded $64 million in loss on extinguishment of debt, net in fiscal 2022 primarily related to the write-off of unamortized debt issuance costs and a $51 million cash payment of a redemption premium for the redemption of our 5.875% Senior Notes, due September 2026.

See Note 13 – Debt to our audited annual consolidated financial statements for further information.

Restructuring and Impairment, Net

Restructuring and impairment, net was $33 million in fiscal 2023. This primarily relates to charges for reorganization activities of $21 million resulting from the closure of certain outdated equipment at our Richmond plant in North America.

Restructuring and impairment, net was $1 million in fiscal 2022 related primarily to reorganization activities resulting from the Aleris acquisition, mostly offset by a partial release of certain restructuring liabilities as a result of changes in estimated costs.

See Note 4 – Restructuring and Impairment to our audited annual consolidated financial statements for further information.

Other (Income) Expenses, Net

Other expenses (income), net was an expense of $79 million for fiscal 2023 compared to income of $61 million for fiscal 2022. This change primarily relates to a gain in the comparable prior year period of $85 million on Brazilian tax litigation related to favorable decisions that did not recur in fiscal 2023. Additionally, the Company incurred realized losses on the change in fair value of derivative instruments, net, of $83 million in fiscal 2023 compared to gains of $15 million in fiscal 2022 and unrealized gains on the change in fair value of derivative instruments, net, of $23 million in fiscal 2023 compared to losses of $28 million in fiscal 2022.

Taxes

We recognized $147 million of income tax provision in fiscal 2023, which resulted in an effective tax rate of 19%. This rate was primarily driven by the results of operations taxed at foreign statutory rates that differ from

 

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Index to Financial Statements

Confidential Treatment Requested by Novelis Inc.

Pursuant to 17 C.F.R. Section 200.83

 

the 25% Canadian rate, including withholding taxes; changes to the Brazilian real foreign exchange rate; change in valuation allowances, including a $39 million benefit from the release of certain valuation allowances; and the availability of tax credits. We recognized $281 million in fiscal 2022, which resulted in an effective tax rate of 22%. This rate was primarily driven by the results of operations taxed at foreign statutory tax rates that differ from the 25% Canadian tax rate, including withholding taxes; changes to the Brazilian real foreign exchange rate; changes in valuation allowances, including a $73 million benefit from the release of certain valuation allowances; and the availability of tax credits. See Note 21 – Income Taxes to our audited annual consolidated financial statements for further information.

Segment Review

Due in part to the regional nature of supply and demand of aluminum rolled products and in order to best serve our customers, we manage our activities on the basis of geographical regions and are organized under four operating segments: North America, Europe, Asia, and South America.

The tables below illustrate selected segment financial information (in millions, except shipments which are in kt). For additional financial information related to our operating segments, including the reconciliation of net income attributable to our common shareholder to Adjusted EBITDA, see Note 23 – Segment, Geographical Area, Major Customer and Major Supplier Information to our audited annual consolidated financial statements included in this prospectus.

In order to reconcile the financial information for the segments shown in the tables below to the relevant U.S. GAAP-based measures, “Eliminations and other” must adjust for proportional consolidation of each line item for our Logan affiliate because we consolidate 100% of the Logan joint venture for U.S. GAAP purposes. However, we manage our Logan affiliate on a proportionately consolidated basis and eliminate intersegment shipments.

 

Selected Operating Results

Fiscal 2023

   North
America
     Europe      Asia      South America      Eliminations
and other
    Total  

Net sales

   $  7,550      $  5,059      $  3,014      $     2,893      $     (30   $  18,486  

Shipments (in kt):

                

Rolled products – third party

     1,515        998        678        599        —       3,790  

Rolled products – intersegment

     —        32        43        17        (92     —  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total rolled products

     1,515        1,030        721        616        (92     3,790  

Non-rolled products

     15        117        32        138        (21     281  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total shipments

     1,530        1,147        753        754        (113     4,071  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Selected Operating Results

Fiscal 2022

   North
America
     Europe      Asia      South America      Eliminations
and other
    Total  

Net sales

   $ 6,735      $ 4,720      $ 3,036      $ 2,638      $ 20     $ 17,149  

Shipments (in kt):

                

Rolled products – third party

     1,467        1,038        737        616        —       3,858  

Rolled products – intersegment

     —        29        26        1        (56     —  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total rolled products

     1,467        1,067        763        617        (56     3,858  

Non-rolled products

     13        120        25        99        (35     222  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total shipments

     1,480        1,187        788        716        (91     4,080  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

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Index to Financial Statements

Confidential Treatment Requested by Novelis Inc.

Pursuant to 17 C.F.R. Section 200.83

 

The following table reconciles changes in Adjusted EBITDA for fiscal 2022 to fiscal 2023 (in millions).

 

Changes in Adjusted EBITDA

   North
America
    Europe     Asia     South America     Eliminations
and other(1)
    Total  

Adjusted EBITDA – Fiscal 2022

   $    685     $  324     $  352     $     681     $ 3     $  2,045  

Volume

     51       (47     (43     (1        (34     (74

Conversion premium and product mix(2)

     230       228       87       50       (26     569  

Conversion costs

     (208     (185     (13     (166     64       (508

Foreign exchange

     (3     (38     (19     8       —       (52

Selling, general & administrative and research & development costs(3)

     (33     (16     (16     (7     4       (68

Other changes

     (49     20       (9     (43     (20     (101
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA – Fiscal 2023

   $ 673     $ 286     $ 339     $ 522     $ (9   $ 1,811  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

The recognition of Adjusted EBITDA by a region on an intersegment shipment could occur in a period prior to the recognition of Adjusted EBITDA on a consolidated basis, depending on the timing of when the inventory is sold to a third-party customer. The “Eliminations and other” column adjusts regional Adjusted EBITDA for intersegment shipments that occur in a period prior to recognition of Adjusted EBITDA on a consolidated basis. The “Eliminations and other” column also reflects adjustments for changes in regional volume, conversion premium and product mix, and conversion costs related to intersegment shipments for consolidation. “Eliminations and other” must adjust for proportional consolidation of each line item for our Logan affiliate because we consolidate 100% of the Logan joint venture for U.S. GAAP, but we manage our Logan affiliate on a proportionately consolidated basis.

(2)

Conversion premium and product mix in Europe includes a $37 million customer contractual obligation benefit recognized during the twelve months ended March 31, 2023.

(3)

Selling, general & administrative and research & development costs include costs incurred directly by each segment and all corporate related costs.

North America

Net sales increased $815 million, or 12%, primarily driven by a favorable impact of metal price hedging in fiscal 2023, compared to an unfavorable impact in fiscal 2022, with the year-on-year change amounting to $563 million, higher product pricing, and a 3% increase in product shipments, partially offset by a decrease in LME aluminum prices. The increase in shipments is due to higher automotive shipments as semiconductor challenges in fiscal 2022 have eased and higher full year beverage packaging shipments despite some beverage packaging customers reducing excess inventory in the second half of fiscal 2023, partially offset by lower specialty shipments due to softer demand in a weaker economic environment. Adjusted EBITDA was $673 million, a decrease of 2%, primarily driven by higher operating costs due to inflation, geopolitical instability, global supply chain disruptions, and less favorable metal benefit. In addition, SG&A and other changes increased versus fiscal 2022 mainly due to an increase in factoring expense resulting from higher interest rates, partially offset by higher volume, favorable product mix, and higher product prices.

Europe

Net sales increased $339 million, or 7%, primarily driven by a favorable impact of metal price hedging in fiscal 2023, compared to an unfavorable impact in fiscal 2022, with the year-on-year change amounting to $239 million, and by higher product pricing, partially offset by a decrease in LME aluminum prices and a 3% decrease in shipments. The decrease in shipments is driven by lower specialty shipments due to softer demand in a weaker economic environment and lower beverage packaging shipments due to customers reducing their excess inventory, partially offset by higher automotive and aerospace shipments as semiconductor challenges ease and

 

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Index to Financial Statements

Confidential Treatment Requested by Novelis Inc.

Pursuant to 17 C.F.R. Section 200.83

 

air travel demand recovers. Adjusted EBITDA was $286 million, a decrease of 12%, primarily driven by higher energy and other operating costs due to inflation, geopolitical instability, and global supply chain disruptions, unfavorable foreign exchange rates, lower metal benefits and higher factoring expense resulting from higher interest rates. These factors are partially offset by favorable product mix on improving automotive and aerospace shipments, and higher product prices, as well as a $37 million customer contractual obligation benefit and a $10 million Duffel settlement benefit in fiscal 2023.

Asia

Net sales decreased $22 million, or 1%, driven primarily by a 6% decrease in shipments and a decrease in LME aluminum prices, partially offset by a favorable impact of metal price hedging in fiscal 2023, compared to an unfavorable impact in fiscal 2022, with the year-on-year change amounting to $136 million, and by higher product pricing. The decrease in shipment is driven by lower specialty shipments due to planned portfolio optimization to focus on more profitable product offerings and lower automotive shipments impacted by COVID-19 pandemic-related supply chain disruption in China in fiscal 2023, partially offset by higher aerospace shipments as recovery in air travel improves demand for aerospace plate and sheet. Adjusted EBITDA was $339 million, a decrease of 4%, primarily due to lower volume, higher energy and other operating costs due to inflation, geopolitical instability, and global supply chain disruptions, and unfavorable foreign exchange, partially offset by higher product prices and lower freight costs.

South America

Net sales increased $255 million, or 10%, primarily driven by a favorable impact of metal price hedging in fiscal 2023, compared to an unfavorable impact in fiscal 2022, with the year-on-year change amounting to $104 million, and by higher product pricing, partially offset by a decrease in LME aluminum prices, while rolled product shipments remained flat year over year. Adjusted EBITDA was $522 million, a decrease of 23%, primarily due to prior year gains from the principal amount net of litigation expenses from favorable outcomes of Brazil tax litigation that did not recur in fiscal 2023, as well as less favorable metal benefit, and higher energy and other operating costs due to inflation, geopolitical instability, and global supply chain disruptions. These factors were partially offset by higher product prices and favorable foreign exchange rates.

Liquidity and Capital Resources

We believe we maintain adequate liquidity levels through a combination of cash and availability under committed credit facilities. Our cash and cash equivalents and availability under committed credit facilities aggregated to $2.1 billion of liquidity as of December 31, 2023. Our primary liquidity sources are cash flows from operations, working capital management, cash, and liquidity under our debt agreements. Our recent business investments are being funded through cash flows generated by our operations and a combination of local financing and our senior secured credit facilities. We expect to be able to fund both our short- and long-term liquidity needs, such as our continued expansions, servicing our debt obligations, and providing sufficient liquidity to operate our business, through one or more of the following: the generation of operating cash flows, working capital management, our existing debt facilities (including refinancing), and new debt issuances, as necessary.

Available Liquidity

Our available liquidity as of December 31, 2023, March 31, 2023 and March 31, 2022, is as follows.

 

in millions    December 31,
2023
     March 31,
2023
     March 31,
2022
 

Cash and cash equivalents

   $ 787      $ 1,498      $ 1,070  
  

 

 

    

 

 

    

 

 

 

Availability under committed credit facilities

     1,353        1,101        1,499  
  

 

 

    

 

 

    

 

 

 

Total available liquidity

   $ 2,140      $ 2,599      $ 2,569  
  

 

 

    

 

 

    

 

 

 

 

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Index to Financial Statements

Confidential Treatment Requested by Novelis Inc.

Pursuant to 17 C.F.R. Section 200.83

 

The decrease in total available liquidity between March 31, 2023 and December 31, 2023 relates to the decrease in cash and cash equivalents, primarily resulting from investing activities during the period, partially offset by an increase in availability under our ABL Revolver facility due to a lower outstanding balance compared to prior period. The increase in total available liquidity between March 31, 2022 and March 31, 2023 was primarily due to an increase in our cash and cash equivalents largely offset by a decrease in the availability under committed credit facilities, which was primarily driven by increased borrowing on the ABL Revolver during fiscal 2023 compared to fiscal 2022. See Note 5 – Debt to our unaudited interim condensed consolidated financial statements and Note 13 – Debt to our audited annual consolidated financial statements included in this prospectus for more details about our availability under committed credit facilities.

Cash and cash equivalents includes cash held in foreign countries in which we operate. As of December 31, 2023, we held $47 million of cash and cash equivalents in Canada, in which we are incorporated, compared to $13 million as of March 31, 2023, with the rest held in other countries in which we operate. As of December 31, 2023, we held $306 million of cash in jurisdictions for which we have asserted that earnings are permanently reinvested, compared to $699 million as of March 31, 2023, and we plan to continue to fund operations and local expansions with cash held in those jurisdictions. Cash held outside of Canada is free from significant restrictions that would prevent the cash from being accessed to meet the Company’s liquidity needs, including, if necessary, to fund operations and service debt obligations in Canada. Upon the repatriation of any earnings to Canada, in the form of dividends or otherwise, we could be subject to Canadian income taxes (subject to adjustment for foreign taxes paid and the utilization of the large cumulative net operating losses we have in Canada) and withholding taxes payable to the various foreign jurisdictions. As of December 31, 2023, we do not believe adverse tax consequences exist that restrict our use of cash and cash equivalents in a material manner.

We use derivative contracts to manage risk as well as liquidity. Under our terms of credit with counterparties to our derivative contracts, we do not have any material margin call exposure. No material amounts have been posted by Novelis nor do we hold any material amounts of margin posted by our counterparties. We settle derivative contracts in advance of billing on the underlying physical inventory and collecting payment from our customers, which temporarily impacts our liquidity position. The lag between derivative settlement and customer collection typically ranges from 30 to 90 days.

Obligations

Our material cash requirements include future contractual and other obligations arising in the normal course of business. These obligations primarily include debt and related interest payments, finance and operating lease obligations, postretirement benefit plan obligations, and purchase obligations.

Debt

As of December 31, 2023, we had an aggregate principal amount of debt, excluding finance leases, of $5.5 billion, with $576 million due within 12 months, as compared to $5.7 billion as of March 31, 2023, with $743 million due within 12 months. In addition, we are obligated to make periodic interest payments at fixed and variable rates, depending on the terms of the applicable debt agreements. Based on applicable interest rates and scheduled debt maturities as of December 31, 2023, our total interest obligation on long-term debt totaled an estimated $1.2 billion, with $239 million payable within 12 months, as compared to $1.2 billion as of March 31, 2023, with $237 million payable within 12 months. Actual future interest payments may differ from these amounts based on changes in floating interest rates or other factors or events. Excluded from these amounts are interest related to finance lease obligations, the amortization of debt issuance costs, and other costs related to indebtedness. See “—Description of Outstanding Indebtedness” for more information about our debt arrangements.

Leases

We lease certain land, buildings, and equipment under non-cancelable operating lease arrangements and certain office space under finance lease arrangements. As of December 31, 2023, we had aggregate finance lease

 

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Index to Financial Statements

Confidential Treatment Requested by Novelis Inc.

Pursuant to 17 C.F.R. Section 200.83

 

obligations of $19 million, with $7 million due within 12 months, as compared to $31 million as of March 31, 2023, with $16 million due within 12 months. This includes both principal and interest components of future minimum finance lease payments. Excluded from these amounts are insurance, taxes, and maintenance associated with the property. As of December 31, 2023, we had aggregate operating lease obligations of $114 million, with $23 million due within 12 months, as compared to $133 million as of March 31, 2023, with $28 million due within 12 months. This includes the minimum lease payments for non-cancelable leases for property and equipment used in our operations. Excluded from these amounts are insurance, taxes, and maintenance associated with the properties and equipment as well as future minimum lease payments related to operating leases signed but not yet commenced. We do not have any operating leases with contingent rents. See Note 11 – Leases to our audited annual consolidated financial statements and Note 5 – Debt to our unaudited interim condensed consolidated financial statements included elsewhere in this prospectus for further discussion of our operating and finance leases.

Postretirement Benefit Plans

Obligations for postretirement benefit plans are estimated based on actuarial estimates using benefit assumptions for, among other factors, discount rates, rates of compensation increases, and health care cost trends. As of March 31, 2023, payments for pension plan benefits and other post-employment benefits estimated through 2033 were $1.2 billion, with $106 million due within 12 months. See Note 15 – Postretirement Benefit Plans to our audited annual consolidated financial statements and Note 7 – Postretirement Benefit Plans to our unaudited interim condensed consolidated financial statements included in this prospectus for further discussion.

Purchase Obligations and Other

Purchase obligations include agreements to purchase goods (including raw materials and capital expenditures) and services that are enforceable and legally binding on us and that specify all significant terms. Some of our raw material purchase contracts have minimum annual volume requirements. In these cases, we estimate our future purchase obligations using annual minimum volumes and costs per unit that are in effect as of December 31, 2023. As of March 31, 2023, we had aggregate purchase obligations of $16.7 billion, with $6.8 billion due within 12 months.

Due to volatility in the cost of our raw materials, actual amounts paid in the future may differ from these amounts. Excluded from these amounts are the impact of any derivative instruments and any early contract termination fees, such as those typically present in energy contracts. Purchase obligations do not include contracts that can be cancelled without significant penalty.

The future cash flow commitments we may have related to derivative contracts are from the figures above as these are fair value measurements determined at an interim date within the contractual term of the arrangement and, accordingly, do not represent the ultimate contractual obligation (which could ultimately become a receivable). As a result, the timing and amount of the ultimate future cash flows related to our derivative contracts, including the $187 million of derivative liabilities recorded on our balance sheet as of December 31, 2023 and $136 million of derivative liabilities as of March 31, 2023, are uncertain. In addition, stock compensation is excluded from the above figures as it is a fair value measurement determined at an interim date and is not considered a contractual obligation. Furthermore, due to the difficulty in determining the timing of settlements, the above figures also exclude $79 million of uncertain tax positions as of December 31, 2023, and $73 million of uncertain tax positions as of March 31, 2023. See Note 21 – Income Taxes to our audited annual consolidated financial statements and Note 5 – Debt to our unaudited interim condensed consolidated financial statements included in this prospectus for more information.

There are no additional material off-balance sheet arrangements.

 

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Confidential Treatment Requested by Novelis Inc.

Pursuant to 17 C.F.R. Section 200.83

 

Cash Flow Summary

 

     Nine Months Ended
December 31,
          Fiscal        
in millions    2023     2022     Change     2023     2022     Change  

Net cash provided by operating activities

   $ 420     $ 309     $ 111     $ 1,208     $ 1,143     $ 65  

Net cash used in investing activities

     (935     (478     (457     (775     (473     (302

Net cash (used in) provided by financing activities

     (189     263       (452     24       (615     639  

Operating Activities

For the nine months ended December 31, 2023, the increase in net cash provided by operating activities primarily relates to favorable changes in working capital, partially offset by lower Adjusted EBITDA.

For fiscal 2023, the increase in net cash provided by operating activities primarily relates to lower net cash outflows from changes in working capital, partially offset by lower Adjusted EBITDA and unfavorable metal price lag.

Net Cash Provided by Operating Activities – Continuing Operations and Adjusted Free Cash Flow

Refer to “Non-U.S. GAAP Financial Measures” for our definition of Adjusted Free Cash Flow.

The following tables shows net cash provided by operating activities – continuing operations and Adjusted Free Cash Flow for the nine months ended December 31, 2023 and 2022 and for fiscal 2023 and fiscal 2022 and the change between periods, as well as the ending balances of cash and cash equivalents.

 

     Nine Months Ended
December 31,
          Fiscal        
in millions    2023     2022     Change     2023     2022     Change  

Net cash provided by operating activities – continuing operations

   $ 420     $ 321     $ 99     $ 1,220     $ 1,132     $ 88  

Net cash used in investing activities – continuing operations

     (935     (478     (457     (775     (473     (302

Plus: Cash used in the acquisition of business and other investments, net of cash acquired

     —       4       (4     7       —       7  

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

     (2     (5     3       (9     (10     1  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted Free Cash Flow from continuing operations

     (517     (158     (359     443       649       (206

Net cash (used in) provided by operating activities – discontinued operations

     —       (12     12       (12     11       (23
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted Free Cash Flow

   $ (517   $ (170   $ (347   $ 431     $ 660     $  (229
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending cash and cash equivalents

   $  787     $  1,126     $  (339   $  1,498     $  1,070     $ 428  

Investing Activities

For the nine months ended December 31, 2023, net cash used in investing activities was primarily attributable to capital expenditures of $960 million.

For fiscal 2023, the change in net cash used in investing activities over the prior fiscal year primarily relates to higher capital expenditures of $786 million in fiscal 2023 compared to $446 million in fiscal 2022.

 

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Confidential Treatment Requested by Novelis Inc.

Pursuant to 17 C.F.R. Section 200.83

 

Financing Activities

The following represents proceeds from the issuance of long-term and short-term borrowings during the nine months ended December 31, 2023 and during fiscal 2023.

 

     Nine Months Ended      Fiscal  
in millions    December 31, 2023      2023  

Floating rate Term Loans, due September 2026

   $      482      $ —  

Short-term borrowings in Brazil

     150             50  

Bank overdrafts

     67        —  
  

 

 

    

 

 

 

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

   $ 699      $ 50  
  

 

 

    

 

 

 

The following represents principal payments of long-term and short-term borrowings during the nine months ended December 31, 2023 and during fiscal 2023.

 

     Nine Months Ended      Fiscal  
in millions    December 31, 2023      2023  

Brazil Loan, due June 2023

   $ (30)      $ —  

Short-term Axis Loan

     —        (314

Short-term borrowing in Brazil

     (50      (50

Brazil Loan, due December 2023

     (20      —  

Floating rate Term Loans, due January 2025

     (484      (8

Floating rate Term Loans, due March 2028

     (6      (5

China Bank Loans, due August 2027

     (3      (6

Finance leases and other repayments

     (11      (7
  

 

 

    

 

 

 

Principal payments of long-term and short-term borrowings

   $      (604)      $  (390
  

 

 

    

 

 

 

The following represents inflows (outflows) from revolving credit facilities and other, net during the nine months ended December 31, 2023 and during fiscal 2023.

 

     Nine Months Ended      Fiscal  
in millions    December 31, 2023      2023  

ABL Revolver

   $ (223    $ 448  

China credit facility

     (57      15  

Korea credit facility

     (1      8  
  

 

 

    

 

 

 

Revolving credit facilities and other, net

   $      (281    $  471  
  

 

 

    

 

 

 

In September 2023, we amended the Term Loan Facility and the amendment was accounted for as a partial extinguishment of the 2020 Term Loans, whereby $482 million of the $750 million outstanding at the time of the transaction was deemed an extinguishment and the remaining $268 million was deemed a modification of debt.

In addition to the activities shown in the tables above, we paid debt issuance costs of $3 million and $6 million during the nine months ended December 31, 2023, and 2022, respectively. We also paid a return of capital to our common shareholder in the amount of $100 million during the nine months ended December 31, 2022.

In addition to the activities shown in the tables above during fiscal 2023, we paid $7 million in debt issuance costs, primarily related to the August 2022 amendment to our ABL Revolver. We also paid return of capital to our common shareholder in the amount of $100 million during fiscal 2023.

 

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Index to Financial Statements

Confidential Treatment Requested by Novelis Inc.

Pursuant to 17 C.F.R. Section 200.83

 

During fiscal 2022, there were $2.0 billion issuances of long-term and short-term borrowings, including $1.5 billion in issuances of Senior Notes. The proceeds from the issuance of the 3.250% Senior Notes, due November 2026 and the 3.875% Senior Notes, due August 2031 were used to redeem the $1.5 billion principal amount outstanding on the 5.875% Senior Notes, due September 2026.

Additionally, we had $415 million of short-term issuances in fiscal 2022, $315 million of which related to the short-term loan with Axis Bank Limited entered into in January 2022. The proceeds of the short-term loan were applied to voluntarily prepay the outstanding principal balance on our floating rate Term Loans, due June 2022.

During fiscal 2022, we also issued $50 million of loans in Brazil and $20 million in floating rate Term Loans, due March 2028.

As a result of our issuances in fiscal 2022, we paid $25 million in debt issuance costs, $22 million of which related to the issuance of new Senior Notes in the period and $3 million related to prior period issuances. We also paid a return of capital to our common shareholder in the amount of $100 million.

Loss on Extinguishment of Debt, Net

We recorded a $5 million loss on extinguishment of debt, net for the nine months ended December 31, 2023. This relates to the write-off of unamortized debt issuance costs and discount for the partial extinguishment of the 2020 Term Loan. There were no losses on extinguishments of debt for the nine months ended December 31, 2022.

During fiscal 2022, we recorded $64 million in loss on extinguishment of debt, net. This primarily related to the write-off of unamortized debt issuance costs of $13 million and a $51 million cash payment of a redemption premium for the redemption of our 5.875% Senior Notes, due September 2026. Additionally, a loss on extinguishment of debt of $2 million was recorded as a result of the repayment of our 2017 Term Loans, which was offset by a gain on extinguishment of debt of $2 million resulting from the repayment of the Zhenjiang Term Loans.

During fiscal 2023, we did not incur any loss on extinguishment of debt, net.

Description of Outstanding Indebtedness

Senior Secured Credit Facilities

As of December 31, 2023, the senior secured credit facilities consisted of (i) a secured term loan credit facility (“Term Loan Facility”) and (ii) a $2.0 billion asset-based loan facility (“ABL Revolver”). The senior secured credit facilities contain various affirmative covenants, including covenants with respect to our financial statements, litigation and other reporting requirements, insurance, payment of taxes, employee benefits, and (subject to certain limitations) causing new subsidiaries to pledge collateral and guaranty our obligations. The senior secured credit facilities also include various customary negative covenants and events of default, including limitations on our ability to incur additional indebtedness; sell certain assets; enter into sale and leaseback transactions; make investments, loans, and advances; pay dividends or returns of capital and distributions beyond certain amounts; engage in mergers, amalgamations, or consolidations; engage in certain transactions with affiliates; and prepay certain indebtedness. The Term Loan Facility also contains a financial maintenance covenant that prohibits Novelis’ senior secured net leverage ratio as of the last day of each fiscal quarter period as measured on a rolling four quarter basis from exceeding 3.50 to 1.00, subject to customary equity cure rights. The senior secured credit facilities include a cross-default provision under which lenders could accelerate repayment of the loans if a payment or non-payment default arises under any other indebtedness with an aggregate principal amount of more than $100 million (or, in the case of the Term Loan Facility, under the ABL Revolver regardless of the amount outstanding). The senior secured credit facilities are guaranteed by the Company’s direct parent, AV Minerals (Netherlands) N.V., and certain of the Company’s direct and indirect

 

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Index to Financial Statements

Confidential Treatment Requested by Novelis Inc.

Pursuant to 17 C.F.R. Section 200.83

 

subsidiaries and are secured by a pledge of substantially all of the assets of the Company and the guarantors, including the shares in Novelis held by the selling shareholder. Upon the closing of this offering, the selling shareholder will be released from its guarantees of the senior secured credit facilities, and the shares in Novelis sold in this offering will be released from the related pledges. Following the closing of this offering, the remaining Novelis shares held by the selling shareholder will continue to be pledged to secure the Company’s obligations under the senior secured credit facilities.

Short-Term Debt:

As of December 31, 2023, our short-term borrowings totaled $552 million, which consisted of $238 million of borrowings on our ABL Revolver, $200 million in short-term Brazil loans, $67 million in bank overdrafts, and $47 million in short-term China loans (CNY 336 million). The weighted average interest rate on the short-term borrowings was 5.41% and 6.67% as of December 31, 2023, and March 31, 2023, respectively.

In January 2022, we entered into a $315 million short-term loan with Axis Bank Limited, IFSC Banking Unit, Gift City, as administrative agent and lender. The short-term loan was subject to 0.25% quarterly amortization payments and accrued interest at SOFR plus 0.90%. The short-term loan matured in November 2022 and we repaid the remaining principal balance of this loan in full at the maturity date.

ABL Revolver

As of December 31, 2023, the commitments under our senior secured ABL Revolver are $2.0 billion.

In October 2021, we amended the ABL Revolver facility. Prior to the USD LIBOR transition date, loans denominated in USD under the ABL Revolver accrued interest at a rate of LIBOR plus a spread of 1.25% to 1.75% based on excess availability. The amendment provides for replacement reference rates, as applicable, based on the currency of the loan, as well as applicable spreads on and after the USD LIBOR transition date. The USD LIBOR transition date is defined as the earlier of (a) when the ICE Benchmark Administration ceases to provide the USD LIBOR and there is no available tenor of USD LIBOR or the Financial Conduct Authority announces all available tenors of USD LIBOR are no longer representative or (b) an early opt-in effective date.

In April 2022, we amended the ABL Revolver facility to increase the limit on committed letters of credit under the facility to $275 million. There were no material costs incurred or accounting impacts as a result of this amendment.

In August 2022, we amended the ABL Revolver facility to, among other things, increase the commitment under the ABL Revolver by $500 million to $2.0 billion and extend the maturity of the ABL Revolver until August 18, 2027. The amendment provides that new borrowings under the ABL Revolver facility made subsequent to the date of the amendment will incur interest at Term SOFR, EURIBOR, SONIA or SARON, as applicable based on the currency of the loan, plus a spread of 1.10% to 1.60% based on excess availability. The ABL Revolver facility also permits us to elect to borrow USD loans that accrue interest at a base rate (determined based on the greatest of one month Term SOFR plus 1.00%, a prime rate or an adjusted federal funds rate) plus a prime spread of 0.10% to 0.60% based on excess availability. As a result of this debt modification, the Company incurred $7 million of financing fees, which will be amortized over the term of the loan.

The ABL Revolver has a provision that allows the existing commitments under the ABL Revolver to be increased by an additional $750 million. The lenders under the ABL Revolver have not committed to provide any such additional commitments. The ABL Revolver has various customary covenants including maintaining a specified minimum fixed charge coverage ratio of 1.25 to 1.0 if an event of default has occurred and is continuing and/or excess availability is less than the greater of (1) $150 million and (2) 10% of the lesser of the total ABL Revolver commitment and the borrowing base. The ABL Revolver matures on August 18, 2027, provided that in the event that the Term Loan Facility or certain other indebtedness is outstanding 60 days prior

 

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Index to Financial Statements

Confidential Treatment Requested by Novelis Inc.

Pursuant to 17 C.F.R. Section 200.83

 

to its maturity (and not refinanced with a maturity date later than February 15, 2028), then the ABL Revolver will mature 60 days prior to the maturity date for such other indebtedness, as applicable; unless excess availability under the ABL Revolver is at least (1) 17.5% of the lesser of the total ABL Revolver commitment and the borrowing base or (2) 12.5% of the lesser of the total ABL Revolver commitment and the borrowing base, while also maintaining the minimum fixed charge ratio test of at least 1.25 to 1.

As of December 31, 2023, we were in compliance with the covenants for our ABL Revolver.

As of December 31, 2023, we had $238 million in borrowings under the ABL Revolver and were in compliance with debt covenants. We utilized $45 million of the ABL Revolver for letters of credit. We had availability of $1.2 billion on the ABL Revolver, including $230 million of remaining availability that can be utilized for letters of credit.

China Short-Term Borrowings

As of December 31, 2023, we had $47 million (CNY 336 million) under uncommitted lines of credit outstanding to support working capital expenditures in China. Such short-term borrowings are unsecured and bear fixed interest rates ranging from 2.86% to 3.15%.

Brazil Short-Term Borrowings

As of December 31, 2023, we had $200 million in short-term borrowings in Brazil, bearing interest rates ranging from 5.80% to 6.30%.

Long-Term Debt:

Term Loan Facility

The Term Loan Facility requires customary mandatory prepayments with excess cash flow, other asset sale proceeds, casualty event proceeds, and proceeds of prohibited indebtedness, all subject to customary reinvestment rights and exceptions. The loans under the Term Loan Facility may be prepaid, in full or in part, at any time at Novelis’ election without penalty or premium. The Term Loan Facility allows for additional term loans to be issued in an amount not to exceed $300 million (or its equivalent in other currencies) plus an unlimited amount if, after giving effect to such incurrences on a pro forma basis, the secured net leverage ratio does not exceed 3.00 to 1.00. The Term Loan Facility also allows for additional term loans to be issued in an amount to refinance loans outstanding under the Term Loan Facility. The lenders under the Term Loan Facility have not committed to provide any such additional term loans.

As of December 31, 2023, we were in compliance with the covenants of our Term Loan Facility.

On March 31, 2023, we amended the Term Loan Facility, primarily to modify the reference rate used to determine interest from LIBOR to SOFR. Term loans under the Term Loan Facility will, beginning with the interest period commencing June 30, 2023, accrue interest at SOFR plus a 0.15% credit spread adjustment plus a spread of 1.75% in the case of the 2020 Term Loans, or a spread of 2.00% in the case of the 2021 Term Loans. During fiscal 2021, the Company adopted the practical expedient for Reference Rate Reform related to its debt arrangements and as such, this amendment is treated as a continuation of the existing debt agreement and no gain or loss on the modification was recorded. The Company did not record any gains or losses on the conversion of the reference rate for the borrowings under the Term Loan Facility from LIBOR to SOFR.

2021 Term Loans

In March 2021, we borrowed $480 million of term loans due March 2028 (the “2021 Term Loans”) under our Term Loan Facility, with an additional $20 million being borrowed under the 2021 Term Loans in April 2021.

 

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Index to Financial Statements

Confidential Treatment Requested by Novelis Inc.

Pursuant to 17 C.F.R. Section 200.83

 

We incurred debt issuance costs of $9 million for the 2021 Term Loans, which will be amortized as an increase to interest expense and amortization of debt issuance costs over the term of the loan. The 2021 Term Loans mature on March 31, 2028 and are subject to 0.25% quarterly amortization payments. From April 2020 to immediately prior to the interest period commencing June 30, 2023, the 2021 Term Loans accrue interest at LIBOR plus 2.00%. Beginning with the interest period commencing June 30, 2023, the 2021 Term Loans accrue interest at Adjusted SOFR plus 2.00%. The proceeds of the 2021 Term Loans were applied to repay a portion of the 2017 Term Loans.

2023 Term Loans

In September 2023, we amended the Term Loan Facility and borrowed $750 million of term loans (the “2023 Term Loans”). The proceeds of the 2023 Term Loan were used to repay the previously issued term loans due January 2025 (the “2020 Term Loans”). The 2023 Term Loans mature on September 25, 2026, are subject to 0.25% quarterly amortization payments and accrue interest at SOFR plus 1.65%.

In accordance with ASC 470, Debt, the amendment was accounted for as a partial extinguishment of the 2020 Term Loans, whereby $482 million of the $750 million outstanding at the time of the transaction was deemed an extinguishment and $268 million was deemed a modification of debt. As a result of this transaction, we recorded a loss on extinguishment of debt of $5 million in the second quarter of fiscal 2024.

Senior Notes

The 3.250% Senior Notes due November 2026 (the “2026 Senior Notes”), the 3.3755% Senior Notes due April 2029 (the “2029 Senior Notes”), 4.750% Senior Notes due January 2030 (the “2030 Senior Notes”) and 3.875% Senior Notes due August 2031 (the “2031 Senior Notes”, and collectively, the “Senior Notes”) are guaranteed, jointly and severally, on a senior unsecured basis, by Novelis Inc. and certain of its subsidiaries. The Senior Notes contain customary covenants and events of default that will limit our ability and, in certain instances, the ability of certain of our subsidiaries to incur additional debt and provide additional guarantees; pay dividends or return capital beyond certain amounts and make other restricted payments; create or permit certain liens; make certain asset sales; use the proceeds from the sales of assets and subsidiary stock; create or permit restrictions on the ability of certain of Novelis’ subsidiaries to pay dividends or make other distributions to Novelis or certain of Novelis’ subsidiaries, as applicable; engage in certain transactions with affiliates; enter into sale and leaseback transactions; designate subsidiaries as unrestricted subsidiaries; and consolidate, merge, or transfer all or substantially all of our assets and the assets of certain of our subsidiaries. During any future period in which either Standard & Poor’s Ratings Group, Inc. or Moody’s Investors Service, Inc. have assigned an investment grade credit rating to the Senior Notes and no default or event of default under the indenture has occurred and is continuing, certain of the covenants will be suspended. The Senior Notes include customary events of default, including a cross-acceleration event of default. The Senior Notes also contain customary call protection provisions for our bondholders that extend through November 2023 for the 3.250% Senior Notes due November 2026, through April 2024 for the 3.375% Senior Notes due April 2029, through January 2025 for the 4.750% Senior Notes due January 2030, and through August 2026 for the 3.875% Senior Notes due August 2031.

As of December 31, 2023, we were in compliance with the covenants for our Senior Notes.

2026 Senior Notes

In August 2021, Novelis Corporation, an indirect wholly owned subsidiary of Novelis Inc., issued $750 million in aggregate principal amount of 2026 Senior Notes. The 2026 Senior Notes mature on November 15, 2026 and are subject to semi-annual interest payments that will accrue at a rate of 3.250% per year. The net proceeds of the offering, together with cash on hand, were used to (i) fund the redemption of a portion of the 5.875% Senior Notes due September 2026, plus the redemption premium and accrued and unpaid interest thereon and (ii) pay certain fees and expenses in connection with the foregoing and the offering of the notes. We incurred debt

 

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Index to Financial Statements

Confidential Treatment Requested by Novelis Inc.

Pursuant to 17 C.F.R. Section 200.83

 

issuance costs of $11 million for the 2026 Senior Notes, which are amortized as an increase to interest expense and amortization of debt issuance costs over the term of the note.

2029 Senior Notes

In March 2021, Novelis Sheet Ingot GmbH, an indirect wholly owned subsidiary of Novelis Inc., organized under the laws of Ireland, issued €500 million in aggregate principal amount of 2029 Senior Notes. The 2029 Senior Notes are subject to semi-annual interest payments and mature on April 15, 2029. The proceeds were used to pay down a portion of the 2017 Term Loans, plus accrued and unpaid interest. In addition, we intend to allocate an amount equal to the net proceeds received from this issuance to finance and/or refinance new and/or existing eligible green projects, which are currently contemplated to consist of renewable energy or pollution prevention and control type projects. We incurred debt issuance costs of $13 million for the 2029 Senior Notes, which are amortized as an increase to interest expense and amortization of debt issuance costs over the term of the note.

2030 Senior Notes

In January 2020, Novelis Corporation, an indirect wholly owned subsidiary of Novelis Inc., issued $1.6 billion in aggregate principal amount of the 2030 Senior Notes. The 2030 Senior Notes are subject to semi-annual interest payments and mature on January 30, 2030.

2031 Senior Notes

In August 2021, Novelis Corporation, a wholly owned subsidiary of Novelis Inc., issued $750 million in aggregate principal amount of the 2031 Senior Notes. The 2031 Senior Notes mature on August 15, 2031 and are subject to semi-annual interest payments that will accrue at a rate of 3.875% per year. The net proceeds of the offering, together with cash on hand, were used to (i) fund the redemption a portion of the 5.875% Senior Notes due September 2026, plus the redemption premium and accrued and unpaid interest thereon and (ii) pay certain fees and expenses in connection with the foregoing and the offering of the notes. We incurred debt issuance costs of $11 million for the 2031 Senior Notes, which will be amortized as an increase to interest expense and amortization of debt issuance costs over the term of the note.

China Bank Loans

In September 2019, we entered into a credit agreement with the Bank of China to provide up to CNY 500 million in unsecured loans to support certain capital expansion projects in China. As of December 31, 2023, we had $59 million (CNY 420 million) of borrowings on our China bank loans. The borrowings bear a fixed interest rate of 3.9%.

Brazil Loans

In December 2021, we borrowed $30 million and $20 million of bank loans in Brazil. One of these loans matured in June 2023 and the other matured in December 2023, each bearing a fixed interest rate of 1.80%. The payment of principal and interest was settled at maturity.

Finance lease obligations and other debt

We lease certain land, buildings, and equipment under non-cancelable operating lease arrangements and certain office space under finance lease arrangements. As of December 31, 2023, we had aggregate finance lease obligations of $19 million, with $7 million due within 12 months. This includes both principal and interest components of future minimum finance lease payments. Excluded from these amounts are insurance, taxes, and maintenance associated with the property.

 

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Confidential Treatment Requested by Novelis Inc.

Pursuant to 17 C.F.R. Section 200.83

 

Capital Allocation Framework

In May 2021, Novelis announced a capital allocation framework that laid out the general guidelines for use of post-maintenance capital expenditure Adjusted Free Cash Flow for the next five years. Annual maintenance capital expenditures are between $300 million to $350 million. The priority at that time was to reduce long-term debt by $2.6 billion from its peak in the first quarter of fiscal 2021 after the Aleris acquisition and to target a net leverage ratio of approximately 2.5x. Having achieved both targets by the end of fiscal 2022, the priority has now shifted to organic growth capital expenditures. We believe the long-term demand trends for flat-rolled aluminum products remain strong, and we have identified approximately $6.4 billion of potential organic capital investment opportunities to grow our business through debottlenecking, recycling, and new capacity investments, with approximately $4.9 billion already under construction, focused on increasing capacity and capabilities that meet growing customer demand and align with our sustainability commitments. We are pacing capital investments and prioritizing specific investments of approximately $4.9 billion that are already under construction. We intend to maintain a medium-term net leverage ratio around 3x and are targeting the payment of quarterly dividends of approximately $   , which would be distributed to our shareholders on a pro rata basis. Payments to our shareholders are at the discretion of our board of directors. Any such payments depend on, among other things, our financial resources, cash flows generated by our business, our cash requirements, restrictions under the instruments governing our indebtedness, being in compliance with the appropriate indentures and covenants under the instruments that govern our indebtedness, and other relevant factors.

On August 1, 2023, our board of directors approved a return of capital to our common shareholder of up to $100 million, expected to be paid during fiscal 2024. The timing and the final amount of the return of capital is subject to change based upon final shareholder approval. Past payments of dividends or returns of capital as a private company should not be construed as a guarantee of future declaration or payment of dividends or returns of capital in the same amounts or at all.

Environment, Health and Safety

We strive to be a leader in environment, health and safety standards. Our environment, health and safety system is aligned with ISO 14001, an international environmental management standard, and OHSAS 18001 or ISO 45001, international occupational health and safety management standards. As of March 31, 2023 and 2022, 24 of our facilities were OHSAS 18001 or ISO 45001 certified. As of March 31, 2023 and 2022, 28 of our facilities were ISO 14001 certified. In addition, as of March 31, 2023 and 2022, 30 of our facilities were certified to one of the following quality standards: ISO 9001, TS 16949, IATF 16949.

Our expenditures for environmental protection (including estimated and probable environmental remediation costs as well as general environmental protection costs at our facilities) and the betterment of working conditions in our facilities were $19 million during fiscal 2023, of which $18 million was expensed and $1 million was capitalized. We expect that these expenditures will be approximately $21 million in fiscal 2024, of which we estimate $15 million will be expensed and $6 million will be capitalized. Generally, expenses for environmental protection are recorded in cost of goods sold (exclusive of depreciation and amortization). However, significant remediation costs that are not associated with on-going operations are recorded in restructuring and impairment, net.

Critical Accounting Policies and Estimates

Our discussion and analysis of our results of operations, liquidity and capital resources are based on our consolidated financial statements which have been prepared in accordance with U.S. GAAP. In connection with the preparation of our consolidated financial statements, we are required to make assumptions and estimates about future events and apply judgments that affect the reported amounts of assets, liabilities, revenue, expenses, and the related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends and other factors we believe to be relevant at the time we prepare our consolidated financial statements. On a regular basis, we review the accounting policies, assumptions, estimates and judgments to ensure that our

 

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Confidential Treatment Requested by Novelis Inc.

Pursuant to 17 C.F.R. Section 200.83

 

consolidated financial statements are presented fairly and in accordance with U.S. GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material.

Our significant accounting policies are discussed in Note 1 – Business and Summary of Significant Accounting Policies to our audited annual consolidated financial statements and Note 1 – Business and Summary of Significant Accounting Policies to our unaudited interim condensed consolidated financial statements included in this prospectus. We believe the following accounting policies are the most critical to aid in fully understanding and evaluating our reported financial results, as they require management to make difficult, subjective or complex judgments, and to make estimates about the effect of matters that are inherently uncertain. Although management believes that the estimates and judgments discussed herein are reasonable, actual results could differ, which could result in gains or losses that could be material. We have reviewed these critical accounting policies and related disclosures with the Audit Committee of our board of directors.

Derivative Financial Instruments

We hold derivatives for risk management purposes and not for trading. We use derivatives to mitigate uncertainty and volatility caused by underlying exposures to metal prices, foreign exchange rates, interest rates, and energy prices. The fair values of all derivative instruments are recognized as assets or liabilities at the balance sheet date and are reported gross.

The majority of our derivative contracts are valued using industry-standard models that use observable market inputs as their basis, such as time value, forward interest rates, volatility factors, and current (spot) and forward market prices for commodity and foreign exchange rates. See Note 17 – Financial Instruments and Commodity Contracts and Note 19 – Fair Value Measurements to our audited annual consolidated financial statements and Note 9 – Financial Instruments and Commodity Contracts and Note 11 – Fair Value Measurements to our unaudited interim condensed consolidated financial statements included in this prospectus for discussion on fair value of derivative instruments.

We may be exposed to losses in the future if the counterparties to our derivative contracts fail to perform. We are satisfied that the risk of such non-performance is remote due to our monitoring of credit exposures. Additionally, we enter into master netting agreements with contractual provisions that allow for netting of counterparty positions in case of default, and we do not face credit contingent provisions that would result in the posting of collateral.

For derivatives designated as fair value hedges, we assess hedge effectiveness by formally evaluating the high correlation of changes in the fair value of the hedged item and the derivative hedging instrument. The changes in the fair values of the underlying hedged items are reported in other current and noncurrent assets and liabilities in the consolidated balance sheets. Changes in the fair values of these derivatives and underlying hedged items generally offset, and the entire change in the fair value of derivatives is recorded in the statement of operations line item consistent with the underlying hedged item.

For derivatives designated as cash flow hedges or net investment hedges, we assess hedge effectiveness by formally evaluating the high correlation of the expected future cash flows of the hedged item and the derivative hedging instrument. The entire change in the fair value of the hedging instrument included in the assessment of hedge effectiveness is included in other comprehensive income (loss) and reclassified to earnings in the period in which earnings are impacted by the hedged items or in the period that the transaction becomes probable of not occurring. Gains or losses representing reclassifications of other comprehensive income (loss) to earnings are recognized in the same line item that is impacted by the underlying exposure. We exclude the time value component of foreign currency and aluminum price risk hedges when measuring and assessing effectiveness to align our accounting policy with risk management objectives when it is necessary. If at any time during the life of a cash flow hedge relationship we determine that the relationship is no longer effective, the derivative will no

 

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Confidential Treatment Requested by Novelis Inc.

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longer be designated as a cash flow hedge and future gains or losses on the derivative will be recognized in other expenses (income), net.

For all derivatives designated as hedging relationships, gains or losses representing amounts excluded from effectiveness testing are recognized in other expenses (income), net in our current period earnings. If no hedging relationship is designated, gains or losses are recognized in other expenses (income), net in our current period earnings.

Consistent with the cash flows from the underlying risk exposure, we classify cash settlement amounts associated with designated derivatives as part of either operating or investing activities in the consolidated statements of cash flows. If no hedging relationship is designated, we classify cash settlement amounts as part of investing activities in the consolidated statement of cash flows.

Impairment of Goodwill

Goodwill represents the excess of the purchase price over the fair value of the identifiable net assets of acquired companies. We estimated fair value of the identifiable net assets using a number of factors, including the application of multiples and discounted cash flow estimates. The carrying value of goodwill for each of our reporting units, which is tested for impairment annually, follows.

 

in millions    As of
March 31, 2023
 

North America

   $ 660  

Europe

     234  

Asia

     41  

South America

     141  
  

 

 

 

Goodwill

   $ 1,076  
  

 

 

 

Goodwill is not amortized; instead, it is tested for impairment annually or more frequently if indicators of impairment exist. On an ongoing basis, absent any impairment indicators, we perform our goodwill impairment testing as of March 31 of each fiscal year. We do not aggregate components of operating segments to arrive at our reporting units, and as such our reporting units are the same as our operating segments.

ASC 350, Intangibles - Goodwill provides an entity the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the estimated fair value of a reporting unit is less than its carrying amount. If an entity elects to perform a qualitative assessment and determines that an impairment is more likely than not, the entity is then required to perform the one-step quantitative impairment test, otherwise no further analysis is required. An entity also may elect not to perform the qualitative assessment and, instead, proceed directly to the one-step quantitative impairment test. The ultimate outcome of the goodwill impairment review for a reporting unit should be the same whether an entity chooses to perform the qualitative assessment or proceeds directly to the one-step quantitative impairment test.

For our fiscal 2023 test, we elected to perform the one-step quantitative impairment test, where we compared the fair value of each reporting unit to its carrying amount, and if the quantitative test indicates that the carrying value of a reporting unit exceeds the fair value, such excess is to be recorded as an impairment. For purposes of our quantitative analysis, our estimate of fair value for each reporting unit as of the testing date is based on a weighted average of the value indication from income and market approach. The approach to determining fair value for all reporting units is consistent given the similarity of our operations in each region.

Under the income approach, the fair value of each reporting unit is based on the present value of estimated future cash flows. The income approach is dependent on a number of significant management assumptions including

 

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sales volumes, conversion premiums, capital spending, working capital requirements, long-term growth rate, and the discount rate. We estimate future cash flows for each of our reporting units based on our projections for the respective reporting unit. These projected cash flows are discounted to the present value using a weighted average cost of capital (discount rate). The discount rate is commensurate with the risk inherent in the projected cash flows and reflects the rate of return required by an investor in the current economic conditions. For our annual impairment test, we used a discount rate of 9.57% for all reporting units. An increase or decrease of 0.25% in the discount rate would have impacted the estimated fair value of each reporting unit by approximately $103 million-$411 million, depending on the relative size of the reporting unit. Additionally, an increase or decrease of 0.25% in the terminal year growth rate assumption would have impacted the estimated fair value of each reporting unit by approximately $72 million-$310 million, depending on the relative size of the reporting unit. The projections are based on both past performance and the expectations of future performance and assumptions used in our current operating plan. We use specific revenue growth assumptions for each reporting unit based on history and economic conditions. The long-term growth rate assumption is 2.25%.

Under the market approach, the fair value of each reporting unit is determined based upon comparisons to public companies engaged in similar businesses. The market approach is dependent on a number of significant assumptions including selection of multiples and control premium.

As a result of our annual goodwill impairment test for fiscal 2023, no goodwill impairment was identified. The fair values of the reporting units exceeded their respective carrying amounts as of March 31, 2023 by 118% for North America, by 32% for Europe, by 128% for Asia, and by 297% for South America.

Pension and Other Postretirement Plans

We account for our pensions and other postretirement benefits in accordance with ASC 715, Compensation — Retirement Benefits. Liabilities and expense for pension plans and other postretirement benefits are determined using actuarial methodologies and incorporate significant assumptions, including the rate used to discount the future estimated liability, the long-term rate of return on plan assets, and several assumptions related to the employee workforce (compensation increases, health care cost trend rates, expected service period, retirement age, and mortality). These assumptions bear the risk of change as they require significant judgment and they have inherent uncertainties that management may not be able to control.

The actuarial models use an attribution approach that generally spreads the financial impact of changes to the plan and actuarial assumptions over the average remaining service lives of the employees in the plan or average life expectancy. The principle underlying the required attribution approach is that employees render service over their average remaining service lives on a relatively smooth basis and, therefore, the accounting for benefits earned under the pension or non-pension postretirement benefits plans should follow the same relatively smooth pattern. Changes in the liability due to changes in actuarial assumptions such as discount rate, rate of compensation increases and mortality, as well as annual deviations between what was assumed and what was experienced by the plan are treated as actuarial gains or losses. The actuarial gains and losses are initially recorded to other comprehensive income (loss) and subsequently amortized over periods of 15 years or less.

The most significant assumption used to calculate pension and other postretirement obligations is the discount rate used to determine the present value of benefits. The discount rate is based on spot rate yield curves and individual bond matching models for pension and other postretirement plans in Canada, the U.S., the U.K., and certain eurozone countries, and on published long-term high quality corporate bond indices in other countries with adjustments made to the index rates based on the duration of the plans’ obligations for each country, at the end of each fiscal year. This bond matching approach matches the bond yields with the year-to-year cash flow projections from the actuarial valuation to determine a discount rate that more accurately reflects the timing of the expected payments. The weighted average discount rate used to determine the pension benefit obligation was 4.5%, 3.1%, and 2.5% and other postretirement benefit obligation was 5.5%, 4.0% and 3.4% as of March 31, 2023, 2022, and 2021, respectively. The weighted average discount rate used to determine the net periodic benefit cost is the rate used to determine the benefit obligation at the end of the previous fiscal year.

 

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As of March 31, 2023, an increase in the discount rate of 0.5%, assuming inflation remains unchanged, would result in a decrease of $101 million in the pension and other postretirement obligations and in a pre-tax decrease of $7 million in the net periodic benefit cost in the following year. A decrease in the discount rate of 0.5% as of March 31, 2023, assuming inflation remains unchanged, would result in an increase of $112 million in the pension and other postretirement obligations and in a pre-tax increase of $8 million in the net periodic benefit cost in the following year.

The long term expected return on plan assets is based upon historical experience, expected future performance as well as current and projected investment portfolio diversification. The weighted average expected return on plan assets was 4.8% for 2023, 4.9% for 2022, and 5.1% for 2021. The expected return on assets is a long-term assumption whose accuracy can only be measured over a long period based on past experience. A variation in the expected return on assets of 0.5% as of March 31, 2023 would result in a pre-tax variation of approximately $18 million in the net periodic benefit cost in the following year.

Income Taxes

We account for income taxes using the asset and liability method. Under the asset and liability method, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. In addition, deferred tax assets are also recorded with respect to net operating losses and other tax attribute carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. Valuation allowances are established when realization of the benefit of deferred tax assets is not deemed to be more likely than not. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

We considered all available evidence, both positive and negative, in determining the appropriate amount of the valuation allowance against our deferred tax assets as of March 31, 2023. In evaluating the need for a valuation allowance, we consider all potential sources of taxable income, including income available in carryback periods, future reversals of taxable temporary differences, projections of taxable income, and income from tax planning strategies, as well as any other available and relevant information. Positive evidence includes factors such as a history of profitable operations, projections of future profitability within the carryforward period and potential income from prudent and feasible tax planning strategies. Negative evidence includes items such as cumulative losses, projections of future losses, and carryforward periods that are not long enough to allow for the utilization of the deferred tax asset based on existing projections of income. In certain jurisdictions, deferred tax assets related to loss carryforwards and other temporary differences exist without a valuation allowance where in our judgment the weight of the positive evidence more than offsets the negative evidence.

Upon changes in facts and circumstances, we may conclude that certain deferred tax assets for which no valuation allowance is currently recorded may not be realizable in future periods, resulting in a charge to income. Existing valuation allowances are re-examined under the same standards of positive and negative evidence. If it is determined that it is more likely than not that a deferred tax asset will be realized, the appropriate amount of the valuation allowance, if any, is released, in the period this determination is made.

During fiscal 2023, after considering all available evidence, we released the full valuation allowance on the temporary items and tax attributes of (i) Aleris Aluminum (Zhenjiang) Co. Ltd., resulting in a benefit of $29 million, and (ii) the legacy Aleris US entities in certain separate filer states and unitary filer states that require combined or separate reporting, resulting in a benefit of $10 million. As of March 31, 2023, the Company concluded that valuation allowances totaling $711 million were still required against its deferred tax assets comprised of the following:

 

  •  

$511 million of the valuation allowance relates to loss carryforwards in Canada and certain foreign jurisdictions, including $54 million related to loss carryforwards in U.S. states;

 

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$79 million relates to New York tax credit carryforwards;

 

  •  

$34 million relates to tax credit carryforwards in Canada; and

 

  •  

$87 million of the valuation allowance relates to other deferred tax assets originating from temporary differences in Canada and certain foreign jurisdictions.

In determining these amounts, the Company considered the reversal of existing temporary differences as a source of taxable income. The ultimate realization of the remaining deferred tax assets is contingent on the Company’s ability to generate future taxable income within the carryforward period and within the period in which the temporary differences become deductible. Due to the history of negative earnings in these jurisdictions and future projections of losses, the Company believes it is more likely than not the deferred tax assets will not be realized prior to expiration.

Through March 31, 2023, the Company recognized deferred tax assets related to loss carryforwards and other temporary items of approximately $731 million. The Company determined that existing taxable temporary differences will reverse within the same period and jurisdiction and are of the same character as the deductible temporary items generating sufficient taxable income to support realization of $590 million of these deferred tax assets. Realization of the remaining $141 million of deferred tax assets is dependent on our ability to earn pre-tax income aggregating approximately $604 million in those jurisdictions to realize those deferred tax assets. The realization of our deferred tax assets is not dependent on tax planning strategies.

By their nature, tax laws are often subject to interpretation. Further complicating matters is that in those cases where a tax position is open to interpretation, differences of opinion can result in differing conclusions as to the amount of tax benefits to be recognized under ASC 740, Income Taxes. We utilize a two-step approach for evaluating tax positions. Recognition (Step 1) occurs when we conclude that a tax position, based solely on its technical merits, is more likely than not to be sustained upon examination. Measurement (Step 2) is only addressed if Step 1 has been satisfied. Under Step 2, we measure the tax benefit as the largest amount of benefit, determined on a cumulative probability basis that is more likely than not to be realized upon ultimate settlement. Consequently, the level of evidence and documentation necessary to support a position prior to being given recognition and measurement within the financial statements is a matter of judgment that depends on all available evidence.

Assessment of Loss Contingencies

We have legal and other contingencies, including environmental liabilities, which could result in significant losses upon the ultimate resolution of such contingencies. Environmental liabilities that are not legal asset retirement obligations are accrued on an undiscounted basis when it is probable that a liability exists for past events.

We have provided for losses in situations where we have concluded that it is probable that a loss has been or will be incurred and the amount of the loss is reasonably estimable. A significant amount of judgment is involved in determining whether a loss is probable and reasonably estimable due to the uncertainty involved in determining the likelihood of future events and estimating the financial statement impact of such events. If further developments or resolution of a contingent matter are not consistent with our assumptions and judgments, we may need to recognize a significant charge in a future period related to an existing contingency.

Recently Issued Accounting Standards

On April 1, 2023, we adopted ASU 2022-04, which requires a buyer in a supplier finance program to disclose qualitative and quantitative information about its supplier finance programs, including the key terms of the program, the amount of obligations outstanding at the end of the reporting period, and a description of where those obligations are presented in the balance sheet. If presented in more than one balance sheet line item, the

 

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amount in each line item should be disclosed. Further, effective April 1, 2024, a roll-forward of such amounts during the annual period should be presented. The adoption of this guidance resulted in enhanced disclosures regarding these programs and did not have a material impact on our consolidated financial condition, results of operations, or cash flows.

Other than the foregoing, we have reviewed recent accounting pronouncements and concluded they are either not applicable to our business or no material effect is expected on the consolidated financial statements as a result of future adoption.

See Note 1 – Business and Summary of Significant Accounting Policies to our audited annual consolidated financial statements and Note 1 – Business and Summary of Significant Accounting Policies to our unaudited interim condensed consolidated financial statements included in this prospectus for a full description of recent accounting pronouncements.

Non-U.S. GAAP Financial Measures

We use the terms “EBITDA,” “Adjusted EBITDA” and “Adjusted Free Cash Flow” in various places throughout this prospectus, which are supplemental financial measures that are not prepared in accordance with U.S. GAAP. However, under ASC 280, our measure of segment profitability and financial performance of our operating segments is Adjusted EBITDA, and when used in this context, the term “Adjusted EBITDA” is a U.S. GAAP financial measure. For additional information, refer to “—Results of Operations—Segment Review” and “Non-U.S. GAAP Financial Measures.”

Quantitative and Qualitative Disclosures About Market Risk

We are exposed to certain market risks as part of our ongoing business operations, including risks from changes in metal prices (primarily aluminum, copper, zinc, and local market premiums), energy prices (electricity, natural gas, and diesel fuel), foreign currency exchange rates, and interest rates that could impact our results of operations and financial condition. We partially manage our exposure to energy prices by entering into fixed forward purchase contracts with energy providers, predominantly in Europe. We generally apply the normal purchase and normal sale scope exception to these contracts and do not record the contracts at fair value. These energy supply contracts are not derivatives but function as a risk management tool for fluctuating energy prices. We manage our exposure to these and other market risks through regular operating and financing activities and derivative financial instruments. We use derivative financial instruments as risk management tools only, and not for speculative purposes.

By their nature, all derivative financial instruments involve risk, including the credit risk of non-performance by counterparties. All derivative contracts are executed with counterparties that, in our judgment, are creditworthy. Our maximum potential loss may exceed the amount recognized in the accompanying December 31, 2023 condensed consolidated balance sheet (unaudited) included elsewhere in this prospectus.

The decision of whether and when to execute derivative instruments, along with the duration of the instrument, can vary from period to period depending on market conditions and the relative costs of the instruments. The duration is linked to the timing of the underlying exposure, with the connection between the two being regularly monitored.

The market risks we are exposed to as part of our ongoing business operations are materially consistent with our risk exposures in the prior year, as we have not entered into any new material hedging programs.

Commodity Price Risks

We have commodity price risk with respect to purchases of certain raw materials including aluminum, copper, zinc, electricity, natural gas, and transport fuel.

 

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Metal

A significant amount of our business is conducted under a conversion model, which allows us to pass through increases or decreases in the price of aluminum to our customers. Nearly all of our flat-rolled products have a price structure with three components: (1) a base aluminum price quoted off the LME; (2) an LMP; and (3) a “conversion premium” to produce the rolled product which reflects, among other factors, the competitive market conditions for that product. Base aluminum prices are typically driven by macroeconomic factors and global supply and demand for aluminum. Local market premiums tend to vary based on the supply and demand for metal in a particular region and associated transportation costs.

Increases or decreases in the average price of aluminum based on the LME directly impact net sales, cost of goods sold (exclusive of depreciation and amortization), and working capital. The timing of these impacts varies based on contractual arrangements with customers and metal suppliers in each region. These timing impacts are referred to as metal price lag. Metal price lag exists due to: (i) certain customer contracts containing fixed forward price commitments which result in exposure to changes in metal prices for the period of time between when our sales price fixes and the sale actually occurs, and (ii) the period of time between the pricing of our purchases of metal, holding and processing the metal, and the pricing of the sale of finished inventory to our customers.

We use derivative instruments to preserve our conversion margins and manage the timing differences associated with metal price lag related to base aluminum price. We use over-the-counter derivatives indexed to the LME (referred to as our “aluminum derivative contracts”) to reduce our exposure to fluctuating metal prices associated with the period of time between the pricing of our purchases of inventory and the pricing of the sale of that inventory to our customers. We also purchase forward LME aluminum contracts simultaneous with our sales contracts with customers that contain fixed metal prices. These LME aluminum forward contracts directly hedge the economic risk of future metal price fluctuations to better match the purchase price of metal with the sales price of metal.

Sensitivities

The following table presents the estimated potential negative effect on the fair values of these derivative instruments as of December 31, 2023, given a 10% change in prices. Direction of the change in price corresponds with the direction that would cause a negative impact on the fair value of these derivative instruments.

 

$ in millions    Change in
Price
    Change in
Fair Value
 

Aluminum

     10   $ (195

Copper

     (10     (1