Form: 8-K

Current report filing

August 10, 2005

Documents

Published on August 10, 2005

Exhibit 99.1
NOVELIS REPORTS SECOND QUARTER RESULTS

ROLLED PRODUCT SHIPMENTS INCREASED BY 3%

DEBT POSITION REDUCED BY $98 MILLION

ATLANTA, Aug. 10 /PRNewswire-FirstCall/ -- Novelis Inc.
(NYSE: NVL; TSX: NVL) today reported second quarter 2005 net loss of $18
million, or fully diluted loss per share (EPS) of ($0.24) compared to net
income in the carve-out statements as a part of Alcan Inc., our former parent,
for the second quarter 2004 of $45 million (EPS $0.61).

"While the results for the quarter were disappointing I am pleased with
the strength of the business fundamentals," commented Brian Sturgell,
President and Chief Executive Officer. "Indicative of the strength of the
business operations, we continued to generate strong cash flows which allowed
us to reduce debt by an additional $98 million. This was driven by rolled
products volume growth of 3%, an increase in pricing, an improvement in our
product mix and control of our costs. The weakness in Regional Income was
mainly due to three factors in the quarter: the movement and timing of metal
prices primarily in North America, the strengthening Brazilian Real and
unrealized losses on the change in market value of derivatives."

The comparison of Net Income / (loss) between the second quarter of 2005
and that of 2004 was largely influenced by the following items on an after-tax
basis:

-- Gain on the monetization of cross-currency interest rate swaps of
inter-company debt amounting to $37 million in 2005;
-- Gain on the sale of land in our Asia region of $11 million in 2005;
-- Unrealized losses on the change in market value of derivatives of $57
million in the second quarter of 2005, compared to unrealized losses in
the second quarter of 2004 amounting to $18 million;
-- Foreign currency balance sheet translation losses of $25 million in the
second quarter of 2005, mainly in South America, compared to a gain of
$6 million in the second quarter of 2004;
-- Gain in the second quarter of 2004 of $13 million on a change in the
pension plan for our South American operations; and
-- As a stand-alone company our interest increased by $20 million in the
second quarter of 2005 compared to the 2004 carve-out allocations from
Alcan.

Rolled product shipments climbed to 731 thousand tonnes (kt) for the
second quarter of 2005, a 3% increase over the 709 kt shipped in the
equivalent period in 2004. The increase in shipments is attributed to strong
market demand, largely in South America and Asia, as well as improvements in
Europe, particularly in the beverage can and lithographic markets.

Sales and operating revenues rose nearly 13% for the second quarter of
2005 over the same quarter of 2004 while cost of sales and operating expenses
increased by 16%. In addition to the higher shipments, the major contributing
factor to increases in both sales and operating revenues and cost of sales was
a rise in London Metal Exchange (LME) aluminum prices, which were up
approximately 7% from the year-ago quarter. During the quarter, sales and
operating revenues in North America were also impacted by the can price
ceiling. Sales contracts, currently representing approximately 20% of our
annual sales, provide for a ceiling over which metal prices cannot
contractually be passed through to our customers. This resulted in our being
unable to pass through the complete increase in metal prices sold under these
contracts. Although we attempt to mitigate this risk through the purchase of
options, this hedging policy was not totally effective given the relatively
high and sustained metal prices since the fourth quarter of 2004.


Selling, general and administrative expenses (SG&A) were $76 million in
the second quarter, up $26 million from the year-ago quarter. Included in SG&A
in 2005 are additional corporate head office costs, which we incurred as a new
stand-alone company. The 2004 quarter included $10 million of the $19 million
total benefit from the change in the South American pension plan.

Interest expense at $50 million in the second quarter of 2005 was
significantly higher than the interest allocated from Alcan in the carve-out
statements in the second quarter of 2004. A comparison to interest expense in
the second quarter of 2004 is not meaningful as it did not reflect the level
of debt, nor the associated interest costs that Novelis would have incurred
had it operated on a stand-alone basis at that time.

"Other expenses (income) - net" was an expense of $11 million in the
second quarter of 2005 and included a realized gain of $45 million on the
monetization of certain cross-currency interest rate swaps that were put in
place to hedge inter-company loans denominated in currencies other than the
U.S. dollar, and an $11 million gain on the sale of land in Asia. In addition,
we had unrealized losses on the change in market value of derivatives of $76
million. The second quarter of 2004 included unrealized losses on the change
in market value of derivatives of $27 million. Additionally, the 2005 second
quarter included foreign currency balance sheet translation losses of $11
million compared to foreign currency balance sheet translation gains of $1
million in the second quarter of 2004.

Income taxes for the second quarter of 2005 were $15 million on break-even
results for Income before income taxes and other items. In 2004, the effective
tax rate for the second quarter was 33% compared to the composite statutory
rate of 36%. The main reasons for the second quarter 2005 income taxes were an
$11 million pre-tax exchange loss on the translation of net monetary
liabilities denominated in local currency, for which there was no related
income tax recovery, and a tax liability of $10 million on translation of U.S.
dollar debt into local currency, for which there was no related income, both
mainly in South America.

The historical 2004 unaudited combined financial statements are presented
in U.S. dollars using United States (U.S.) Generally Accepted Accounting
Principles (GAAP) and have been derived from the accounting records of Alcan
using the historical results of operations and historical basis of assets and
liabilities of the businesses now comprising Novelis. However, the historical
unaudited combined financial statements included herein may not necessarily be
indicative of our results of operations, financial position and cash flows in
the future or what its results of operations, financial position and cash
flows would have been had Novelis been a stand-alone company during the
historical periods presented. As these historical combined financial
statements represent a portion of the businesses of Alcan which did not at the
time constitute a separate legal entity, the net assets of Novelis have been
presented as Alcan's net investment in the businesses. Alcan's investment in
the businesses includes the accumulated earnings of the businesses as well as
cash transfers related to cash management functions performed by Alcan.
Subsequent to the spin-off from Alcan, the financial statements no longer
reflect Alcan as a related party. For more information on the basis of
presentation of the historical combined financial statements, see note 2 to
the audited combined financial statements included in the Novelis annual
report filed on Form 10-K for the year ended December 31, 2004.


Regional Results
See Attachment A for a description of Regional Income and a reconciliation
of Regional Income to Income before income taxes and other items.

Total Regional Income



2nd Qtr 2nd Qtr 1st Qtr
($ in millions) 2005 2004 % Chg 2005 % Chg
- ---------------------------------------- ---------- ---------- ---------- ---------- ----------

Sales 2,173 1,929 12.6% 2,118 2.6%
Regional Income 140 195 (28.2)% 182 (23.1)%
Rolled Product
Shipments (kt) 731 709 3.1% 712 2.7%
Regional Income per Tonne 192 275 (30.2)% 256 (25.0)%
Depreciation 57 57 0.0% 58 (1.7)%
Capital Expenditures 33 39 (15.4)% 23 43.5%
Total Assets 5,341 6,920 (22.8)% 5,667 (5.8)%


The operating fundamentals of the Company continued to be strong in the
second quarter of 2005 and were reflected in 3% higher rolled product
shipments, increasing conversion prices, and continued emphasis on cost
control. However, Regional Income decreased by $55 million for the second
quarter of 2005 versus the prior year period on a pre-tax basis due to three
main factors: The adverse effect of metal prices impacted both the can price
ceiling in North America and metal timing differences. This accounted for
approximately $28 million of the variance while negative impacts from foreign
currency movements, mainly in Brazil, accounted for a further $21 million of
the decrease. Finally, during the second quarter of 2004, there was a $19
million gain on conversion to a defined contribution pension plan in Brazil
that unfavorably impacts the comparison of Regional Income to 2005.

Novelis North America



North America 2nd Qtr 2nd Qtr 1st Qtr
($ in millions) 2005 2004 % Chg 2005 % Chg
- ---------------------------------------- ---------- ---------- ---------- ---------- ----------

Sales 840 749 12.1% 827 1.6%
Regional Income 34 72 (52.8)% 57 (40.4)%
Rolled Product
Shipments (kt) 284 289 (1.7)% 283 0.4%
Regional Income per Tonne 120 249 (51.8)% 201 (40.3)%
Depreciation 18 17 5.9% 18 0.0%
Capital Expenditures 9 6 50.0% 8 12.5%
Total Assets 1,415 2,879 (50.9)% 1,480 (4.4)%


Regional Income of Novelis North America was $34 million for the second
quarter of 2005, a decrease of $38 million, or 53%, from the second quarter of
2004. This reduction was mainly due to the movements in metal prices which
adversely impacted the can price ceiling. Cost increases, mainly freight and
energy costs, were partially offset by improved conversion selling prices in
most product lines, as well as by continued improvements in optimizing our
product portfolio. The 2% decline in shipments was due primarily to industrial
products such as automotive.


Novelis Europe



Europe 2nd Qtr 2nd Qtr 1st Qtr
($ in millions) 2005 2004 % Chg 2005 % Chg
- ---------------------------------------- ---------- ---------- ---------- ---------- ----------

Sales 833 767 8.6% 807 3.2%
Regional Income 58 56 3.6% 57 1.8%
Rolled Product
Shipments (kt) 264 256 3.1% 252 4.8%
Regional Income per Tonne 220 219 0.5% 226 (2.7)%
Depreciation 25 24 4.2% 26 (3.8)%
Capital Expenditures 12 22 (45.5)% 8 50.0%
Total Assets 2,193 2,372 (7.5)% 2,469 (11.2)%


Regional Income of Novelis Europe was $58 million for the second quarter
of 2005, an increase of $2 million or nearly 4% compared to the second quarter
of 2004. This increase was supported by a stronger euro on the translation of
Regional Income and the result of restructuring initiatives along with
continued emphasis on cost control. These improvements, together with higher
shipments and a better product portfolio mix, more than offset higher energy
costs and the adverse impact of inventory reduction measures.

Novelis Asia



Asia 2nd Qtr 2nd Qtr 1st Qtr
($ in millions) 2005 2004 % Chg 2005 % Chg
- ---------------------------------------- ---------- ---------- ---------- ---------- ----------

Sales 360 298 20.8% 338 6.5%
Regional Income 29 23 26.1% 30 (3.3)%
Rolled Product
Shipments (kt) 123 115 7.0% 114 7.9%
Regional Income per Tonne 236 200 18.0% 263 (10.3)%
Depreciation 11 11 0.0% 12 (8.3)%
Capital Expenditures 7 4 75.0% 3 133.3%
Total Assets 986 948 4.0% 987 (0.1)%


Regional Income of Novelis Asia was $29 million for the second quarter of
2005, an increase of $6 million, or 26%, over the $23 million in the second
quarter of 2004. In the second quarter of 2005, we experienced better pricing
in addition to increased shipments, which more than offset the adverse impact
of metal timing differences. Productivity improvements contributed to our
results as de-bottlenecking in our Korean production facilities allowed us to
increase capacity and output levels.


Novelis South America



South America 2nd Qtr 2nd Qtr 1st Qtr
($ in millions) 2005 2004 % Chg 2005 % Chg
- ---------------------------------------- ---------- ---------- ---------- ---------- ----------

Sales 144 117 23.1% 149 (3.4)%
Regional Income 19 44 (56.8)% 38 (50.0)%
Rolled Product
Shipments (kt) 60 49 22.4% 63 (4.8)%
Regional Income per Tonne 317 898 (64.7)% 603 (47.4)%
Depreciation 11 12 (8.3)% 11 0.0%
Capital Expenditures 5 4 25.0% 2 150.0%
Total Assets 761 808 (5.8)% 766 (0.7)%


Regional Income of Novelis South America was $19 million for the second
quarter of 2005, a decrease of $25 million, or 57%, compared to the second
quarter of 2004. This drop resulted primarily from two specific factors: a $19
million gain resulting from our conversion to a defined contribution pension
plan that occurred in the second quarter 2004 and a $19 million negative
impact from the 14% strengthening of the Brazilian Real in the second quarter
of 2005. Sixty percent of this impact resulted from the effects of the foreign
currency balance sheet translation, which has no immediate cash impact on the
business. The operating results of the business remained sound with Regional
Income benefiting from higher shipment volumes and conversion prices and the
favorable impact of higher metal prices on production from our smelters.

Cash from Operating Activities

Cash from operating activities was $176 million for the second quarter of
2005 with a positive change in working capital, deferred items and other-net
of $135 million. This represents a $215 million improvement in cash from
operating activities compared to the same quarter in 2004. The change in
working capital, deferred items and other-net for the same period in 2004 was
($137) million. Free cash flow for the second quarter of 2005 was $135
million, representing a $214 million improvement from the second quarter of
2004, which was ($79) million.

Cash Flow 2nd Qtr 2nd Qtr 1st Qtr
($ in millions) 2005 2004 2005
- --------------------------------------- ---------- ---------- ----------
Cash from Operating Activities 176 (39) 112
Dividends (8) (1) (13)
Capital Expenditures (33) (39) (23)
Free Cash Flow(1) 135 (79) 76

(1) "Free cash flow" consists of cash from operating activities less capital
expenditures and dividends. Dividends include those paid by our less than
wholly-owned subsidiaries to their minority shareholders and dividends to
the common shareholders of Novelis. Management believes that 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. However, free cash flow does not necessarily represent cash
available for discretionary activities, as certain debt service obligations
must be funded out of free cash flow. The Company's method of calculating
free cash flow may not be consistent with that of other companies.

Financing and Investment Activities

At the spin-off from Alcan, Novelis had $2,951 million of debt and capital
leases which was reduced by $70 million in the first quarter of 2005. With
the strength of free cash flows in the second quarter of 2005, Novelis further
decreased its debt position by $98 million to $2,783 million at June 30, 2005,
for a total year-to-date debt reduction of $168 million or 6%.

Capital expenditures totaled $33 million for the second quarter of 2005
and $39 million in the same quarter of last year representing capital
reinvestment rates of 58% and 68% of depreciation, respectively. The majority
of Novelis' capital expenditures for the quarter was spent on keeping our
quality and technology advantage in the market, increasing productivity,
finding additional cost reductions and undertaking small projects to increase
capacity.


2005 Outlook

The guidance for 2005 was based on three primary components. First, the
fundamental drivers of the business which are volume, price, product portfolio
and cost. The second component is metal, which includes any impact from the
can price ceiling or metal timing differences. The last component is currency
which includes both income statement and balance sheet translation. When
developing guidance for 2005, we relied on the LME forward price curves for
the metal component and internal perspective and the external outlook for
currencies. Clearly, these two items moved well outside of our projections,
with the Real strengthening significantly and metal showing high and sustained
prices since late 2004.

The volatility in metal prices and currency movements limits our ability
to provide new guidance. However, year-to-date our fundamental drivers showed
strong improvement. We still expect to show a positive increase year over year
in the second half of the year on the elements of regional income which we
control; volume growth, price, product portfolio and cost.

Attachment A

The following table summarizes the reconciliation of Regional Income to
Income before income taxes and other items.



Second Quarter
----------------------- First Quarter
($ in millions) 2005 2004 2005
- ---------------------------------------- ---------- ---------- -------------

Regional Income
Novelis North America 34 72 57
Novelis Europe 58 56 57
Novelis Asia 29 23 30
Novelis South America 19 44 38
Total Regional Income 140 195 182

Corporate office * 34 (10) (27)

Other Adjustments
Equity-accounted joint ventures (11) (10) (11)
Change in fair market value &
reclassifications of derivatives (66) (27) 19
Restructuring, rationalization
& impairment 10 (2) 1

Depreciation & amortization (57) (57) (58)
Interest (50) (19) (44)

Income before income taxes and
other items 0 70 62


* Corporate office costs include a $45 million gain realized on monetization
of cross-currency interest rate swaps in the second quarter 2005.

Regional Income is the measure by which management evaluates the
performance of our operating segments. Regional Income comprises earnings
before interest, taxes, depreciation and amortization excluding certain items,
such as corporate office costs and asset and goodwill impairments,
restructuring, rationalization and the change in fair market value of our
derivatives, which are not under the control of the regional groups. These
items are managed by the company's head office, which focuses on strategy
development and oversees governance, policy, legal compliance, human resources
and finance.

Financial information for the regional groups includes the results of
certain joint ventures on a proportionately consolidated basis, which is
consistent with the way the regional groups are managed. Under U.S. GAAP,
these joint ventures are accounted for under the equity method. Therefore, in
order to reconcile to Income before income taxes and other items, the Regional
Income attributable to these joint ventures is removed from Total Regional
Income for the company and the net after-tax results are reported as equity
income.

The change in the fair market value of derivatives, with the exception of
unrealized gains or losses on certain cash flow hedges, has been removed from
individual regional results and is shown on a separate line. This
presentation provides a more accurate portrayal of underlying regional group
results and is in line with the company's portfolio approach to risk
management.


Novelis Inc.
CONSOLIDATED AND COMBINED STATEMENTS OF INCOME (unaudited)
(in millions of US$, except per share amounts)



Second Quarter Six Months
----------------------- -----------------------
Periods ended June 30 2005 2004 2005 2004
- ---------------------------------------- ---------- ---------- ---------- ----------

Sales and operating revenues
- third parties 2,173 1,805 4,291 3,523
- related parties - 124 - 216
2,173 1,929 4,291 3,739
Costs and expenses
Cost of sales and operating
expenses, excluding depreciation and
amortization noted below
- third parties 1,968 1,578 3,852 3,083
- related parties - 112 - 192
Depreciation and amortization 57 57 115 118
Selling, general and administrative
expenses 76 50 152 110
Research and development expenses 11 18 19 28
Interest
- third parties 50 10 94 21
- related parties - 9 - 17
Other expenses (income) - net
- third parties 11 4 (3) 8
- related parties - 21 - (22)
2,173 1,859 4,229 3,555

Income before income taxes and
other items - 70 62 184
Income taxes 15 23 44 66
Income (loss) before other items (15) 47 18 118
Equity income 2 1 4 3
Minority interests (5) (3) (11) (7)
Net income (loss) (18) 45 11 114
Earnings (loss) per share
Net income (loss) per share - basic (0.24) 0.61 0.15 1.54
Net income (loss) per share - diluted (0.24) 0.61 0.15 1.53

Dividends per common share 0.09 - 0.18 -

Supplemental information (note 1):

Net income (loss) attributable to
consolidated results of Novelis from
January 6 to June 30, 2005 -
increase (decrease) to Retained
earnings (18) - 41 -
Net loss attributable to combined
results of Novelis from January 1 to
5, 2005 - decrease to Owner's net
investment - - (30) -
Net Income (loss) (18) - 11 -



Novelis Inc.
CONSOLIDATED AND COMBINED BALANCE SHEETS
(in millions of US$, except number of shares)



June 30, December 31,
As at 2005 2004
- --------------------------------------------------------- ------------ ------------
(unaudited) (audited)

ASSETS
Current assets
Cash and cash equivalents 129 31
Trade receivables (net of allowances of
$32 in 2005 and $33 in 2004)
- third parties 1,030 710
- related parties - 87
Other receivables
- third parties 249 118
- related parties 35 846
Inventories
Aluminum 962 1,081
Raw materials 18 20
Other supplies 142 125
1,122 1,226
Total current assets 2,565 3,018
Deferred charges and other assets 235 193
Long-term receivables from related parties 82 104
Property, plant and equipment
Cost (excluding Construction work in progress) 5,282 5,506
Construction work in progress 117 112
Accumulated depreciation (3,218) (3,270)
2,181 2,348
Intangible assets (net of accumulated
amortization of $10 in 2005 and $9 in 2004) 30 35
Goodwill 248 256
Total assets 5,341 5,954

LIABILITIES AND SHAREHOLDERS'/INVESTED EQUITY
Current liabilities
Payables and accrued liabilities
- third parties 1,302 859
- related parties 37 401
Short-term borrowings
- third parties 23 229
- related parties - 312
Debt maturing within one year
- third parties 3 1
- related parties - 290
Total current liabilities 1,365 2,092
Debt not maturing within one year
- third parties 2,757 139
- related parties - 2,307
Deferred credits and other liabilities 486 472
Deferred income taxes 198 249
Minority interests 144 140
Shareholders'/Invested equity
Common shares, no par value - unlimited
number of shares authorized; issued and
outstanding: 73,993,006 shares - -
Additional paid-in capital 434 -
Retained earnings 27 -
Accumulated other comprehensive income (loss) (70) 88
Owner's net investment - 467
391 555
Commitments and contingencies
Total liabilities and
shareholders'/invested equity 5,341 5,954



Novelis Inc.
CONSOLIDATED AND COMBINED STATEMENT OF CASH FLOWS (unaudited)
(in millions of US$)



Six months ended June 30 2005 2004
- --------------------------------------------------------- ------------ ------------

OPERATING ACTIVITIES
Net income 11 114
Adjustments to determine cash from operating
activities:
Depreciation and amortization 115 118
Deferred income taxes (17) 15
Equity income (4) (3)
Stock option compensation 1 1
Change in operating working capital,
deferred items and other - net 182 (146)
Cash from operating activities 288 99
FINANCING ACTIVITIES
Proceeds from issuance of new debt from third
parties 2,750 441
Debt repayments
- third parties (1,633) (28)
- related parties (1,180) -
Short-term borrowings - net
- third parties (468) (129)
- related parties (74) 8
Dividends - common shareholders (14) -
Dividends - minority interest (7) (3)
Net receipts from (payments to) Alcan 104 (17)
Cash from (used for) financing activities (522) 272
INVESTING ACTIVITIES
Purchase of property, plant and equipment (56) (59)
Proceeds from disposal of business,
investments and other assets, net of cash 9 -
Change in other receivables - third parties 341 (311)
Change in long-term and other receivables -
related parties 42 -
Cash from (used for) investment activities 336 (370)
Increase in cash and cash equivalents 102 1
Effect of exchange rate changes on cash
balances held in foreign currencies (4) -
Cash and cash equivalents - beginning of
period 31 27
Cash and cash equivalents - end of period 129 28



Novelis Inc.
CONSOLIDATED AND COMBINED STATEMENT OF SHAREHOLDERS'/INVESTED EQUITY
(unaudited)
(in millions of US$, except number of shares which is in thousands)



Additional
Common Shares Paid-in Retained
Shares Amount Capital Earnings
---------- ---------- ---------- ----------

Balance at December 31, 2004 - - - -
Net income - six months ended
June 2005 - - - 41
Comprehensive loss - - - -
Dividends - - - (14)
Transfer (to)/from Alcan
- net - - - -
Issuance of common stock in
connection with the
distribution 73,989 - 434(a) -
Issuance of common stock
in connection with stock
plans 4 - - -
Balance at June 30, 2005 73,993 - 434 27




Accumulated
Other
Comprehensive Owner's Net
Income (Loss) Investment Total
-------------- ----------- ----------

Balance at December 31, 2004 88 467 555
Net income - six months ended
June 2005 - (30)(b) 11
Comprehensive loss (158) - (158)
Dividends - (7) (21)
Transfer (to)/from Alcan
- net - 4 4
Issuance of common stock
in connection with the
distribution - (434) -
Issuance of common stock
in connection with
stock plans - - -
Balance at June 30, 2005 (70) - 391


(a) Represents the amount of owner's net investment after transfers (to)/from
Alcan - net and the net loss from January 1 to January 5, 2005.
(b) Refer to note 1 - Background Basis of Presentation.


Novelis Inc.
(in millions of US$)

1. BACKGROUND AND BASIS OF PRESENTATION

Background

On May 18, 2004, Alcan Inc. and its subsidiaries (Alcan) announced its
intention to separate its rolled products business into a separate company and
to pursue a spin-off of that business to its shareholders. The rolled products
businesses were managed under two separate operating segments within Alcan;
Rolled Products Americas and Asia and Rolled Products Europe. Alcan and its
subsidiaries contributed and, on January 6, 2005, transferred to a new public
company, Novelis Inc. (the Company, Novelis, we, us or our), substantially all
of the aluminum rolled products businesses operated by Alcan prior to its 2003
acquisition of Pechiney, together with some of Alcan's alumina and primary
metal-related businesses in Brazil, which are fully integrated with the rolled
products operations there, as well as four former Pechiney rolling facilities in
Europe, as their end-use markets and customers are more similar to those of
Novelis. Novelis, which was formed in Canada on September 21, 2004, acquired the
abovementioned businesses on January 6, 2005, through the reorganization
transactions described above.

On January 6, 2005, the spin-off occurred following the approval by Alcan's
Board of Directors and shareholders, and the receipt of other required legal and
regulatory approvals. Alcan shareholders received one Novelis common share for
every five Alcan common shares held. Common shares of Novelis began trading on a
"when issued" basis on the Toronto (TSX) and New York (NYSE) stock exchanges on
January 6, 2005, with a distribution record date of January 11, 2005. "Regular
Way" trading began on the TSX on January 7, 2005, and on the NYSE on January 19,
2005.

The Company together with its subsidiaries produces aluminum sheet and light
gauge products where the end-use destination of the products includes the
construction and industrial, beverage and food cans, foil products and
transportation markets. The Company operates in four continents, North America,
South America, Asia and Europe through 36 operating plants and three research
facilities in 11 countries. In addition to aluminum rolled products plants, the
Company's South American businesses include bauxite mining, aluminum refining
and smelting facilities that are integrated with the rolling plants in Brazil.

In 2004 and prior years, Alcan was considered a related party due to its
parent-subsidiary relationship with the Novelis entities. However, subsequent to
the spin-off, Alcan is no longer a related party as defined in Statement of
Financial Accounting Standards (SFAS) No. 57, Related Party Disclosures.

Post-transaction adjustments

The agreements giving effect to the spin-off provide for various post-
transaction adjustments and the resolution of outstanding matters, which are
expected to be carried out by the parties by the end of 2005. These adjustments,
for the most part, will be reflected as changes to shareholders' equity and
could include items such as working capital, pension assets and liabilities and
adjustments to opening balance sheet accounts.

Agreements between Novelis and Alcan

Novelis has entered into various agreements with Alcan for the use of
transitional and technical services, the supply of Alcan's metal and alumina,
the licensing of certain of Alcan's patents, trademarks and other intellectual
property rights, and the use of certain buildings, machinery and equipment,
technology and employees at certain facilities retained by Alcan, but required
in Novelis's business.

Basis of presentation

The consolidated and combined financial statements for the six months ended
June 30, 2005 include the results for the period from January 1 to January 5,
2005 prior to the Company's spin-off from Alcan, in addition to the results for
the period from January 6 to June 30, 2005, as described below. The unaudited
combined financial results for the period from January 1 to January 5, 2005
represent the operations and cash flows of the Novelis entities on a carve-out
basis. The unaudited consolidated results as at June 30, 2005 and for the period
from January 6 (the date of the spin-off from Alcan) to June 30, 2005 represent
the operations, cash flows and financial position of the Company as a
stand-alone entity.


All income earned and cash flows generated by the Novelis entities as well
as the risks and rewards of these businesses from January 1 to January 5, 2005
were primarily attributed to Novelis and are included in the unaudited
consolidated results for the period from January 6 to June 30, 2005, with the
exception of mark-to-market losses of $30 on derivative contracts primarily with
Alcan. These mark-to-market losses for the period from January 1 to 5, 2005,
were recorded in the unaudited consolidated and combined statements of income
for the six months ended June 30, 2005, and are reflected as a decrease in
Owner's net investment.

The historical combined financial statements as at December 31, 2004
(audited) and for the second quarter and six months ended June 30, 2004
(unaudited) (hereafter, "the historical combined financial statements") have
been derived from the accounting records of Alcan using the historical results
of operations and historical basis of assets and liabilities of the businesses
subsequently transferred to Novelis. Management believes the assumptions
underlying the historical combined financial statements, including the
allocations described below, are reasonable. However, the historical combined
financial statements included herein may not necessarily reflect the Company's
results of operations, financial position and cash flows or what its results of
operations, financial position and cash flows would have been had Novelis been a
stand-alone company during the periods presented. Alcan's investment in the
Novelis businesses, presented as Owner's net investment in the historical
combined financial statements, includes the accumulated earnings of the
businesses as well as cash transfers related to cash management functions
performed by Alcan.

In the opinion of management of the Company, the unaudited consolidated and
combined and historical combined financial statements reflect all adjustments
(including normal recurring adjustments) necessary for a fair statement of the
financial position and the results of operations and cash flows in accordance
with accounting principles generally accepted in the United States of America
(U.S. GAAP), applied on a consistent basis. The presentation of financial
statements in accordance with U.S. GAAP requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates. The
results reported in these unaudited consolidated and combined financial
statements are not necessarily indicative of the results that may be expected
for the entire year.

As Novelis was not a stand-alone company and operated as a part of Alcan
prior to 2005, the historical combined financial statements include allocations
of certain Alcan expenses, assets and liabilities, including the items described
below.

General Corporate Expenses

Alcan allocated general corporate expenses to the Company based on average
head count and capital employed. Capital employed represents Total assets less
Payables and accrued liabilities and Deferred credits and other liabilities.
These allocations are reflected in Selling, general and administrative expenses
in the historical combined statements of income for the second quarter and six
months ended June 30, 2004. The general corporate expense allocations are
primarily for human resources, legal, treasury, insurance, finance, internal
audit, strategy and public affairs and amounted to $9 and $17 for the second
quarter and the six months ended June 30, 2004, respectively. Total head office
costs, including the amounts allocated, amounted to $10 and $20 for the second
quarter and six months ended June 30, 2004, respectively. The costs allocated
are not necessarily indicative of the costs that would have been incurred if the
Company had performed these functions as a stand-alone company, nor are they
indicative of costs that will be charged or incurred in the future. Subsequent
to the spin-off, the Company performs the majority of these functions using its
own resources or purchased services; however, for an interim period, certain
services will continue to be provided by Alcan. It is not practicable to
estimate the amount of expenses the Company would have incurred for the second
quarter and six months ended June 30, 2004 had it been a stand-alone entity,
unaffiliated with Alcan.


Pensions and Post-Retirement Benefits

Prior to the spin-off, certain Novelis entities had pension obligations
mostly comprised of defined benefit plans in the U.S. and the U.K., unfunded
pension benefits in Germany and lump sum indemnities payable upon retirement to
employees of businesses in France, Korea and Malaysia. These pension benefits
are managed separately and the related assets, liabilities and costs are
included in both the consolidated and combined and historical combined financial
statements.

Prior to the spin-off, Alcan managed defined benefit plans in Canada, the
U.S., the U.K. and Switzerland that include some of the entities of the Company.
The Company's share of these plans' assets and liabilities is not included in
the historical combined balance sheet as at December 31, 2004. The historical
combined statements of income for the second quarter and six months ended June
30, 2004, however, include an allocation of the costs of the plans that varies
depending on whether the entity was a subsidiary or a division of Alcan at that
time. Pension costs of divisions of Alcan that were transferred to Novelis were
allocated based on the following methods: service costs were allocated based on
a percentage of payroll costs; interest costs, the expected return on assets,
and amortization of actuarial gains and losses were allocated based on a
percentage of the projected benefit obligation (PBO); and prior service costs
were allocated based on headcount. The total allocation of such pension costs
amounted to $3 and $6 for the second quarter and six months ended June 30, 2004,
respectively. Pension costs of subsidiaries of Alcan that were transferred to
Novelis were accounted for on the same basis as a multi-employer pension plan
whereby the subsidiaries' contributions for the period were recognized as net
periodic pension cost. There were no contributions by the subsidiaries for the
second quarter and six months ended June 30, 2004.

Prior to the spin-off, Alcan provided post-retirement benefits in the form
of unfunded healthcare and life insurance benefits to retired employees in
Canada and the U.S. that include retired employees of some of the Company's
businesses. The Company's share of these plans' liabilities is included in the
historical combined balance sheet as at December 31, 2004 and the Company's
share of these plans' costs is included in the historical combined statement of
income for the second quarter and six months ended June 30, 2004.

Subsequent to the spin-off, certain changes were made to the Alcan plans
covering Novelis employees and new pension plans were also established by
Novelis.

Income Taxes

Income taxes for 2004 were calculated as if all of the Company's operations
had been separate tax paying legal entities, each filing a separate tax return
in its local tax jurisdiction. For jurisdictions where there was no tax sharing
agreement, amounts currently payable were included in Owner's net investment.

Cash Management

Cash and cash equivalents in the historical combined balance sheet as at
December 31, 2004 are comprised of the cash and cash equivalents of the
Company's businesses, primarily in South America, Asia and parts of Europe, that
perform their own cash management functions.

Historically, Alcan performed cash management functions on behalf of certain
of the Company's businesses primarily in North America, the United Kingdom, and
parts of Europe. Cash deposits from these businesses were transferred to Alcan
on a regular basis. As a result, none of Alcan's cash and cash equivalents were
allocated to the Company in the historical combined financial statements.
Transfers to and from Alcan were netted against Owner's net investment.
Subsequent to the spin-off, the Company is responsible for its own cash
management functions.


Interest Expense

The Company obtains short and long-term financing from third parties, and
prior to the spin-off, from related parties. Interest is charged on all short
and long-term debt and is included in Interest in both the consolidated and
combined and historical combined statements of income.

Historically, Alcan provided certain financing to the Novelis entities and
incurred third party debt at the parent level. This financing is reflected in
the historical combined balance sheet as at December 31, 2004 within the amounts
due to Alcan and is interest-bearing. As a result of this arrangement, the
historical combined financial statements for the second quarter and six months
ended June 30, 2004 do not include an allocation of additional interest expense.
The Company's interest expense as a stand-alone company is higher than reflected
in the historical combined statements of income for the second quarter and six
months ended June 30, 2004.

Derivatives

The Company primarily enters into derivative contracts to manage a portion
of its foreign exchange, commodity and interest rate risks. These contracts are
reported at their fair value on the balance sheet. Changes in the fair value of
these contracts are recorded in the statement of income, included in Other
expenses (income) - net.

Stock Options

Stock option expense and other stock-based compensation expense in the
historical combined statements of income include the Alcan expenses related to
the fair value of awards held by certain employees of Alcan's Rolled Products
businesses during the periods presented as well as an allocation, calculated
based on the average of headcount and capital employed, for Alcan's corporate
office employees. These expenses are not necessarily indicative of what the
expenses would have been had the Company been a separate stand-alone entity in
2004.

Earnings Per Share

Prior to the spin-off, the Company was not a separate legal entity with
common shares outstanding. Earnings per share for 2004 have been presented using
the Novelis common shares outstanding immediately after completion of the
spin-off on January 6, 2005.

2. RELATED PARTY TRANSACTIONS

The Company enters into transactions with related parties in the ordinary
course of business. Alcan is the primary supplier of prime and sheet ingot to
the Company as well as the counterparty to all of the Company's metal
derivatives. The Company also sells inventory to Alcan and certain equity-
accounted investees. In 2004 and prior years, Alcan was considered a related
party to Novelis. However, subsequent to the spin-off, Alcan is no longer a
related party, as defined in SFAS No. 57, Related Party Disclosures.

In 2004, all related parties balances on the statement of income represent
principally transactions between Alcan and Novelis. Subsequent to the spin- off,
Novelis repaid its net obligation to Alcan at December 31, 2004 from the
proceeds of third party financing. At June 30, 2005, balances due to and from
related parties comprise balances between Novelis and its equity-accounted
investees.


Atlanta, Georgia
August 10, 2005

Novelis, which was spun off by Alcan effective January 6, 2005, is the
global leader in aluminum rolled products and aluminum can recycling, with 36
operating facilities in 11 countries and more than 13,000 dedicated employees.
Novelis has the unique ability to provide its customers with a regional supply
of high-end rolled aluminum throughout Asia, Europe, North America, and South
America. Through its advanced production capabilities, Novelis supplies aluminum
sheet and foil to automotive, transportation, beverage and food packaging,
construction, industrial and printing markets. Please visit
http://www.novelis.com for more information on Novelis.

Statements made in this news release which describe the Company's
intentions, expectations or predictions may be forward-looking statements within
the meaning of securities laws. The Company cautions that, by their nature,
forward-looking statements involve risk and uncertainty and that the Company's
actual results could differ materially from those expressed or implied in such
statements. Important factors which could cause such differences include global
supply and demand conditions for rolled aluminum products, changes in the
relative value of various currencies, changes and volatility of LME aluminum
prices and other raw materials we use, demand and pricing within the principal
markets for the Company's products, changes in government regulations,
particularly those affecting environmental, health or safety compliance,
economic developments, relationships with (and financial or operating conditions
of) customers and suppliers, competition from other aluminum rolled products
producers as well as from substitute materials such as steel, glass, plastic and
composite materials, changes in the market value of derivatives, and the level
of our indebtedness and ability to generate cash and other factors relating to
the Company's ongoing operations. Reference should be made to the Company's 2004
annual report on Form 10-K for a summary of major risk factors.

NOTE TO FINANCIAL MEDIA

Novelis executives will discuss the company's performance during a
conference call today with financial analysts beginning at 8:00 a.m. ET.
Reporters are invited to listen to the call. To access the call, U.S. callers
should dial 888-396-2369. International callers should dial 617-847-8710,
passcode for both numbers is 45030965. Beginning at 10:00 a.m. ET today, a
replay of the presentation will be available until midnight on Wednesday,
August 17, 2005. To access the replay, U.S. callers should dial 888-286-8010,
international callers should call 617-801-6888. The access code for U.S. and
International is 44286661.
The conference call will also be webcast on the Novelis Investor Relations
website at http://www.novelis.com. A presentation will be available during the
webcast and a downloadable version will be accessible on the Novelis website.

SOURCE Novelis Inc.
-0- 08/10/2005
/CONTACT: Media: Charles Belbin, +1-404-814-4260, Investor: Holly Ash,
+1-404-814-4212, both of Novelis Inc./
/Web site: http://www.novelis.com /
(NVL NVL.)