Form 10-K

For the fiscal year ended March 31, 2016

Yes   ¨    No  ý

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”).    Yes  ¨    No  ý

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  ý

As of May 9, 2016, the Registrant had 1,000 common shares outstanding. All of the Registrant’s outstanding shares were held indirectly by Hindalco Industries Ltd., the Registrant’s parent company. 

We are the world’s leading aluminum rolled products producer, based on shipment volume of 3,123 kt in fiscal 2016, and on capacity, with 15% of the world’s flat-rolled aluminum products capacity as of December 31, 2015. We are also the global leader in the recycling of aluminum. We are the only known company of our size and scope focused solely on aluminum rolled products markets and capable of local supply of technologically sophisticated aluminum products in all four major industrialized continents: North America, South America, Europe and Asia. We had “Net sales” of $10 billion for the year ended March 31, 2016.

All of the common shares of Novelis are owned directly by AV Metals Inc. and indirectly by Hindalco Industries Limited. We produce aluminum sheet and light gauge products primarily for use in the beverage can, automotive, specialty products (including consumer electronics, architecture, and other transportation) and foil markets. We also have recycling operations in many of our plants to recycle aluminum, such as UBCs and automotive scrap. As of March 31, 2016, we had manufacturing operations in eleven countries on four continents: North America, South America, Asia and Europe, through 25 operating facilities, including recycling operations in eleven of these plants.

Aluminum, because of its light weight, recyclability and formability, has a wide variety of uses in packaging and other end-use markets. The recyclability of aluminum enables it to be used, collected, melted and returned to the original product form an unlimited number of times, unlike paper and polyethylene terephthalate (PET) plastic, which deteriorate with every iteration of recycling.

Packaging. Aluminum is used in beverage cans and bottles, food cans, beverage screw caps and foil, among others. Packaging is the largest aluminum rolled products application, according to market data from Commodity Research Unit International Limited (CRU), an independent business analysis and consultancy group. Beverage cans are one of the largest aluminum rolled products applications. In addition to their recyclability, aluminum beverage cans offer advantages in fabricating efficiency and product shelf life. Fabricators are able to produce and fill beverage cans at very high speeds, and non-porous aluminum cans provide longer shelf life than PET plastic containers. Additionally, the use of aluminum to package beverages such as craft beer is increasing, as aluminum blocks sunlight and therefore maintains the quality and taste of the product longer. Aluminum cans are light, stackable and use space efficiently, making them convenient and cost-efficient to ship.

Transportation. Aluminum rolled products are used in vehicle structures (also known as "body-in-white") as well as automotive body panel applications, including hoods, deck lids, fenders and lift gates. These uses typically result from cooperative efforts between aluminum rolled products manufacturers and their customers that yield tailor-made solutions for specific requirements in alloy selection, fabrication procedure, surface quality and joining. There has been recent growth in certain geographic markets in passenger and commercial vehicle applications due to the lighter weight, better fuel economy and improved emissions performance associated with these applications. We expect increased growth in this end-use market driven by government regulations requiring improved emissions and better fuel economy; while also maintaining or improving vehicle handling, braking, and safety.

Architectural. Construction is the largest application within this end-use market. Aluminum rolled products developed for the construction industry are often decorative and non-flammable, offer insulating properties, are durable and corrosion resistant, and have a high strength-to-weight ratio. Aluminum siding, gutters, and downspouts comprise a significant amount of construction volume. Other applications include doors, windows, awnings, canopies, facades, roofs and ceilings.

Industrial. Industrial applications include heat exchangers, process and electrical machinery, lighting fixtures, furniture and insulation.

Consumer Durables and Other. Aluminum’s lightweight characteristics, high formability, ability to conduct electricity and dissipate heat and to offer corrosion resistance makes it useful in a wide variety of electronic applications. Uses of aluminum rolled products in electronics include flat screen televisions, personal computers, laptops, mobile devices, and digital music players. Other uses of aluminum rolled products in consumer durables include microwaves, coffee makers, air conditioners and cooking utensils.

The aluminum rolled products market is highly competitive and is characterized by economies of scale; and significant capital investments are required to achieve and maintain technological capabilities and demanding customer qualification standards. We face competition from a number of companies in all of the geographic regions and end-use markets in which we operate. Our primary competitors are as follows:

Production Capacity and Alternative Technology. In the aluminum rolled products industry, the addition of rolling capacity requires large capital investments and significant plant construction or expansion, and typically requires long lead-time equipment orders. Advances in technological capabilities allow aluminum rolled products producers to better align product portfolios and supply with industry demand. There are lower cost ways to enter the industry such as continuous casting, which offers the ability to increase capacity in smaller increments than is possible with hot mill additions. This enables production capacity to better adjust to small year-over-year increases in demand; however, the continuous casting process results in a more limited range of products.

Trade. Some trade flows do occur between regions despite shipping costs, import duties and the lack of localized customer support. Higher value-added products are more likely to be traded internationally, especially if demand in certain markets exceeds local supply. With respect to less technically demanding applications, emerging markets with low cost inputs may export commodity aluminum rolled products to larger, more mature markets, as we have seen with China. Accordingly, regional changes in supply, such as plant expansions, have some impact on the worldwide supply of aluminum rolled products.

The following factors have historically affected the demand for aluminum rolled products:

Economic Growth. We believe that economic growth is a significant driver of aluminum rolled products demand. In mature markets, growth in demand has typically correlated closely with industrial production growth. In many emerging markets, growth in demand typically exceeds industrial production growth largely because of expanding infrastructures, capital investments and rising incomes that often accompany economic growth in these markets.

Substitution Trends. Manufacturers’ willingness to substitute other materials for aluminum in their products and competition from substitution materials suppliers also affect demand. There has been a strong substitution trend toward aluminum in the use of vehicles as automobile manufacturers look for ways to meet fuel efficiency regulations, improve performance and reduce carbon emissions in a cost-efficient manner. As a result of aluminum’s durability, strength and light weight, automobile manufacturers are substituting heavier alternatives such as steel and iron with aluminum. Carbon fiber is another lightweight material option, but its relatively high cost and limited end-of-life recyclability reduce its competitiveness as a widespread material substitute today. Consequently, demand for flat rolled aluminum products has increased. We also see strong substitution trends toward aluminum and away from steel in the beverage can market globally; except for North America, which is already a mature market.

Seasonality. During our third fiscal quarter, we typically experience seasonal slowdowns resulting in lower shipment volumes. This is a result of declines in overall production output due primarily to holidays and cooler weather in North America and Europe, our two largest operating regions.  We also experience downtime at our mills and customers’ mills due to scheduled plant maintenance and are impacted to a lesser extent by the seasonal downturn in construction activity.

Sustainability. Growing awareness of environmentalism and demand for recyclable products has increased the demand for aluminum rolled products. Unlike other commonly recycled materials such as paper or PET plastic, aluminum can be recycled an unlimited number of times without affecting the quality of the product. Additionally, the recycling process uses 95% less energy than is required to produce primary aluminum from mining and smelting, with an equivalent reduction in greenhouse gas emissions.

Focus on Manufacturing Excellence    

Utilizing recycled material allows us to diversify our metal supply, helps to control metal costs and provides environmental benefits. Since fiscal year 2011, our recycled inputs have increased from 33% to 53% in fiscal year 2016.

Primary Aluminum Sourcing. We purchased or tolled approximately 1,530 kt of primary aluminum in fiscal 2016 in the form of sheet ingot, standard ingot and molten metal, approximately 25% of which we purchased from RT.

Aluminum Products Recycling. We operate facilities in several plants to recycle post-consumer aluminum, such as UBCs collected through recycling programs. In addition, we have agreements with several of our large customers where we have a closed-looped system whereby we take production scrap material from their fabricating activity and re-melt, cast and roll it to re-supply these customers with aluminum sheet. Other sources of recycled material include lithographic plates, and products with longer lifespans, like vehicles and buildings, which are starting to become high volume sources of recycled material. We purchased or tolled approximately 1,790 kt of recycled material inputs in fiscal 2016 and have made recycling investments in all of our operating regions to increase the amount of recycled material we use as raw materials.

The materials that we recycle are remelted, cast and then used in our operations. The net effect of all recycling activities was that on average approximately 53% of our total aluminum rolled products shipments in fiscal 2016 were made from recycled inputs. The overall benefit we receive from utilizing recycled metal is influenced by: 1) the overall price levels of the LME and local market premiums, 2) the spread between the price for recycled aluminum and the LME primary aluminum price and 3) our consumption levels of the recycled material inputs.

We use several sources of energy in the manufacture and delivery of our aluminum rolled products. In fiscal 2016, natural gas and electricity represented approximately 98% of our energy consumption by cost. We also use fuel oil and transport fuel. The majority of energy usage occurs at our casting centers and during the hot rolling process. Our cold rolling facilities require relatively less energy. We purchase our natural gas on the open market, which subjects us to market pricing fluctuations. We have in the past and may continue to seek to stabilize our future exposure to natural gas prices through the use of derivative instruments. Natural gas prices in Europe, Asia and South America have historically been more stable than in the United States. A portion of our electricity requirements are purchased pursuant to long-term contracts in the local regions in which we operate. A number of our facilities are located in regions with regulated prices, which affords relatively stable costs. We have fixed pricing on some of our energy supply arrangements.

The following is a description of our operating segments as of March 31, 2016:

Headquartered in Atlanta, Georgia, Novelis North America operates eight aluminum rolled products facilities, including two fully dedicated recycling facilities and one facility with recycling operations; and manufactures a broad range of aluminum sheet and light gauge products. End-use markets for this segment include beverage and food cans, containers and packaging, automotive and other transportation applications, architectural and other industrial applications. The majority of North America’s volumes are currently directed toward the beverage can sheet market.

Headquartered in Küsnacht, Switzerland, Novelis Europe operates ten aluminum rolled product facilities, including two fully dedicated recycling facilities and two facilities with recycling operations; and manufactures a broad range of sheet and foil products. We also have distribution centers in Italy and sales offices in several European countries. End-use markets for this segment include beverage and food can, automotive, architectural and industrial products, foil and technical products and lithographic sheet. Beverage and food can represent the largest end-use market in terms of shipment volume for Europe. Operations include our 50% joint venture interest in Aluminium Norf GmbH (Alunorf), which is the world’s largest aluminum rolling and remelt facility. Alunorf supplies high quality can stock, foilstock and feeder stock for finishing at our other European operations.

Headquartered in Seoul, South Korea, Novelis Asia operates five aluminum rolled product facilities, including three facilities with recycling operations; and manufactures a broad range of sheet and light gauge products. End-use markets include beverage and food cans, electronics, architectural, automotive, foil, industrial and other products. The beverage can market represents the largest end-use market in terms of volume. Recycling is an important part of our operations with recycling facilities at both the Ulsan and Yeongju, South Korea plants. Additionally, we have a facility in Binh Duong, Vietnam, which handles the collection and processing of UBCs.

Headquartered in Sao Paulo, Brazil, Novelis South America operates two aluminum rolled product facilities, including one facility with recycling operations; and manufactures a broad range of can sheet, industrial sheet and light gauge products. The main markets are beverage and food can, specialty, industrial, foil and other packaging and transportation end-use applications. Beverage can represents the largest end-use application in terms of shipment volume.

We have two principal distribution channels for the end-use markets in which we operate: direct sales to our customers and sales to distributors.

We supply various end-use markets all over the world through a direct sales force operating from individual facilities or sales offices, as well as from regional sales offices in 13 countries. The direct sales channel typically serves very large, sophisticated fabricators and original equipment manufacturers. Longstanding relationships are maintained with leading companies in industries using aluminum rolled products. Supply contracts for large global customers generally range from one to five years in length and historically there has been a high degree of renewal business with these customers. Given the customized nature of products and in some cases, large order sizes, switching costs are significant, thus adding to the overall consistency of the customer base.

We conduct research and development activities at our facilities in order to satisfy current and future customer requirements, improve our products and reduce our conversion costs. Our customers work closely with our research and development professionals to improve their production processes and market options. We have approximately 330 employees dedicated to research and development, located in many of our facilities and research centers. We have a global research and technology center in Kennesaw, Georgia, which offers state of the art research and development capabilities to help Novelis meet the global long-term demand for aluminum used for the automotive, beverage can and specialty markets.

We consider our employee relations to be satisfactory. A substantial portion of our employees are represented by labor unions and their employment conditions are governed by collective bargaining agreements. Collective bargaining agreements are negotiated on a site, regional or national level, and are of varying durations. As of March 31, 2016, approximately 2,670 of our employees were covered under collective bargaining agreements that expire within one year.

Item 1A. Risk Factors

Our ten largest customers accounted for approximately 60%, 55% and 54% of our total “Net sales” for the year ended March 31, 2016, 2015 and 2014, respectively, with Rexam Plc, a leading global beverage can maker, and its affiliates representing approximately 19%, 18% and 17% of our total “Net sales” in the respective periods. A significant downturn in the business or financial condition of our significant customers could materially adversely affect our results of operations and cash flows. In addition, some of our customer contracts are subject to renewal, renegotiation or re-pricing at periodic intervals or upon changes in competitive supply conditions. Our failure to successfully renew, renegotiate or re-price such agreements could result in a reduction or loss in customer purchase volume or revenue, and if we are not successful in replacing business lost from such customers, our results of operations and cash flows could be adversely affected. Additionally, in the event of consolidation among our customers, our customers may be able to use increased leverage in negotiating prices and other contract terms. Consolidation in our customer base may also lead to reduced demand for our products or cancellations of sales orders, which could adversely affect our results of operations and cash flows.

Our financial condition and results of operations depend significantly on worldwide economic conditions. Uncertainty about current or future global economic conditions poses a risk as our customers may postpone purchases in response to tighter credit and negative financial news, which could adversely impact demand for our products. In addition, there can be no assurance that actions we may take in response to economic conditions will be sufficient to counter any continuation or any downturn or disruption. A significant global economic downturn or disruption in the financial markets could have a material adverse effect on our financial condition and results of operations.

The supply risks relating to our metal inputs vary by input type. Our sheet ingot requirements have historically been supplied, in part, by Rio Tinto pursuant to agreements with us. For the year ended March 31, 2016, we purchased a majority of our third party sheet ingot requirements from Rio Tinto's primary metal group. If Rio Tinto is unable to deliver sufficient quantities of this material on a timely basis, our production in North America could be disrupted and our net sales, profitability and cash flows could be adversely affected. Although aluminum is traded on the world markets, developing alternative suppliers of sheet ingot could be time consuming and expensive.

In addition, global climate change may increase our costs for energy sources, supplies or raw materials. See We may be affected by global climate change or by legal, regulatory or market responses to such change. If energy costs were to rise, or if energy supplies or supply arrangements were disrupted, our profitability and cash flows could decline.

We have a relatively high degree of leverage. As of March 31, 2016, we had $5.1 billion of indebtedness outstanding. Our substantial indebtedness and interest expense could have important consequences to our Company and holders of notes, including:

Item 1B. Unresolved Staff Comments

Item 2. Properties

The total number of operating facilities within our operating segments as of March 31, 2016 is shown in the table below, including operating facilities we jointly own and operate with third parties.

The following tables provide information, by operating segment, about the plant locations, processes and major end-use markets/applications for the aluminum rolled products, recycling and primary metal facilities we operated during all or part of the year ended March 31, 2016.

North America 

Item 3. Legal Proceedings

Item 4. Mine Safety Disclosures

Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities

Item 6. Selected Financial Data

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Novelis is the world's leading aluminum rolled products producer based on shipment volume in fiscal 2016. We produce aluminum sheet and light gauge products for use in the packaging market, which includes beverage and food can and foil products, as well as for use in the automotive, transportation, electronics, architectural and industrial product markets. We are also the world's largest recycler of aluminum and have recycling operations in many of our plants to recycle both post-consumer aluminum and post-industrial aluminum. As of March 31, 2016, we had manufacturing operations in eleven countries on four continents, which include 25 operating plants, and recycling operations in eleven of these plants. In addition to aluminum rolled products plants, our South American operations have historically included primary aluminum smelting and power generation facilities. In fiscal 2015, Novelis ceased operations at our remaining smelting facilities in South America and sold the majority of the power generation operations which supported those facilities. We are the only company of our size and scope focused solely on the aluminum rolled products markets and capable of local supply of technologically sophisticated products in all of our geographic regions, but with the global footprint to service global customers.

We reported "Segment income" of $791 million for the year ended March 31, 2016, compared to $902 million in the prior year. The $111 million decrease is primarily due to significant unfavorable metal lag of $178 million caused by volatility in local market premiums, $172 million of which occurred in the current year compared to favorable metal price lag of $6 million in the prior year. The favorable impacts of increased flat rolled products shipments and a strategic mix shift to automotive products were partially offset by lower recycling benefits due to lower aluminum prices local market premiums, general inflation, and higher costs associated with the start-up of new capacity. "Segment income" increased on a quarter over quarter basis during fiscal 2016. Global economic uncertainty, foreign currency volatility and uncertainty in commodity markets, while not impacting the efficiency of our operations, impacted our financial results and likely will continue to have an impact in the near term.

Quarterly shipments of flat rolled products increased to 788 kt, setting a new quarterly shipment record, compared to 758 kt in the fourth quarter of fiscal 2015. Shipments of flat rolled products increased to 3,123 kt in fiscal 2016, setting a new annual shipments record, compared to 3,050 kt in fiscal 2015. The record shipment levels are a result of our recent expansion investments and incremental manufacturing productivity gains globally as we increase our focus on operational excellence. Global automotive shipments increased by 23% and 47% compared to the three and twelve months ended March 31, 2015, respectively. As we continue to focus on optimizing our product portfolio, the increase in automotive and beverage can sheet shipments more than offset the decline in specialty shipments compared to the three and twelve months ended March 31, 2015, respectively.

We reported "Net loss" of $38 million for the year ended March 31, 2016, compared to "Net income" of $148 million for the year ended March 31, 2015. Net cash provided by operating activities was $541 million for the year ended March 31, 2016, a decrease of $63 million from the prior comparable period, primarily due to lower "Segment income", partially offset by a favorable net change in working capital. Capital expenditures related to strategic expansion projects declined as our larger projects have either recently commissioned or are in the commissioning phase. Our global capital expenditures for the year ended March 31, 2016 were $370 million compared to $518 million in prior year.

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 years ended March 31, 2016, 2015, and 2014 are as follows:

Historically local market premiums have been fairly stable but over the past two year have increased and decreased rapidly. The local market premiums in all four of our regions were significantly lower for the year ended March 31, 2016 compared to the year ended March 31, 2015. The weighted average local market premium was as follows:

See Segment Review below for the impact of metal price lag on each of our segments.

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 as we translate the operating results from various functional currencies into our U.S. dollar reporting currency at the 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 and the average of the month-end exchange rates for the years ended March 31, 2016, 2015, and 2014:

In both South Korea and Europe, operations are recorded in their local currency and translated into the U.S. dollar reporting currency. When comparing fiscal 2016 operating results with fiscal 2015, in Europe and South Korea, the stronger U.S. dollar resulted in unfavorable foreign exchange translation.

In Brazil and Canada, the U.S. dollar is the functional currency due to predominantly U.S. dollar selling prices while our manufacturing costs are predominately denominated in the Brazilian real and the Canadian dollar. The stronger U.S. dollar compared to the Brazilian real and the Canadian dollar resulted in a favorable remeasurement of local currency operating costs and liabilities into the U.S. dollar in fiscal 2016 compared to fiscal 2015.

We use foreign exchange forward contracts and cross-currency swaps 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.  The impact of foreign exchange remeasurement, net of related hedges, was a net gain of $2 million in fiscal 2016 and a net loss of $27 million in fiscal 2015. For the year ended March 31, 2016, the balance sheet remeasurement hedging gains and losses partially offset the foreign currency exchange remeasurement gains and losses arising from the non-functional currency denominated assets and liabilities being remeasured to the functional currency of certain operations. The increased volatility in the daily Brazilian real, Swiss Franc and Euro exchange rates versus the U.S. dollar resulted in a portion of the balance sheet remeasurement gains and losses not being fully offset by the foreign currency exchange hedges. In South America, foreign currency remeasurement gains on the Brazilian real denominated liabilities being remeasured to the U.S. dollar were partially offset by foreign currency exchange hedging losses. In Europe, foreign currency exchange remeasurement gains were partially offset by foreign currency exchange hedging losses. For other foreign currency hedging programs, the unrealized gains or losses on other undesignated derivatives will be recognized in the statement of operations prior to the hedged transaction. Unrealized gains and losses from undesignated foreign currency derivatives was not significant in either period.

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

Year Ended March 31, 2016 Compared with the Year Ended March 31, 2015

"Net sales" were $9.9 billion, a decrease of 11% driven by a 16% decrease in average base aluminum prices, and a 58% decrease in local market premiums. This decline in base aluminum prices more than offset a 73 kt increase in flat rolled products shipments to a record level for a fiscal year of 3,123 kt, and a favorable impact from our strategic shift to higher conversion premium products.

“Cost of goods sold (exclusive of depreciation and amortization)” was $8.7 billion, a decrease of 11% due to lower weighted average metal costs, partially offset by an increase in flat rolled products shipments and higher costs related to our strategic expansion projects. Total metal input costs included in "Cost of goods sold (exclusive of depreciation and amortization)” decreased $1.1 billion.

“Income before income taxes” for the year ended March 31, 2016 was $8 million compared to $162 million in the year ended March 31, 2015. In addition to the factors noted above, the following items affected “Income before income taxes:”

For the year ended March 31, 2016, we recognized $46 million of tax expense as a result of the net impact of statutory tax expense, losses in jurisdictions where we believe it is more likely than not that we will not be able to utilize those losses, and the net impact of foreign exchange movement. For the year ended March 31, 2015, we recognized $14 million in tax expense primarily due to losses in jurisdictions where we believe it is more likely than not that we will not be able to utilize those losses, partially offset by favorable foreign exchange movement.

We reported “Net loss attributable to our common shareholder” of $38 million for the year ended March 31, 2016 as compared to “Net income attributable to our common shareholder” of $148 million for the year ended March 31, 2015, primarily as a result of the factors discussed above.