Form 10-K

For the fiscal year ended March 31, 2018

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act of 1933.    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  ý    No  ¨

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  ¨    No  ý

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

If an emerging growth company, 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 13(a) of the Exchange Act.  ¨ 

As of May 7, 2018, 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. 

DOCUMENTS INCORPORATED BY REFERENCE: None

Novelis is the leading producer of flat-rolled aluminum products and the world's largest recycler of aluminum. We work alongside our customers to provide innovative solutions to the beverage can, automotive and high-end specialty markets. Operating an integrated network of technically advanced rolling and recycling facilities across North America, South America, Europe and Asia, Novelis leverages its global manufacturing and recycling footprint to deliver consistent, high-quality products around the world. In fiscal year 2018, we had shipment volumes of 3,333 kt and "Net sales" of $11,462 million for the year ended March 31, 2018.

All of the common shares of Novelis are owned directly by AV Metals Inc. and indirectly by Hindalco Industries Limited. We produce flat-rolled aluminum products and provide innovative solutions to the beverage can, automotive and high-end specialty markets. We also have aluminum recycling operations in many of our plants. As of March 31, 2018, we had manufacturing operations in ten countries on four continents: North America, South America, Europe and Asia, through 24 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 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 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 performance 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 its 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. Our primary competitors are as follows:

Production Capacity and Alternative Technology. 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; however, the continuous casting process results in a more limited range of products.

Trade. Some trade flows 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.

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 and plastics are other lightweight material options, but their relatively high cost and limited end-of-life recyclability reduce their competitiveness as widespread material substitutes 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 in certain regions.

Seasonality. During our third fiscal quarter, we typically experience seasonal slowdowns resulting in lower shipment volumes, although this has been less significant as our product portfolio shifts and diversifies. 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 infinitely recycled without affecting the quality of the product. Additionally, the recycling process uses approximately 95% less energy than is required to produce primary aluminum from mining and smelting, with an equivalent reduction in greenhouse gas emissions.

Utilizing recycled material allows us to diversify our metal supply, helps control metal costs and provides environmental benefits. We define recycled content as the total amount of scrap metal used in production less melt loss. The percentage of recycled content within our aluminum rolled product shipments increased from 33% to 57% from fiscal 2011 to fiscal 2018. We work closely with our customers on innovation to drive more sustainable products for society. We are the only company of its size offering high-recycled content aluminum sheet for beverage and specialty product customers. We are also working closely with our automotive customers to redesign automotive alloys to be made with more recycled inputs, as well as purchasing the aluminum scrap resulting from our automotive customers’ closed-loop recycling systems.

Primary Aluminum Sourcing. We purchased or tolled approximately 1,470 kt of primary aluminum in fiscal 2018 in the form of sheet ingot, standard ingot and molten metal.

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 1,822 kt of recycled material inputs (less melt loss) in fiscal 2018.

We use several sources of energy in the manufacturing and delivery of our aluminum rolled products. In fiscal 2018, 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. 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 table below shows “Net sales” and total shipments by segment. For additional financial information related to our operating segments, see Note 20 — Segment, Geographical Area, Major Customer and Major Supplier Information to our accompanying audited consolidated financial statements.

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The following is a description of our operating segments during all or part of March 31, 2018:

Novelis North America operates eight aluminum rolled products facilities. This includes two fully dedicated recycling facilities and one facility with recycling operations. These sites manufacture 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.

Novelis Europe operates ten aluminum rolled product facilities. This includes two fully dedicated recycling facilities and two facilities with recycling operations. These sites manufacture 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 products and technical products. Beverage and food can represent the largest end-use market in terms of shipment volume for Europe.

Novelis Asia operates four aluminum rolled product facilities. This includes three facilities with recycling operations at the Ulsan and Yeongju, South Korea plants and the Bin Doung, Vietnam plant. These sites manufacture a broad range of aluminum sheet and light gauge products. The Changzhou, China facility focuses primarily on heat treatment. 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.

Novelis South America operates two aluminum rolled product facilities. This includes one facility with recycling operations. These facilities manufacture 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.

Certain financial information about geographic areas is contained in Note 20 — Segment, Geographical Area, Major Customer and Major Supplier Information to our accompanying audited consolidated financial statements.

Additional information related to our top customers is contained in Note 20 — Segment, Geographical Area, Major Customer and Major Supplier Information to our accompanying audited consolidated financial statements.

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

Item 1A. Risk Factors

The United States Environmental Protection Agency announced, in April 2018, completion of its midterm evaluation process for greenhouse gas emission standards and its determination that the standards should be rolled back. A reduction in fuel efficiency standards could impact our customers’ choice of aluminum to achieve vehicle light weighting objectives to meet fuel economy standards. In addition, although certain automotive companies have increased their use of aluminum in recent years, there is no assurance that our automotive customers will not turn to steel or other materials in the future, due to the price of aluminum or other factors.

See Note 10 — Debt for additional discussion.

On April 6, 2018, United Company Rusal Plc (Rusal) and multiple other Russian entities and individuals were added to the list of Specially Designated Nationals and Blocked Persons maintained by the Office of Foreign Assets Control of the U.S. Department of the Treasury. According to U.S. government estimates, Rusal is responsible for seven percent of global aluminum production. Immediately prior to imposition of the sanctions, Novelis purchased Rusal-produced metal for some of its regional operations primarily through intermediaries and intermittently from Rusal directly on a spot-sale basis. In response to the sanctions, Novelis is seeking alternate sources of supply to eliminate its reliance on aluminum produced by Rusal following the imposition of sanctions. The impact of sanctions against Rusal has broad implications for the global aluminum market, including tighter supplies and increased prices. As a result of these market changes, Novelis may experience production disruptions for some of its customers. Although we expect these impacts to be limited, we cannot predict with certainty the severity or duration of supply disruptions resulting from the Russia sanctions.

Item 1B. Unresolved Staff Comments

Item 2. Properties

The total number of operating facilities within our operating segments during all or part of the year ended March 31, 2018 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, 2018.

North America 

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Item 3. Legal Proceedings

We are a party to litigation incidental to our business from time to time. For additional information regarding litigation to which we are a party, see Note 19 — Commitments and Contingencies to our accompanying audited consolidated financial statements, which are incorporated by reference into this item.

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 2018. 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, 2018, we had manufacturing operations in ten countries on four continents, which include 24 operating plants, and recycling operations in eleven of these plants.

We reported "Net income attributable to our common shareholder" of $635 million for the fiscal year ended March 31, 2018, compared to $45 million for the fiscal year ended March 31, 2017. The increase is primarily due to higher segment income as a result of the factors discussed below, and a pre-tax gain of $318 million, partially offset by tax expense of $77 million, related to the sale of shares in Ulsan Aluminum Ltd. (UAL), a new wholly owned subsidiary formed by Novelis Korea in the second quarter of year ended March 31, 2018,

We reported "Segment income" of $1,215 million compared to $1,085 million in the prior year. The increase is primarily due to; higher can and automotive shipments as a result of strong demand and solid global operational performance, diligent operating cost management, a continued focus on asset efficiency and prioritizing optimization of the product portfolio. In addition, the increase is due to favorable foreign currency impact and lower metal input costs. As a result of these factors, net cash provided by operating activities was $586 million and free cash flow was $406 million.

We have reduced our net debt leverage ratio (net debt/segment income) to 3.0x at March 31, 2018 as compared to 3.9x in the prior year. This reduction in net leverage combined with strong financial results has provided us with the financial flexibility to seek strategic investments, particularly in the growing automotive segment. During the fourth quarter of fiscal 2018, we announced plans to expand our production footprint in North America with an investment in automotive finishing capacity in Guthrie, Kentucky. We also agreed to acquire operating facilities and manufacturing assets at our Sierre, Switzerland plant, that have historically been leased.

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, 2018, 2017, and 2016 are as follows:

For the year ended March 31, 2018, there has been less volatility in local market premium price movements. Although there have been significant percentage changes year over year, the decreased volatility did not have a significant impact on metal price lag. 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, 2018, 2017, and 2016:

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 loss of $1 million in fiscal 2018, a net gain of $5 million in fiscal 2017, and a net gain of $2 million in fiscal 2016. The movement of currency exchange rates during fiscal 2018, fiscal 2017 and fiscal 2016 resulted in $4 million of net unrealized losses, $8 million of net unrealized gains, and $8 million of net unrealized losses, respectively, on undesignated foreign currency derivatives.

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

Year Ended March 31, 2018 Compared with the Year Ended March 31, 2017

"Net Sales" were $11,462 million, an increase of 20%, driven by a 30% increase in average base aluminum prices, a 4% increase in flat rolled product shipments, and a 27% increase in local market premiums.

“Cost of goods sold (exclusive of depreciation and amortization)” was $9,719 million, an increase of 21%, primarily due to an increase in flat rolled product shipments and higher average aluminum prices. Total metal input costs included in "Cost of goods sold (exclusive of depreciation and amortization)” increased $1,521 million.

"Income before income taxes" for the year ended March 31, 2018 was $855 million, compared to $197 million for the year ended March 31, 2017. In addition to the factors noted above, the following items affected "Income before income taxes:"

We recognized $233 million of tax expense for the year ended March 31, 2018, which resulted in an effective tax rate of 27%. This rate is due to a $77 million expense on the sale of a business, tax losses in jurisdictions where we believe it more likely than not that we will not be able to utilize those losses and therefore have a valuation allowance recorded, offset by a non-cash income tax benefit of $19 million for the remeasurement of deferred tax assets and liabilities in accordance with the Tax Cuts and Jobs Act. We recognized $151 million of tax expense for the year ended March 31, 2017, primarily due to tax losses in jurisdictions where we believe it to be more likely than not that we will not be able to utilize those losses and therefore have a valuation allowance recorded and the net impact of foreign exchange translation and remeasurement of deferred income taxes, offset by dividends not subject to tax.

We reported “Net income attributable to our common shareholder” of $635 million for the current year, compared to “Net loss attributable to our common shareholder” of $45 million for the prior year, primarily as a result of the factors discussed above.