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Novelis Reports Third Quarter Fiscal Year 2017 Results
Continued automotive ramp-up and efficiencies drive adjusted EBITDA to record third quarter
Third Quarter Fiscal Year 2017 Highlights
-- Net income of $63 million; excluding special items in both periods, net income more than doubled YoY to $67 million
-- Record third quarter adjusted EBITDA, excluding metal price lag, of $255 million, up 7% YoY
-- Total FRP shipments of 750 kilotonnes; record automotive sheet shipments up 13% YoY

ATLANTA, Feb. 7, 2017 /PRNewswire/ -- Novelis, the world leader in aluminum rolling and recycling, today reported net income attributable to our common shareholder of $63 million for the third quarter of fiscal year 2017, compared to a net income of $6 million in the prior year period. Excluding tax-effected special items in both periods, the company more than doubled third quarter fiscal 2017 net income to $67 million from $32 million in the prior year. Current year net income reflects record adjusted EBITDA and an 18% reduction in interest expense, a result of the refinancing of two senior note issuances during the second quarter of fiscal 2017. 

"Continued operational efficiencies combined with strong aluminum automotive sheet demand and strategic capacity investments delivered record, sustainable adjusted EBITDA results this quarter," said Steve Fisher, President and Chief Executive Officer for Novelis.

Adjusted EBITDA for the third quarter of fiscal 2017 increased to $251 million from $212 million in the prior year period. Excluding metal price lag in both periods, adjusted EBITDA increased seven percent to a third quarter record of $255 million, driven by higher automotive sheet shipments, productivity gains, lower metal cost, and favorable foreign exchange gains.

Overall, Novelis experienced a four percent decline in total shipments of rolled aluminum products to 750 kilotonnes, mainly due to prior strategic decisions to reduce volumes in China and soft demand in South America. Lower shipments, partially offset by slightly higher average aluminum prices and increased shipments of higher conversion premium products, led to a two percent decrease in net sales to $2.3 billion for the third quarter of fiscal 2017. 

The company generated $131 million of free cash flow for the third quarter of fiscal 2017 as compared to negative $12 million in the prior year driven by stronger adjusted EBITDA results, as well as lower interest and capital expenditures. Due to the recent bond refinancing, there were no bond interest payments in the third quarter this fiscal year. Capital expenditures declined to $48 million as compared to $78 million in the prior year period. The company now expects full year fiscal 2017 free cash flow to be on the high end of its previously guided range of $300 million to $350 million

"Following our successful bond refinancing during the second quarter, we refinanced our $1.8 billion term loan with Asian banks in January," said Devinder Ahuja, Senior Vice President and Chief Financial Officer. "Together, these bond and term loan transactions will result in an extended debt maturity profile and annual cash interest savings of approximately $80 million."

As of December 31, 2016, the company reported a strong liquidity position over $1 billion.

Third Quarter of Fiscal Year 2017 Earnings Conference Call
Novelis will discuss its third quarter fiscal year 2017 results via a live webcast and conference call for investors at 8:00 a.m. ET on Tuesday, February 7, 2017. To view slides and listen only, visit the web at https://cc.callinfo.com/r/1wd4xfmmz9lal&eom. To join by telephone, dial toll-free in North America at 800 764 4852, India toll-free at 18002662118 or the international toll line at +1 415 226 5356. Presentation materials and access information may also be found at novelis.com/investors.

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

Non-GAAP Financial Measures
This press release and the presentation slides for the earnings call contain non-GAAP financial measures as defined by SEC rules. We believe these measures are helpful to investors in measuring our financial performance and liquidity and comparing our performance to our peers. However, our non-GAAP financial measures may not be comparable to similarly titled non-GAAP financial measures used by other companies. These non-GAAP financial measures have limitations as an analytical tool and should not be considered in isolation or as a substitute for GAAP financial measures. To the extent we discuss any non-GAAP financial measures on the earnings call, a reconciliation of each measure to the most directly comparable GAAP measure will be available in the presentation slides filed as Exhibit 99.2 to our Current Report on Form 8-K furnished to the SEC concurrently with the issuance of this press release. In addition, the Form 8-K includes a more detailed description of each of these non-GAAP financial measures, together with a discussion of the usefulness and purpose of such measures.

Attached to this news release are tables showing the Condensed Consolidated Statements of Operations, Condensed Consolidated Balance Sheets, Condensed Consolidated Statements of Cash Flows, Reconciliation to Adjusted EBITDA and Adjusted EBITDA excluding Metal Price Lag, Free Cash Flow, Reconciliation to Liquidity, Reconciliation to Net Income attributable to our common shareholder excluding Special Items, and Segment Information.

Forward-Looking Statements
Statements made in this news release which describe Novelis' intentions, expectations, beliefs or predictions may be forward-looking statements within the meaning of securities laws. Forward-looking statements include statements preceded by, followed by, or including the words "believes," "expects," "anticipates," "plans," "estimates," "projects," "forecasts," or similar expressions. Examples of forward looking statements in this news release are statements about the company's expectation to generate approximately $350 million in free cash flow for the full fiscal year. Novelis cautions that, by their nature, forward-looking statements involve risk and uncertainty and Novelis' actual results could differ materially from those expressed or implied in such statements. We do not intend, and we disclaim any obligation, to update any forward-looking statements, whether as a result of new information, future events or otherwise. Factors that could cause actual results or outcomes to differ from the results expressed or implied by forward-looking statements include, among other things: changes in the prices and availability of aluminum (or premiums associated with such prices) or other materials and raw materials we use; the capacity and effectiveness of our hedging activities; relationships with, and financial and operating conditions of, our customers, suppliers and other stakeholders; fluctuations in the supply of, and prices for, energy in the areas in which we maintain production facilities; our ability to access financing for future capital requirements; changes in the relative values of various currencies and the effectiveness of our currency hedging activities; factors affecting our operations, such as litigation, environmental remediation and clean-up costs, labor relations and negotiations, breakdown of equipment and other events; the impact of restructuring efforts in the future; economic, regulatory and political factors within the countries in which we operate or sell our products, including changes in duties or tariffs; competition from other aluminum rolled products producers as well as from substitute materials such as steel, glass, plastic and composite materials; changes in general economic conditions including deterioration in the global economy, particularly sectors in which our customers operate; cyclical demand and pricing within the principal markets for our products as well as seasonality in certain of our customers' industries; changes in government regulations, particularly those affecting taxes, derivative instruments, environmental, health or safety compliance; changes in interest rates that have the effect of increasing the amounts we pay under our credit facilities and other financing agreements; the effect of taxes and changes in tax rates; our level of indebtedness and our ability to generate cash. The above list of factors is not exhaustive. Other important risk factors included under the caption "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended March 31, 2016 are specifically incorporated by reference into this news release.

 

 

 

Novelis Inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

(in millions)

 
           
 

Three Months Ended
December 31,

 

Nine Months Ended
December 31,

 

2016

 

2015

 

2016

 

2015

           

Net sales

$

2,313

   

$

2,354

   

$

6,970

   

$

7,470

 

Cost of goods sold (exclusive of depreciation and amortization)

1,924

   

2,051

   

5,834

   

6,692

 

Selling, general and administrative expenses

103

   

104

   

303

   

304

 

Depreciation and amortization

88

   

88

   

267

   

264

 

Interest expense and amortization of debt issuance costs

67

   

82

   

231

   

244

 

Loss on extinguishment of debt

   

   

112

   

13

 

Research and development expenses

14

   

13

   

41

   

39

 

Gain on assets held for sale

   

   

(2)

   

 

Restructuring and impairment, net

1

   

10

   

4

   

29

 

Equity in net loss of non-consolidated affiliates

8

   

   

8

   

2

 

Other (income) expense, net

(3)

   

(16)

   

63

   

(78)

 
 

2,202

   

2,332

   

6,861

   

7,509

 

Income (loss) before income taxes

111

   

22

   

109

   

(39)

 

Income tax provision

47

   

16

   

110

   

28

 

Net income (loss)

64

   

6

   

(1)

   

(67)

 

Net income attributable to noncontrolling interests

1

   

   

1

   

 

Net income (loss) attributable to our common shareholder

$

63

   

$

6

   

$

(2)

   

$

(67)

 

 

 

 

Novelis Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)

(in millions, except number of shares)

 
 

December 31,
2016

 

March 31,
2016

ASSETS

 

Current assets

     

Cash and cash equivalents

$

505

   

$

556

 

Accounts receivable, net

     

— third parties (net of uncollectible accounts of $5 as of December 31, 2016 and $3 as of March 31, 2016)

993

   

956

 

— related parties

63

   

59

 

Inventories

1,321

   

1,180

 

Prepaid expenses and other current assets

101

   

127

 

Fair value of derivative instruments

84

   

88

 

Assets held for sale

3

   

5

 

Total current assets

3,070

   

2,971

 

Property, plant and equipment, net

3,304

   

3,506

 

Goodwill

607

   

607

 

Intangible assets, net

470

   

523

 

Investment in and advances to non–consolidated affiliate

444

   

488

 

Deferred income tax assets

81

   

87

 

Other long–term assets

     

  — third parties

86

   

82

 

  — related parties

13

   

16

 

  Total assets

$

8,075

   

$

8,280

 

LIABILITIES AND SHAREHOLDER'S DEFICIT

     

Current liabilities

     

Current portion of long–term debt

$

90

   

$

47

 

Short–term borrowings

517

   

579

 

Accounts payable

     

 — third parties

1,496

   

1,506

 

 — related parties

52

   

48

 

Fair value of derivative instruments

80

   

85

 

Accrued expenses and other current liabilities

468

   

569

 

Total current liabilities

2,703

   

2,834

 

Long–term debt, net of current portion

4,460

   

4,421

 

Deferred income tax liabilities

113

   

89

 

Accrued postretirement benefits

795

   

820

 

Other long–term liabilities

190

   

175

 

Total liabilities

8,261

   

8,339

 

Commitments and contingencies

     

Shareholder's deficit

     

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

   

 

Additional paid–in capital

1,404

   

1,404

 

Accumulated deficit

(965)

   

(963)

 

Accumulated other comprehensive loss

(606)

   

(500)

 

Total deficit of our common shareholder

(167)

   

(59)

 

Noncontrolling interests

(19)

   

 

Total deficit

(186)

   

(59)

 

Total liabilities and deficit

$

8,075

   

$

8,280

 

 

 

Novelis Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

(in millions)

 
 

Nine Months Ended December 31,

 

2016

 

2015

OPERATING ACTIVITIES

     

Net loss

$

(1)

   

$

(67)

 

Adjustments to determine net cash used in operating activities:

     

Depreciation and amortization

267

   

264

 

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

(23)

   

(25)

 

Gain on assets held for sale

(2)

   

 

Loss on sale of business

27

   

 

Loss on sale of assets

4

   

2

 

Impairment charges

   

8

 

Loss on extinguishment of debt

112

   

13

 

Deferred income taxes

15

   

(60)

 

Amortization of fair value adjustments, net

7

   

9

 

Equity in net loss of non-consolidated affiliates

8

   

2

 

Loss (gain) on foreign exchange remeasurement of debt

41

   

(5)

 

Amortization of debt issuance costs and carrying value adjustments

10

   

15

 

Other, net

1

   

 

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

     

Accounts receivable

(108)

   

166

 

Inventories

(200)

   

146

 

Accounts payable

59

   

(422)

 

Other current assets

18

   

6

 

Other current liabilities

(117)

   

(42)

 

Other noncurrent assets

(17)

   

21

 

Other noncurrent liabilities

50

   

(30)

 

Net cash provided by operating activities

151

   

1

 

INVESTING ACTIVITIES

     

Capital expenditures

(138)

   

(282)

 

Proceeds from sales of assets, third party, net of transaction fees and hedging

2

   

2

 

Outflows from the sale of a business, net of transaction fees

(2)

   

 

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

12

   

(5)

 

Outflows from related party loans receivable, net

(3)

   

 

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

7

   

(11)

 

Net cash used in investing activities

(122)

   

(296)

 

FINANCING ACTIVITIES

     

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

2,770

   

151

 

Principal payments of long-term and short-term borrowings

(2,676)

   

(194)

 

Revolving credit facilities and other, net

(20)

   

178

 

Dividends, noncontrolling interest

   

(1)

 

Debt issuance costs

(139)

   

(15)

 

Net cash (used in) provided by financing activities

(65)

   

119

 

Net decrease in cash and cash equivalents

(36)

   

(176)

 

Effect of exchange rate changes on cash

(15)

   

5

 

Cash and cash equivalents — beginning of period

556

   

628

 

Cash and cash equivalents — end of period

$

505

   

$

457

 

 

 

Reconciliation from Net income (loss) attributable to our common shareholder to Adjusted EBITDA, and Adjusted EBITDA excluding Metal Price Lag (unaudited)

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

 

(in millions)

Three Months Ended
December 31,

 

Nine Months Ended
December 31,

 

2016

 

2015

 

2016

 

2015

Net income (loss) attributable to our common shareholder

$

63

   

$

6

   

$

(2)

   

$

(67)

 

Noncontrolling interests

1

   

   

1

   

 

Income tax provision

(47)

   

(16)

   

(110)

   

(28)

 

Interest, net

(65)

   

(77)

   

(224)

   

(235)

 

Depreciation and amortization

(88)

   

(88)

   

(267)

   

(264)

 

EBITDA

264

   

187

   

600

   

460

 
               

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

21

   

(2)

   

18

   

18

 

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

1

   

1

   

2

   

(1)

 

Adjustment to eliminate proportional consolidation

(4)

   

(7)

   

(20)

   

(22)

 

Loss on sale of a business

   

   

(27)

   

 

Gain (loss) on sale of fixed assets

2

   

(1)

   

(4)

   

(2)

 

Gain on assets held for sale

   

   

2

   

 

Loss on extinguishment of debt

   

   

(112)

   

(13)

 

Restructuring and impairment, net

(1)

   

(10)

   

(4)

   

(29)

 

Other costs, net

(6)

   

(6)

   

(17)

   

(12)

 

Adjusted EBITDA

$

251

   

$

212

   

$

762

   

$

521

 
               

Metal price lag

(4)

   

(26)

   

(32)

   

(165)

 

Adjusted EBITDA excluding metal price lag

$

255

   

$

238

   

$

794

   

$

686

 
 

Free Cash Flow and Cash and Cash Equivalents (unaudited)

The following table shows the "Free cash flow" for the nine months ended December 31, 2016 and 2015 and the ending balances of cash and cash equivalents (in millions).

 
 

Nine Months Ended December 31,

 

2016

 

2015

Net cash provided by operating activities

$

151

   

$

1

 

Net cash used in investing activities

(122)

   

(296)

 

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

   

(2)

 

Free cash flow

$

29

   

$

(297)

 

Ending cash and cash equivalents

$

505

   

$

457

 
 

Total Liquidity (unaudited)

The following table shows available liquidity as of December 31, 2016 and March 31, 2016 (in millions).

 
 

December 31,

 

March 31,

 

2016

 

2016

Cash and cash equivalents

$

505

   

$

556

 

Availability under committed credit facilities

534

   

640

 

Total liquidity

$

1,039

   

$

1,196

 

 

 

 

Reconciliation of Net income (loss) attributable to our common shareholder, to Net Income attributable to our common shareholder, excluding Special Items (unaudited)

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

 
 

Three Months Ended
December 31,

 

Nine Months Ended
December 31,

 

2016

 

2015

 

2016

 

2015

Net income (loss) attributable to our common shareholder

$

63

   

$

6

   

$

(2)

   

$

(67)

 

Special Items:

             

Gain on assets held for sale

   

   

(2)

   

 

Loss on sale of a business

   

   

27

   

 

Loss on extinguishment of debt

   

   

112

   

13

 

Metal price lag

4

   

26

   

32

   

165

 

Restructuring and impairment, net

1

   

10

   

4

   

29

 

Tax effect on special items

(1)

   

(10)

   

(10)

   

(59)

 

Net income attributable to our common shareholder, excluding special items

$

67

   

$

32

   

$

161

   

$

81

 

 

 

 

Segment Information (unaudited)

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

 

Selected Operating Results Three Months Ended December 31, 2016

 

North

America

 

Europe

 

Asia

 

South

America

 

Eliminations and Other

 

Total

Adjusted EBITDA

 

$

92

   

$

39

   

$

37

   

$

83

   

$

   

$

251

 

Metal price lag

 

2

   

(5)

   

(3)

   

2

   

   

(4)

 

Adjusted EBITDA excluding metal price lag

 

$

90

   

$

44

   

$

40

   

$

81

   

$

   

$

255

 
                         

Shipments

                       

Rolled products - third party

 

247

   

222

   

161

   

120

   

   

750

 

Rolled products - intersegment

 

   

4

   

1

   

5

   

(10)

   

 

Total rolled products

 

247

   

226

   

162

   

125

   

(10)

   

750

 
 
 

Selected Operating Results Three Months Ended December 31, 2015

 

North

America

 

Europe

 

Asia

 

South

America

 

Eliminations and Other

 

Total

Adjusted EBITDA

 

$

68

   

$

37

   

$

30

   

$

77

   

$

   

$

212

 

Metal price lag

 

(16)

   

(8)

   

(3)

   

1

   

   

(26)

 

Adjusted EBITDA excluding metal price lag

 

$

84

   

$

45

   

$

33

   

$

76

   

$

   

$

238

 
                         

Shipments

                       

Rolled products - third party

 

253

   

220

   

183

   

123

   

   

779

 

Rolled products - intersegment

 

   

12

   

10

   

9

   

(31)

   

 

Total rolled products

 

253

   

232

   

193

   

132

   

(31)

   

779

 
 
 

Selected Operating Results Nine Months Ended December 31, 2016

 

North

America

 

Europe

 

Asia

 

South

America

 

Eliminations and Other

 

Total

Adjusted EBITDA

 

$

268

   

$

133

   

$

124

   

$

237

   

$

   

$

762

 

Metal price lag

 

(8)

   

(17)

   

(8)

   

1

   

   

(32)

 

Adjusted EBITDA excluding metal price lag

 

$

276

   

$

150

   

$

132

   

$

236

   

$

   

$

794

 
                         

Shipments

                       

Rolled products - third party

 

740

   

695

   

512

   

331

   

   

2,278

 

Rolled products - intersegment

 

1

   

13

   

4

   

18

   

(36)

   

 

Total rolled products

 

741

   

708

   

516

   

349

   

(36)

   

2,278

 
 
 

Selected Operating Results Nine Months Ended December 31, 2015

 

North

America

 

Europe

 

Asia

 

South

America

 

Eliminations and Other

 

Total

Adjusted EBITDA

 

$

163

   

$

69

   

$

100

   

$

190

   

$

(1)

   

$

521

 

Metal price lag

 

(79)

   

(78)

   

(10)

   

2

   

   

(165)

 

Adjusted EBITDA excluding metal price lag

 

$

242

   

$

147

   

$

110

   

$

188

   

$

(1)

   

$

686

 
                         

Shipments

                       

Rolled products - third party

 

782

   

686

   

538

   

329

   

   

2,335

 

Rolled products - intersegment

 

1

   

48

   

35

   

27

   

(111)

   

 

Total rolled products

 

783

   

734

   

573

   

356

   

(111)

   

2,335

 

 

 

 

SOURCE Novelis Inc.

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