Novelis Reports Second Quarter Fiscal 2022 Results

Diverse portfolio of sustainable aluminum rolled products delivers exceptional financial results
Published: Oct. 7, 2021 at 11:43 AM EDT|Updated: Nov. 3, 2021 at 6:20 AM EDT

ATLANTA, Nov. 3, 2021 /PRNewswire/ --

(PRNewsfoto/Novelis Inc.)
(PRNewsfoto/Novelis Inc.)

Q2 Fiscal Year 2022 Highlights

  • Net income from continuing operations of $239 million, up 66% YoY; net income from continuing operations excluding special items was $244 million, up 54% YoY
  • Shipments of 968 kilotonnes, up 5% YoY
  • Adjusted EBITDA of $553 million, up 22% YoY; Adjusted EBITDA per ton shipped reached $571, up 16% YoY
  • Net leverage ratio further improved to 2.4x, compared to 3.7x in the prior year period
  • Refinanced $1.5 billion of 5.875% Senior Notes due 2026 with $750 million 3.25% Senior Notes due 2026 and $750 million 3.875% Senior Notes due 2031

Novelis Inc., the world leader in aluminum rolling and recycling, today reported net income attributable to its common shareholder of $237 million in the second quarter of fiscal year 2022 compared to a net loss of $37 million in the prior year period. Net income from continuing operations increased to $239 million compared to $144 million in the prior year. Excluding special items in both years, second quarter fiscal year 2022 net income from continuing operations increased 54% to $244 million, driven mainly by higher EBITDA.

Net sales increased 38% to $4.1 billion for the second quarter of fiscal year 2022 compared to $3.0 billion in the prior year period, primarily driven by a 5% increase in shipments and higher average aluminum prices. Total flat rolled product shipments increased to 968 kilotonnes in the second quarter of fiscal year 2022 compared to 923 kilotonnes in the prior year period, mainly as a result of strong demand for sustainable aluminum beverage packaging and specialty products, partially offset by lower automotive shipments due to the global semiconductor chip shortage impacting the automotive industry.

Adjusted EBITDA increased 22% to $553 million in the second quarter of fiscal year 2022 compared to $455 million in the prior year period. The increase in Adjusted EBITDA is primarily due to higher volume and favorable metal benefits, partially offset by inflationary cost pressures. Novelis achieved a record Adjusted EBITDA per ton shipped of $571 in the second quarter of fiscal year 2022, compared to $493 in the prior year.

"Our diverse portfolio of high-recycled-content products allowed us to capture strong market demand and deliver another record quarter of EBITDA," said Steve Fisher, President and CEO, Novelis Inc. "While we navigate near-term supply chain challenges, we are actively seeking and implementing new investment opportunities to capture growing customer demand for sustainable, low-carbon aluminum solutions."

Novelis has recently announced plans to invest approximately $500 million in growth capital projects, including a $375 million investment to expand its rolling and recycling capabilities in Zhenjiang, China, and a $130 million investment at its Oswego plant in the US to increase hot mill capacity and enhance automotive sheet finishing capabilities.

Fiscal year-to-date free cash flow from continuing operations was $158 million compared to the prior year period $169 million. The primary driver for this reduction versus the prior year was higher working capital requirements due mainly to rising aluminum prices, mostly offset by higher Adjusted EBITDA and favorable metal price lag. The company's net leverage ratio (net debt / TTM Adjusted EBITDA) further improved to 2.4x at the end of the second quarter of fiscal year 2022, compared to 3.7x in the prior year period.

"Since announcing Novelis' long-term capital allocation framework earlier this year, we have reduced gross debt, improved net leverage to below our targeted 2.5x level, and returned $100 million of capital to our common shareholder," said Devinder Ahuja, Executive Vice President and Chief Financial Officer, Novelis Inc. "At the same time, we have maintained adequate liquidity to effectively manage the business' working capital needs, while also remaining strongly positioned to reinvest capital in new capacity and capabilities."

In August, Novelis successfully completed an offering of $750 million 3.25% Senior Notes due 2026 and $750 million 3.875% Senior Notes due 2031. Proceeds were used toward the redemption of all its outstanding 5.875% Senior Notes due 2026.

The company continues to maintain a strong total liquidity position of $2.1 billion as of September 30, 2021.

Second Quarter Fiscal Year 2022 Earnings Conference Call

Novelis will discuss its second quarter fiscal year 2022 results via a live webcast and conference call for investors at 7:00 a.m. EDT on Wednesday, November 3, 2021. To view slides and listen only, visit https://cc.callinfo.com/r/1u6e0vyidg2d9&eom. To join by telephone, dial toll-free in North America at 800-909-4147, India toll-free at 18002660841 or the international toll line at +1-212-231-2924. Presentation materials and access information can also be found at novelis.com/investors.

About Novelis

Novelis Inc. is driven by its purpose of shaping a sustainable world together. We are a global leader in the production of innovative aluminum products and solutions and the world's largest recycler of aluminum. Our ambition is to be the leading provider of low-carbon, sustainable aluminum solutions and to achieve a fully circular economy by partnering with our suppliers, as well as our customers in the aerospace, automotive, beverage can and specialties industries throughout North America, Europe, Asia and South America. Novelis had net sales of $12.3 billion in fiscal year 2021. Novelis is a subsidiary of Hindalco Industries Limited, an industry leader in aluminum and copper, and the metals flagship company of the Aditya Birla Group, a multinational conglomerate based in Mumbai. For more information, visit novelis.com.

Non-GAAP Financial Measures

This news 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 news 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 of Adjusted EBITDA, Free Cash Flow, Liquidity, Net Income from continuing operations 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 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 our ability to reach our long-term carbon neutrality goals and expand our business, and plans to invest approximately $500 million in growth capital projects. 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 including in connection with potential acquisitions and investments; risks arising out of our acquisition of Aleris Corporation, including uncertainties inherent in the acquisition method of accounting; disruption to our global aluminum production and supply chain as a result of COVID-19; changes in the relative values of various currencies and the effectiveness of our currency hedging activities; factors affecting our operations, such as litigation, including pending and future litigation settlements, environmental remediation and clean-up costs, breakdown of equipment and other events; ability to manage existing facilities and workforce to operate the business; 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; the risks of pandemics or other public health emergencies, including the continued spread and impact of, and the governmental and third party response to, the ongoing COVID-19 outbreak; changes in government regulations, particularly those affecting taxes, tax policies and effective tax rates, 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; and our ability to generate cash. The above list of factors is not exhaustive. Other important risk factors are included under the caption "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended March 31, 2021.

Novelis Inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)



Three Months Ended

September 30,


Six Months Ended

September 30,

(in millions)

2021


2020


2021


2020

Net sales

$

4,119



$

2,978



$

7,974



$

5,404


Cost of goods sold (exclusive of depreciation and amortization)

3,400



2,384



6,537



4,485


Selling, general and administrative expenses

142



129



301



251


Depreciation and amortization

134



141



268



259


Interest expense and amortization of debt issuance costs

60



70



119



140


Research and development expenses

21



18



45



37


Loss on extinguishment of debt, net

64





62




Restructuring and impairment expenses (reversal), net



7



(2)



8


Equity in net income of non-consolidated affiliates



(1)



(1)



(2)


Business acquisition and other related costs







11


Other (income) expenses, net

(20)



18



(84)



93



$

3,801



$

2,766



$

7,245



$

5,282


Income from continuing operations before income tax provision

318



212



729



122


Income tax provision

79



68



187



39


Net income from continuing operations

$

239



$

144



$

542



$

83


Loss from discontinued operations, net of tax

(2)



(11)



(65)



(29)


Loss on sale of discontinued operations, net of tax



(170)





(170)


Net loss from discontinued operations

(2)



(181)



(65)



(199)


Net income (loss)

$

237



$

(37)



$

477



$

(116)


Net income attributable to noncontrolling interest








Net income (loss) attributable to our common shareholder

$

237



$

(37)



$

477



$

(116)


Novelis Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)


(in millions, except number of shares)

September 30,
2021


March 31,
2021

ASSETS




Current assets:




Cash and cash equivalents

$

659



$

998


Accounts receivable, net




— third parties (net of allowance for uncollectible accounts of $7 and $5 as of September 30,
2021 and March 31, 2021, respectively)

2,124



1,687


— related parties

222



166


Inventories

2,623



1,928


Prepaid expenses and other current assets

212



198


Fair value of derivative instruments

217



137


Assets held for sale

5



5


Current assets of discontinued operations

12



15


Total current assets

$

6,074



$

5,134


Property, plant and equipment, net

4,628



4,687


Goodwill

1,083



1,083


Intangible assets, net

655



696


Investment in and advances to non–consolidated affiliates

831



838


Deferred income tax assets

137



130


Other long–term assets




— third parties

271



316


— related parties

1



1


Total assets

$

13,680



$

12,885


LIABILITIES AND SHAREHOLDER'S EQUITY




Current liabilities:




Current portion of long–term debt

$

443



$

71


Short–term borrowings

247



236


Accounts payable




— third parties

3,083



2,498


— related parties

296



230


Fair value of derivative instruments

582



280


Accrued expenses and other current liabilities

655



670


Current liabilities of discontinued operations

13



16


Total current liabilities

$

5,319



$

4,001


Long–term debt, net of current portion

4,942



5,653


Deferred income tax liabilities

172



162


Accrued postretirement benefits

852



878


Other long–term liabilities

313



305


Total liabilities

$

11,598



$

10,999


Commitments and contingencies




Shareholder's equity




Common stock, no par value; unlimited number of shares authorized; 1,000 shares issued and
outstanding as of September 30, 2021 and March 31, 2021




Additional paid–in capital

1,304



1,404


Retained earnings

1,341



864


Accumulated other comprehensive loss

(547)



(366)


Total equity of our common shareholder

$

2,098



$

1,902


Noncontrolling interest

(16)



(16)


Total equity

$

2,082



$

1,886


Total liabilities and equity

$

13,680



$

12,885


Novelis Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)



Six Months Ended

September 30,

(in millions)

2021


2020

OPERATING ACTIVITIES




Net income (loss)

$

477



$

(116)


Net loss from discontinued operations

(65)



(199)


Net income from continuing operations

$

542



$

83


Adjustments to determine net cash provided by operating activities:




Depreciation and amortization

268



259


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

36



11


Loss (gain) on sale of assets

2



(2)


Loss on extinguishment of debt, net

62




Deferred income taxes, net

54



(33)


Equity in net income of non-consolidated affiliates

(1)



(2)


Loss on foreign exchange remeasurement of debt

1




Amortization of debt issuance costs and carrying value adjustments

9



14


Other, net

2



(1)


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




Accounts receivable

(540)



52


Inventories

(728)



195


Accounts payable

706



(68)


Other assets

(25)



52


Other liabilities

(49)



(187)


Net cash provided by operating activities - continuing operations

339



373


Net cash used in operating activities - discontinued operations

(5)



(31)


Net cash provided by operating activities

$

334



$

342


INVESTING ACTIVITIES




Capital expenditures

$

(194)



$

(226)


Acquisition of business, net of cash acquired



(2,614)


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



2


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

10



8


Outflows from the settlement of derivative instruments, net

(4)



(1)


Other

7



5


Net cash used in investing activities - continuing operations

(181)



(2,826)


Net cash provided by investing activities - discontinued operations



217


Net cash used in investing activities

$

(181)



$

(2,609)


FINANCING ACTIVITIES




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

$

1,520



$

1,910


Principal payments of long-term and short-term borrowings

(1,923)



(30)


Revolving credit facilities and other, net

14



(358)


Debt issuance costs

(24)



(24)


Return of capital to our common shareholder

(100)




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

(513)



1,498


Net cash used in financing activities - discontinued operations



(2)


Net cash (used in) provided by financing activities

$

(513)



$

1,496


Net decrease in cash, cash equivalents and restricted cash

(360)



(771)


Effect of exchange rate changes on cash

6



19


Cash, cash equivalents and restricted cash — beginning of period

1,027



2,402


Cash, cash equivalents and restricted cash — end of period

$

673



$

1,650






Cash and cash equivalents

$

659



$

1,627


Restricted cash (Included in "Other long-term assets")

14



14


Restricted cash (Included in "Prepaid expenses and other current assets")



9


Cash, cash equivalents and restricted cash — end of period

$

673



$

1,650


Reconciliation of Adjusted EBITDA (unaudited) to Net income attributable to our common shareholder

The following table reconciles Adjusted EBITDA, a non-GAAP financial measure, to Net income attributable to our
common shareholder.



Three Months Ended

September 30,


Six Months Ended

September 30,

(in millions)

2021


2020


2021


2020

Net (loss) income attributable to our common shareholder

$

237



$

(37)



477



(116)


Net income attributable to noncontrolling interests








Income tax provision

79



68



187



39


Interest, net

59



69



115



136


Depreciation and amortization

134



141



268



259


EBITDA

$

509



$

241



$

1,047



$

318










Adjustment to reconcile proportional consolidation

$

15



$

15



$

29



$

29


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

16



(6)



20



27


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



1



(1)



4


Loss on extinguishment of debt, net

64





62




Restructuring and impairment expenses (reversal), net



7



(2)



8


Loss (gain) on sale of fixed assets

2





2



(2)


Purchase price accounting adjustments



1





29


Loss from discontinued operations, net of tax

2



11



65



29


Loss on sale of discontinued operations, net of tax



170





170


Metal price lag

(59)



12



(113)



32


Business acquisition and other related costs







11


Other, net

4



3



(1)



53


Adjusted EBITDA

$

553



$

455



$

1,108



$

708


Free Cash Flow (unaudited)

The following table reconciles Free cash flow and Free cash flow from continuing operations, non-GAAP financial measures, to Net cash provided by operating activities - continuing operations.



Six Months Ended

September 30,

 (in millions)

2021


2020

Net cash provided by operating activities - continuing operations

$

339



$

373


Net cash used in investing activities - continuing operations

(181)



(2,826)


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



2,614


Plus: Accrued merger consideration



10


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



(2)


Free cash flow from continuing operations

158



169


Net cash used in operating activities - discontinued operations

(5)



(31)


Net cash provided by investing activities - discontinued operations



217


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



(223)


Free cash flow

$

153



$

132


Cash and Cash Equivalents and Total Liquidity (unaudited)

The following table reconciles Total liquidity to the ending balances of cash and cash equivalents.


(in millions)

September 30,
2021


March 31,
2021

Cash and cash equivalents

$

659



$

998


Availability under committed credit facilities

1,490



1,223


Total liquidity

$

2,149



$

2,221


Net debt (unaudited)

The following table reconciles Long-term debt, net of current portion to Net debt.




September 30,



2021


2020

Long–term debt, net of current portion


$

4,942



$

6,767


Current portion of long–term debt


443



55


Short–term borrowings


247



393


Cash and cash equivalents


(659)



(1,627)


Net debt


$

4,973



$

5,588


Reconciliation of Net income from continuing operations, excluding special items (unaudited) to Net income from continuing operations

The following table presents Net income from continuing operations excluding special items. 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

September 30,


Six Months Ended

September 30,

(in millions)

2021


2020


2021


2020

Net income from continuing operations

$

239



$

144



$

542



$

83


Special Items:








Business acquisition and other related costs







11


Loss on extinguishment of debt, net

64





62




Metal price lag

(59)



12



(113)



32


Restructuring and impairment reversal (expense), net



7



(2)



8


Charitable donation







50


Purchase price accounting adjustment



1





29


Tax effect on special items



(6)



15



(33)


Net income from continuing operations, excluding special items

$

244



$

158



$

504



$

180


Segment Information (unaudited)

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


Selected Operating Results

Three Months Ended September 30, 2021


North
America


Europe


Asia


South

America


Eliminations
and Other


Total

Adjusted EBITDA


$

227



$

78



$

92



$

154



$

2



$

553















Shipments (in kt)













Rolled products - third party


375



251



196



146





968


Rolled products - intersegment




9



1



1



(11)




Total rolled products


375



260



197



147



(11)



968




Selected Operating Results

Three Months Ended September 30, 2020


North

America


Europe


Asia


South

America


Eliminations
and Other


Total

Adjusted EBITDA


$

205



$

63



$

74



$

112



$

1



$

455















Shipments (in kt)













Rolled products - third party


367



232



176



148





923


Rolled products - intersegment




8



2





(10)




Total rolled products


367



240



178



148



(10)



923















Selected Operating Results

Six Months Ended September 30, 2021


North

America


Europe


Asia


South

America


Eliminations
and Other


Total

Adjusted EBITDA


$

399



$

180



$

180



$

347



$

2



$

1,108















Shipments (in kt)













Rolled products - third party


733



519



386



303





1,941


Rolled products - intersegment




20



3



1



(24)




Total rolled products


733



539



389



304



(24)



1,941















Selected Operating Results

Six Months Ended September 30, 2020


North

America


Europe


Asia


South

America


Eliminations
and Other


Total

Adjusted EBITDA


$

283



$

83



$

149



$

188



$

5



$

708















Shipments (in kt)













Rolled products - third party


639



440



358



260





1,697


Rolled products - intersegment




12



4



1



(17)




Total rolled products


639



452



362



261



(17)



1,697


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