Atlanta-based aluminum rolling and recycling firm Novelis Inc. has reported a net loss attributed to its common shareholder of $79 million and a net loss from continuing operations of $61 million for the first quarter of fiscal year 2021, down 162 percent and 148 percent, respectively, versus the prior-year period. Excluding tax-effected special items in both years, first-quarter fiscal 2021 net income was $22 million, down 85 percent versus the prior-year period. The company attributes the decline mainly to the after-tax impact of lower adjusted earnings before interest, taxes, depreciation and amortization (EBITDA), as well as higher depreciation and amortization and unrealized derivative losses primarily associated with the acquisition of Aleris.
Despite the impact of the COVID-19 pandemic, Novelis says the resiliency of the beverage can market provided stability, while demand trends in the automotive and specialty markets recovered significantly toward the end of the quarter. The company says its automotive customers are trending positively toward prepandemic production levels.
Novelis says it also is beginning to realize targeted operating fixed costs, general administrative expenses and R&D savings and has maintained substantial liquidity to help navigate the current dynamic environment and manage the successful integration of Aleris.
As demand increases in certain markets, Novelis says it is working closely with customers to leverage its global manufacturing footprint and adjust production levels to meet their needs.
"With employee safety as our top priority, Novelis continues implementing a number of measures to protect our colleagues from COVID-19-related challenges while successfully serving our customers and integrating Aleris with minimal disruption," says Steve Fisher, president and CEO, Novelis. "We entered this fiscal year in a position of strength based on four consecutive years of record earnings and remain confident in our ability to handle this near-term uncertainty. With our diverse product portfolio, reliable and efficient operations and world-class workforce, we have the flexibility and expertise to provide the solutions our customers need."
"We swiftly implemented a number of cost-reduction initiatives to create sustainable flexibility in our cost structure, and are prepared to take further action if needed based on customer demand trends." Devinder Ahuja, senior vice president and chief financial officer, Novelis
The company’s net sales decreased 17 percent from the prior-year period to $2.4 billion for the first quarter of fiscal 2021. This was driven by sharply lower average London Metal Exchange (LME) aluminum prices and local market premiums, as well as a 7 percent decline in total flat-rolled product shipments. Shipments of 774,000 metric tons were affected by weak market conditions, partially offset by the addition of the acquired Aleris business, Novelis adds.
Adjusted EBITDA decreased 32 percent to $253 million in the first quarter of fiscal 2021 compared with $372 million in the prior-year period. The company attributes the decrease to lower shipments and unfavorable product mix but partially offset by strong cost control and EBITDA contribution from the acquired Aleris business.
Year-to-date fiscal 2021 free cash flow of negative $151 million compares with negative $94 million in the prior-year period, driven primarily by lower adjusted EBITDA, timing of taxes and exceptional items, Novelis says, partially offset by lower capital expenditures. Capital expenditures decreased versus the prior year to $106 million, as the company defers nonstrategic capital spending to conserve cash. While the first-quarter free cash flow was pressured as a result of the pandemic, Novelis says it expects to achieve strong positive free cash flow for the full 2021 fiscal year.
"We swiftly implemented a number of cost-reduction initiatives to create sustainable flexibility in our cost structure, and are prepared to take further action if needed based on customer demand trends," says Devinder Ahuja, senior vice president and chief financial officer, Novelis. "These initiatives, combined with our strong liquidity position and identified business combination synergies provide us the confidence to manage through near-term market headwinds while continuing to strengthen the business for future success."
As of June 30, the company reported a total liquidity position of $2.1 billion.
Some of Novelis’ customers temporarily have shut down manufacturing facilities at times because of lack of demand, government decree and/or public health concerns. Similarly, Novelis temporarily shut down some of its production to align with customer demand and reduce operating costs. The company says it has identified approximately $250 million in potential cost reductions should market conditions remain soft, adding that it will continue to scale production based on customer demand.
Novelis closed its acquisition of Aleris Corp. April 14 and has begun integrating the two companies. The acquisition provides strategic benefits that include product portfolio diversification with the entry into high-value aerospace and enhances its strategic position in Asia. Novelis says the acquisition of Aleris allows for approximately $150 million in potential annual cost synergies. The results from continuing operations reported for the quarter ending June 30 reflect the acquired businesses. This excludes the Lewisport, Kentucky, and Duffel, Belgium, plants pending divestment, reflected as results from discontinued operations.
Novelis is a subsidiary of Hindalco Industries Ltd., an industry leader in aluminum and copper and the metals flagship company of the Aditya Birla Group, a multinational conglomerate based in Mumbai, India.