Novelis reports record automotive shipments in 2Q of fiscal 2016

Atlanta-based Novelis has reported a net loss of $13 million for the second quarter of fiscal 2016. Excluding tax-effected special items, the company reported net income of $25 million in the second quarter of fiscal 2016 compared with $36 million in the second quarter of fiscal 2015.

Excluding the impact of metal price lag in both periods, adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) was $236 million in the second quarter of fiscal 2016, up 7 percent compared with $221 million in the prior year. The increase was driven by higher shipments of premium automotive and beverage can sheet, partially offset by less favorable recycling benefits in light of lower aluminum prices compared with the prior year, Novelis reports. Current year results also reflect higher costs associated with the startup and support of new automotive finishing and recycling capacity. However, the company says it has made progress reducing new asset startup costs on a sequential basis. Adjusted EBITDA excluding metal price lag increased 11 percent in the second quarter of fiscal 2016 from $212 million reported in the first quarter of fiscal 2016, primarily driven by higher shipments, better product mix and lower startup costs, Novelis says.

"Our focus on growing premium can, automotive and high-end specialty shipments, managing costs and reducing working capital is delivering results," says Steve Fisher, president and CEO of Novelis. "We are leveraging new assets, reducing startup costs and building momentum in our expanded automotive and can sheet businesses. We are now commissioning our two most recently constructed automotive lines in the U.S. and Germany and solidifying our position as the global leader in aluminum flat rolled products."

Shipments of rolled aluminum products totaled a record 868,600 tons in the second quarter of fiscal 2016, a 3 percent increase compared to 843,300 tons reported in the prior year period. However, sharply lower average aluminum prices and local market premiums drove a 12 percent decrease in revenue to $2.5 billion for the second quarter of fiscal 2016 compared with $2.8 billion in fiscal 2015.

Average local market metal premiums continued to decline in the second quarter of fiscal 2016, creating negative metal price lag of $54 million, Novelis says. Although the company says it uses derivatives contracts to minimize the price lag associated with LME (London Metal Exchange) base aluminum prices, it does not use derivative contracts for local market premiums, as adequate cost-effective hedges are not available. Adjusted EBITDA for the second quarter of fiscal 2016 including metal price lag was $182 million.

The company generated $140 million of free cash flow in the second quarter of fiscal 2016 as compared with negative $108 million in the second quarter of fiscal 2015. This increase was primarily a result of lower capital expenditures and a reduction in working capital attributed to lower metal prices and the company's focus on reducing inventory. Novelis says it continues to expect positive free cash flow for the full fiscal year after spending approximately $400 million on capital expenditures.

As of Sept. 30, 2015, the company reported liquidity of $968 million.