Novelis sees decrease in net sales, increase in net income for quarter

Aluminum rolling and recycling company Novelis Inc., Atlanta, has reported its financial results for the first quarter of its 2020 fiscal year.

Net income attributable to its common shareholder was $127 million for the quarter compared with $137 million in the prior-year period. Excluding tax-effected special items, such as $33 million in favorable metal price lag in the prior year, the company says its net income was $145 million in the first quarter of fiscal 2020 compared with $115 million in the prior-year period. Novelis attributes the 26 percent increase to higher adjusted earnings before interest, taxes, depreciation and amortization (EBITDA).

Adjusted EBITDA increased 11 percent over the prior-year period to $372 million, primarily driven by higher total shipments and favorable price and product mix, Novelis says, and partially offset by less favorable recycling benefits because of lower aluminum prices. Adjusted EBITDA per ton reached $448 in the quarter as compared to $419 in the prior-year period.

Net sales decreased 6 percent over the prior-year period to $2.9 billion for the first quarter of fiscal 2020, driven by lower average aluminum prices and local market premiums, partially offset by higher total shipments and more favorable product price and mix, the company says. Shipments of flat-rolled products increased 4 percent from the prior year to 830,000 metric tons.

"Novelis' continued success is based on its ability to deliver high-quality products to customers and its focus on optimizing manufacturing operations," says Steve Fisher, the company’s president and CEO. "With a strong balance sheet and commitment to sustainable innovation, we are well-positioned to make strategic investments in capacity as well as R&D to meet growing demand for lightweight aluminum solutions."

The company reported negative $94 million of free cash flow for the first quarter of fiscal 2020, including a three-fold increase in capital expenditures year over year to $162 million mainly to support strategic capacity expansion projects underway in the U.S., China and Brazil. Free cash flow before capital expenditures improved 36 percent over the prior-year period to $68 million, driven primarily by higher adjusted EBITDA and favorable working capital from lower aluminum prices and inventory levels, Novelis says.

"Our strategic capital projects to increase rolling, recycling and finishing capacity continue to progress on time and on budget," says Devinder Ahuja, the company’s senior vice president and chief financial officer. "Our focus on continuous operational improvement to fully leverage our existing capacity will allow us to continue to deliver strong results in favorable market conditions."

Novelis says that as of June 30 it has a strong total liquidity position of $1.7 billion and a net leverage ratio of 2.5 times.

Novelis announced July 26, 2018, that it had signed a definitive agreement to acquire Aleris Corp., headquartered in Cleveland. The company says acquisition continues to progress and is expected to close in the fourth quarter of calendar year 2019, subject to customary closing conditions and regulatory approvals.

However, according to recent reporting by Reuters, Novelis must offer concessions to European Union competition authorities by Aug. 9 to gain approval for its $2.6 billion acquisition of Aleris.