Despite current headwinds, Novelis CEO says aluminum will benefit from long-term demand

Aluminum recycling and rolling company Novelis Inc., headquartered in Atlanta, has reported its second-quarter 2023 financial results, revealing that net sales increased 17 percent to $4.8 billion compared with $4.1 billion in the prior-year period, primarily driven by a 2 percent increase in total flat-rolled product shipments to 984,000 tons, increased product pricing, favorable mix and higher average aluminum prices. Despite the shipment growth, net income attributable to its common shareholder decreased 23 percent to $183 million compared with the third quarter of 2022, while net income from continuing operations decreased by the same percentage to $184 million. Excluding special items in both years, second-quarter fiscal 2023 net income from continuing operations decreased 17 percent versus the prior year to $203 million largely because of lower adjusted earnings before interest, taxes, depreciation and amortization, or EBITDA.

Novelis says its shipment growth is mainly because of higher automotive shipments as semiconductor shortages affecting the automotive industry began to ease. Beverage can and aerospace shipments also were slighter higher. However, specialty shipments were lower during the quarter.

"We delivered a solid second quarter despite challenging headwinds from inflation, the stronger U.S. dollar and reduced metal benefits, with good operational performance that allowed us to capture robust end market demand in the quarter and increase total shipments," says Steve Fisher, president and CEO of Novelis. "Although the current macroeconomic environment is uncertain, we believe long-term demand for sustainable, lightweight, infinitely recyclable aluminum remains intact. We continue to progress our transformational investment strategy to grow with our customers, reaching an exciting milestone in the U.S. with the groundbreaking of our new recycling and rolling plant in Alabama last month." 

Adjusted EBITDA decreased 8 percent to $506 million in the second quarter of fiscal 2023 compared with $553 million in the prior-year period, the company says, which was primarily because of higher energy and other operating costs driven by geopolitical instability, inflation and global supply chain disruptions, as well as unfavorable foreign exchange translation. The company says these headwinds were offset partially by higher product pricing, including some higher cost pass-through to customers, higher volume and favorable product mix.

Adjusted free cash flow from continuing operations was an outflow of $90 million for the first six months of fiscal 2023 compared with a generation of $158 million in the prior-year period. The company attributes the decrease primarily to negative metal price lag in the current year compared with a positive lag in the prior year resulting from volatile aluminum prices, lower adjusted EBITDA and higher capital expenditures. Novelis says it had a net leverage ratio of 2.3x at the end of the second quarter of fiscal 2023 compared with 2.4x in the prior year period.

The company says it had a total liquidity position of $2.8 billion as of Sept. 30, 2022.

"While demand for aluminum rolled products broadly remains solid, we expect high energy costs and inflationary impacts to intensify in the near term," Devinder Ahuja, executive vice president and chief financial officer of Novelis, says. "We are actively working with our customers to share these extraordinary inflationary impacts while also driving operational efficiencies and cost control measures to partially mitigate these macroeconomic headwinds. We also will continue our disciplined approach to maintaining a strong balance sheet, prioritizing and pacing capital spending for our strategic growth initiatives that we believe will allow us to grow over the long term."