Novelis sees adjusted EBITDA increase despite flat shipments

Novelis Inc., an Atlanta-based global aluminum recycler and product producer that seeks to achieve a fully circular economy by partnering with its suppliers and customers in the aerospace, automotive, beverage can and specialties industries throughout North America, Europe, Asia and South America, has reported its financial results for the third quarter of its 2024 fiscal year.

The company achieved net income attributable to its common shareholder of $121 million, up significantly from the $12 million reported in the prior-year period, while its net income excluding special items was $174 million, up 81 percent year over year. Its adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) were $454 million, an increase of 33 percent year over year.

“Novelis delivered a substantial year-over-year improvement in adjusted EBITDA and adjusted EBITDA per [metric ton] margin, in line with our expectations of continued margin recovery this fiscal year,” Novelis President and CEO Steve Fisher says. “Our unmatched global scale, diversified end market product portfolio and recycling leadership [are] evident in our strong third-quarter results and [make] us an essential partner of choice for our customers. These differentiators also allow us to execute our ongoing strategy to invest in growth and organically increase our rolling and recycling capacity to shape a more sustainable future.”

Novelis’ net sales in the third quarter decreased 6 percent to $3.9 billion compared with the prior-year period driven by lower average aluminum prices as shipments were in line with prior-year levels. Total flat-rolled product shipments were 910,000 metric tons for the recently completed quarter compared with 908,000 metric tons for the comparable quarter in fiscal year 2023. Shipments were flat because of the decline in specialties product shipments related to muted economic conditions in some markets, though that decline was more than offset by continued growth in automotive shipments and a return in demand for beverage packaging sheet, Novelis says.

Net income attributable to the company’s common shareholder significantly improved year over year to $121 million primarily because of higher adjusted EBITDA, which increased 33 percent versus the third quarter of its 2023 fiscal year to $454 million. This significant improvement was driven primarily by favorable metal benefit from recycling, higher pricing and lower operating costs than the prior year, which was heavily affected by high inflation and geopolitical instability, the company says.

Net cash flow provided by operating activities was $420 million in the first nine months of fiscal year 2024 compared with $309 million in the prior-year comparable period. Novelis attributes the increase primarily to favorable changes in working capital. Adjusted free cash flow totaled $517 million in the first nine months of fiscal year 2024, higher than the prior-year period of $170 million largely because of higher capital expenditures, partially offset by higher cash flow from operating activities. Fiscal year-to-date 2024 capital expenditures total $960 million and reflect the planned increase in strategic investments in new rolling and recycling capacity under construction, the company says, noting its net leverage ratio was 2.7x at the end of the third quarter of fiscal year 2024.

In the presentation accompanying its quarterly earnings, Novelis notes it successfully completed the first phase of the hot mill upgrade at its Oswego, New York, mill in November. The company invested $130 million to add 65,000 metric tons of capacity in Oswego in a project that was announced in the fall of 2021. The overall project was designed to increase hot mill capacity by 124,000 metric tons at the Novelis Oswego plant, which serves the beverage can, automotive and specialty products markets.

Bay Minette update

Novelis’ greenfield rolling and recycling plant under construction in Bay Minette, Alabama, is the first fully integrated aluminum plant built in the U.S. in nearly 40 years and the largest project in company history. Novelis anticipates it will be able to produce 600,000 metric tons of finished goods for the beverage packaging and automotive markets in North America initially. With a high level of project engineering complete and all key equipment and the majority of materials contracted, the project capital cost is now expected to be $4.1 billion, according to the company, with commissioning expected in the second half of calendar year 2026.

RELATED: Novelis receives $2.5 million grant for Alabama project

“We are building this plant not just for today, but for the next 40 years and beyond,” Fisher says. “Bay Minette will be a true plant of the future, combining our decades of experience with the latest technology to improve safety, efficiency and the sustainability of our products while also providing the ability to double future capacity in a cost-effective manner.

“With customer contracts for beverage packaging already signed, and automotive contracting proceeding as planned, we remain confident in the double-digit return of this historic investment."

Guthrie update

In early 2022, Novelis announced plans to invest $365 million to build a recycling center next to its automotive finishing plant in Guthrie, Kentucky. With annual casting capacity of 240,000 tons of sheet ingot, the company says it expects the facility to reduce its carbon emissions by more than 1 million tons annually while also allowing it to grow its closed-loop-recycling programs with North American automotive customers.

In the presentation accompanying its earnings, Novelis says construction of the project is nearly complete, with commissioning on track to begin in the first quarter of its 2025 fiscal year.

Highlights of the project include leveraging existing and growing closed-loop recycling systems with customers, increasing the company’s capability to convert excess process scrap into sheet ingot, replacing external sheet ingot supply and expanding scrap consumption to increase recycled content in automotive products.

Outlook

In its earnings presentation, Novelis says near-term end-market trends support long-term global demand at a compound annual growth rate of roughly 4 percent from 2023 to 2031 (excluding China) in beverage packaging, 7 percent from 2023 to 2028 in automotive, consistent with gross domestic product growth in the specialty sector and about 5 percent from 2023 to 2030 in aerospace.

In the beverage packaging sector, Novelis points to the completion of supply chain inventory reductions and solid U.S. and strong South American demand in the summer season as positive trends.

The company says demand remains stable broadly in the automotive sector given pent-up vehicle demand and favorable vehicle mix, with no material impact having been seen from the United Auto Workers strike.

In the specialty segment, Novelis says demand broadly moves with economies, with headwinds from high inflation and interest rates affecting building and construction.

Increasing original equipment manufacturer build rates and high order backlogs driven by fleet replacement and route expansion are benefiting aluminum demand in the aerospace sector.

“We continue to expect adjusted EBITDA per [metric ton] to return to a sustainable $525 level beginning this fiscal fourth quarter as shipments seasonally improve and we drive more operating leverage,” says Devinder Ahuja, executive vice president and chief financial officer of Novelis. “Looking ahead, we believe there is opportunity for further margin expansion over time as we progress through our current period of disciplined, transformational capital investment to capture market growth.”

The company says it has a strong total liquidity position of $2.1 billion, consisting of $787 million in cash and cash equivalents and $1.4 billion in availability under committed credit facilities, as of Dec. 31, 2023.

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.