Novelis Reports Third Quarter of Fiscal 2019 Results
Customer demand for sustainable solutions and proven operational performance deliver strong results
ATLANTA, Feb. 5, 2019 /PRNewswire/ --
Third Quarter Fiscal Year 2019 Highlights
- Net income attributable to common shareholder of $78 million; excluding special items, net income $101 million
- Adjusted EBITDA of $322 million
- Net Sales of $3.0 billion
- Shipments of 800 kilotonnes
Novelis Inc., the world leader in aluminum rolling and recycling, today reported net income attributable to its common shareholder of $78 million for the third quarter of fiscal year 2019, compared to $121 million in the prior year period. Excluding tax-effected special items, the company reported net income of $101 million in the third quarter of fiscal 2019, compared to $138 million in the prior year period. This decline is primarily due to a $34 million non-cash income tax benefit in the prior year resulting from the U.S. Tax Cut and Jobs Act of 2017.
Adjusted EBITDA increased six percent over the prior year to $322 million in the third quarter of fiscal 2019, primarily driven by higher shipments, favorable product portfolio mix, favorable metal costs and other cost efficiencies. Adjusted EBITDA per ton reached $403 in the quarter, as compared to $383 in the prior year period.
Net sales increased three percent over the prior year to $3.0 billion for the third quarter of fiscal 2019, driven by higher total shipments and a more favorable product mix. Shipments of flat rolled products increased one percent to 800 kilotonnes.
Demand for innovative, high-strength, lightweight aluminum solutions continues to increase as customers benefit from using a highly recyclable material that improves consumer products. Automakers are adopting more aluminum to build safer, stronger, and lighter vehicles, while beverage companies continue to innovate sustainable aluminum packaging options.
"Continued customer demand from automakers and favorable market conditions in beverage can contributed to this quarter's strong financial results," said Steve Fisher, President and CEO, Novelis Inc. "Our proven operational performance and strategic growth initiatives have positioned the company to make our customers more successful today and well into the future."
The company generated $23 million of free cash flow for the third quarter of fiscal 2019, or $119 million of free cash flow before capital expenditures of $96 million. Year-to-date free cash flow before capital expenditures improved $98 million over the prior year to $337 million, driven primarily by higher Adjusted EBITDA.
(in $ millions, non-GAAP measures) | Three Months Ended December 31, | Nine Months Ended December 31, | |||||||||
2018 | 2017 | 2018 | 2017 | ||||||||
Free cash flow | 23 | 79 | 127 | 103 | |||||||
Capital expenditures | 96 | 54 | 210 | 136 | |||||||
Free cash flow before capital expenditures | 119 | 133 | 337 | 239 | |||||||
"With strong free cash flow generation, we are able to fund organic investments in order to supply customers for the long term," said Devinder Ahuja, Senior Vice President and Chief Financial Officer, Novelis Inc. "Further, our diverse global footprint and product portfolio positions us to navigate near-term global economic uncertainties while maintaining our commitment to disciplined net leverage levels."
As of December 31, 2018, the company reported a strong liquidity position of $1.7 billion and a net leverage ratio of 2.8x.
Aleris Acquisition
On July 26, 2018, Novelis announced it signed a definitive agreement to acquire Aleris Corporation. The acquisition continues to progress and is expected to close in the third quarter of calendar year 2019, subject to customary closing conditions and regulatory approvals.
Third Quarter of Fiscal Year 2019 Earnings Conference Call
Novelis will discuss its third quarter of fiscal year 2019 results via a live webcast and conference call for investors at 7:30 a.m. ET on Tuesday, February 5, 2019. To view slides and listen only, visit the web at https://cc.callinfo.com/r/1gquhhoy2qiet&eom. To join by telephone, dial toll-free in North America at 800 754 1366, India toll-free at 1800 266 0841 or the international toll line at +1 303 223 0120. Presentation materials and access information may also be found at novelis.com/investors.
About Novelis
Novelis Inc. is the global leader in aluminum rolled products and the world's largest recycler of aluminum. The company operates in ten countries, has approximately 11,000 employees and reported $11.5 billion in revenue for its 2018 fiscal year. Novelis supplies premium aluminum sheet and foil products to transportation, packaging, construction, industrial and consumer electronics markets throughout North America, Europe, Asia and South America. Novelis is a subsidiary of Hindalco Industries Limited, an industry leader in aluminum and copper, and metals flagship company of the Aditya Birla Group, a multinational conglomerate based in Mumbai, India. For more information, visit novelis.com and follow us on Facebook at facebook.com/NovelisInc and Twitter at twitter.com/Novelis.
Non-GAAP Financial Measures
This news release and the presentation slides for the earnings call contain non-GAAP financial measures as defined by SEC rules. We believe these measures are helpful to investors in measuring our financial performance and liquidity and comparing our performance to our peers. However, our non-GAAP financial measures may not be comparable to similarly titled non-GAAP financial measures used by other companies. These non-GAAP financial measures have limitations as an analytical tool and should not be considered in isolation or as a substitute for GAAP financial measures. To the extent we discuss any non-GAAP financial measures on the earnings call, a reconciliation of each measure to the most directly comparable GAAP measure will be available in the presentation slides filed as Exhibit 99.2 to our Current Report on Form 8-K furnished to the SEC concurrently with the issuance of this press release. In addition, the Form 8-K includes a more detailed description of each of these non-GAAP financial measures, together with a discussion of the usefulness and purpose of such measures.
Attached to this news release are tables showing the Condensed Consolidated Statements of Operations, Condensed Consolidated Balance Sheets, Condensed Consolidated Statements of Cash Flows, Reconciliation to Adjusted EBITDA, Free Cash Flow, Liquidity, Net Income excluding Special Items, and Segment Information.
Forward-Looking Statements
Statements made in this news release which describe Novelis' intentions, expectations, beliefs or predictions may be forward-looking statements within the meaning of securities laws. Forward-looking statements include statements preceded by, followed by, or including the words "believes," "expects," "anticipates," "plans," "estimates," "projects," "forecasts," or similar expressions. Examples of forward looking statements in this news release are statements about our ability to navigate global economic uncertainties while maintaining committed net leverage. Novelis cautions that, by their nature, forward-looking statements involve risk and uncertainty and Novelis' actual results could differ materially from those expressed or implied in such statements. We do not intend, and we disclaim any obligation, to update any forward-looking statements, whether as a result of new information, future events or otherwise. Factors that could cause actual results or outcomes to differ from the results expressed or implied by forward-looking statements include, among other things: changes in the prices and availability of aluminum (or premiums associated with such prices) or other materials and raw materials we use; the capacity and effectiveness of our hedging activities; relationships with, and financial and operating conditions of, our customers, suppliers and other stakeholders; fluctuations in the supply of, and prices for, energy in the areas in which we maintain production facilities; our ability to access financing including in connection with potential acquisitions and investments; risks relating to, and our ability to consummate, pending and future acquisitions, investments or divestitures, including the pending acquisition of Aleris Corporation; changes in the relative values of various currencies and the effectiveness of our currency hedging activities; factors affecting our operations, such as litigation, environmental remediation and clean-up costs, breakdown of equipment and other events; economic, regulatory and political factors within the countries in which we operate or sell our products, including changes in duties or tariffs; competition from other aluminum rolled products producers as well as from substitute materials such as steel, glass, plastic and composite materials; changes in general economic conditions including deterioration in the global economy; changes in government regulations, particularly those affecting taxes, derivative instruments, environmental, health or safety compliance; changes in interest rates that have the effect of increasing the amounts we pay under our credit facilities and other financing agreements; and our ability to generate cash. The above list of factors is not exhaustive. Other important risk factors included under the caption "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended March 31, 2018 are specifically incorporated by reference into this news release.
Novelis Inc. | |||||||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) | |||||||||||||||
(in millions) | |||||||||||||||
Three Months Ended December 31, | Nine Months Ended December 31, | ||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||
Net sales | $ | 3,009 | $ | 2,933 | $ | 9,242 | $ | 8,396 | |||||||
Cost of goods sold (exclusive of depreciation and amortization) | 2,568 | 2,490 | 7,816 | 7,100 | |||||||||||
Selling, general and administrative expenses | 129 | 122 | 373 | 341 | |||||||||||
Depreciation and amortization | 88 | 86 | 260 | 267 | |||||||||||
Interest expense and amortization of debt issuance costs | 67 | 64 | 201 | 192 | |||||||||||
Research and development expenses | 18 | 17 | 50 | 48 | |||||||||||
Restructuring and impairment, net | 1 | 25 | 2 | 33 | |||||||||||
Gain on sale of a business, net | — | — | — | (318) | |||||||||||
Equity in net (income) loss of non-consolidated affiliates | (1) | — | (2) | 1 | |||||||||||
Other expenses, net | 10 | 4 | 33 | 40 | |||||||||||
Business acquisition and other integration related costs | 14 | — | 24 | — | |||||||||||
2,894 | 2,808 | 8,757 | 7,704 | ||||||||||||
Income before income taxes | 115 | 125 | 485 | 692 | |||||||||||
Income tax provision | 37 | 20 | 154 | 179 | |||||||||||
Net income | 78 | 105 | 331 | 513 | |||||||||||
Net loss attributable to noncontrolling interests | — | (16) | — | (16) | |||||||||||
Net income attributable to our common shareholder | $ | 78 | $ | 121 | $ | 331 | $ | 529 | |||||||
Novelis Inc. | |||||||
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) | |||||||
(in millions, except number of shares) | |||||||
December 31, 2018 | March 31, 2018 | ||||||
ASSETS | |||||||
Current assets | |||||||
Cash and cash equivalents | $ | 797 | $ | 920 | |||
Accounts receivable, net | |||||||
— third parties (net of uncollectible accounts of $6 and $7 as of December 31, 2018 and March 31, 2018, respectively) | 1,370 | 1,353 | |||||
— related parties | 169 | 242 | |||||
Inventories | 1,716 | 1,560 | |||||
Prepaid expenses and other current assets | 150 | 125 | |||||
Fair value of derivative instruments | 173 | 159 | |||||
Assets held for sale | 5 | 5 | |||||
Total current assets | 4,380 | 4,364 | |||||
Property, plant and equipment, net | 3,276 | 3,110 | |||||
Goodwill | 607 | 607 | |||||
Intangible assets, net | 366 | 410 | |||||
Investment in and advances to non–consolidated affiliates | 810 | 849 | |||||
Deferred income tax assets | 72 | 75 | |||||
Other long–term assets | |||||||
— third parties | 94 | 97 | |||||
— related parties | — | 3 | |||||
Total assets | $ | 9,605 | $ | 9,515 | |||
LIABILITIES AND SHAREHOLDER'S EQUITY | |||||||
Current liabilities | |||||||
Current portion of long–term debt | $ | 32 | $ | 121 | |||
Short–term borrowings | 153 | 49 | |||||
Accounts payable | |||||||
— third parties | 2,032 | 2,051 | |||||
— related parties | 147 | 205 | |||||
Fair value of derivative instruments | 111 | 106 | |||||
Accrued expenses and other current liabilities | 525 | 591 | |||||
Total current liabilities | 3,000 | 3,123 | |||||
Long–term debt, net of current portion | 4,329 | 4,336 | |||||
Deferred income tax liabilities | 171 | 164 | |||||
Accrued postretirement benefits | 802 | 825 | |||||
Other long–term liabilities | 223 | 244 | |||||
Total liabilities | 8,525 | 8,692 | |||||
Commitments and contingencies | |||||||
Shareholder's equity | |||||||
Common stock, no par value; unlimited number of shares authorized; 1,000 shares issued and outstanding as of December 31, 2018 and March 31, 2018 | — | — | |||||
Additional paid–in capital | 1,404 | 1,404 | |||||
Accumulated equity (deficit) | 100 | (283) | |||||
Accumulated other comprehensive loss | (389) | (261) | |||||
Total equity of our common shareholder | 1,115 | 860 | |||||
Noncontrolling interests | (35) | (37) | |||||
Total equity | 1,080 | 823 | |||||
Total liabilities and equity | $ | 9,605 | $ | 9,515 | |||
Novelis Inc. | |||||||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) | |||||||
(in millions) | |||||||
Nine Months Ended December 31, | |||||||
2018 | 2017 | ||||||
OPERATING ACTIVITIES | |||||||
Net income | $ | 331 | $ | 513 | |||
Adjustments to determine net cash provided by operating activities: | |||||||
Depreciation and amortization | 260 | 267 | |||||
(Gain) loss on unrealized derivatives and other realized derivatives in investing activities, net | (4) | 4 | |||||
Gain on sale of business | — | (318) | |||||
Loss on sale of assets | 4 | 4 | |||||
Impairment charges | — | 15 | |||||
Deferred income taxes, net | 38 | 41 | |||||
Equity in net (gain) loss of non-consolidated affiliates | (2) | 1 | |||||
Loss on foreign exchange remeasurement of debt | — | 3 | |||||
Amortization of debt issuance costs and carrying value adjustments | 14 | 15 | |||||
Other, net | (1) | (1) | |||||
Changes in assets and liabilities including assets and liabilities held for sale (net of effects from divestitures): | |||||||
Accounts receivable | — | (413) | |||||
Inventories | (214) | (175) | |||||
Accounts payable | (17) | 221 | |||||
Other current assets | (31) | 24 | |||||
Other current liabilities | (58) | 12 | |||||
Other noncurrent assets | 1 | (4) | |||||
Other noncurrent liabilities | 3 | 18 | |||||
Net cash provided by operating activities | 324 | 227 | |||||
INVESTING ACTIVITIES | |||||||
Capital expenditures | (210) | (136) | |||||
Acquisition of assets under a capital lease | (239) | — | |||||
Proceeds from sales of assets, third party, net of transaction fees and hedging | 2 | 1 | |||||
Proceeds from the sale of a business | — | 314 | |||||
Proceeds from investment in and advances to non-consolidated affiliates, net | 1 | 9 | |||||
Outflows from the settlement of derivative instruments, net | 2 | (18) | |||||
Other | 10 | 10 | |||||
Net cash (used in) provided by investing activities | (434) | 180 | |||||
FINANCING ACTIVITIES | |||||||
Principal payments of long-term and short-term borrowings | (95) | (138) | |||||
Revolving credit facilities and other, net | 109 | (140) | |||||
Debt issuance costs | (2) | (5) | |||||
Net cash provided by (used in) financing activities | 12 | (283) | |||||
Net (decrease) increase in cash, cash equivalents and restricted cash | (98) | 124 | |||||
Effect of exchange rate changes on cash | (25) | 39 | |||||
Cash, cash equivalents and restricted cash — beginning of period | 932 | 604 | |||||
Cash, cash equivalents and restricted cash — end of period | $ | 809 | $ | 767 | |||
Reconciliation of Net income attributable to our common shareholder to Adjusted EBITDA (unaudited) | |||||||||||||||
The following table reconciles Net income attributable to our common shareholder to Adjusted EBITDA, a non-GAAP financial measure, for the three and nine months ended December 31, 2018 and 2017. | |||||||||||||||
(in millions) | Three Months Ended December 31, | Nine Months Ended December 31, | |||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||
Net income attributable to our common shareholder | $ | 78 | $ | 121 | $ | 331 | $ | 529 | |||||||
Noncontrolling interests | — | (16) | — | (16) | |||||||||||
Income tax provision | 37 | 20 | 154 | 179 | |||||||||||
Interest, net | 64 | 62 | 193 | 186 | |||||||||||
Depreciation and amortization | 88 | 86 | 260 | 267 | |||||||||||
EBITDA | 267 | 273 | 938 | 1,145 | |||||||||||
Unrealized losses (gains) on change in fair value of derivative instruments, net | 6 | (15) | 9 | (13) | |||||||||||
Realized losses (gains) on derivative instruments not included in segment income | — | 1 | (1) | — | |||||||||||
Adjustment to reconcile proportional consolidation | 14 | 17 | 45 | 33 | |||||||||||
Loss on sale of fixed assets | 2 | 2 | 4 | 4 | |||||||||||
Restructuring and impairment, net | 1 | 25 | 2 | 33 | |||||||||||
Gain on sale of a business, net (A) | — | — | — | (318) | |||||||||||
Metal price lag expense (income) | 13 | (1) | (21) | 5 | |||||||||||
Business acquisition and other integration costs (B) | 14 | — | 24 | — | |||||||||||
Other, net | 5 | 3 | 11 | 7 | |||||||||||
Adjusted EBITDA | $ | 322 | $ | 305 | $ | 1,011 | $ | 896 | |||||||
_________________________ | |
(A) | In September 2017, Novelis Korea, Ltd, a subsidiary of Novelis, sold a portion of its shares in Ulsan Aluminum, Ltd., which resulted in a gain. |
(B) | Effective in the second quarter of fiscal 2019, management removed the impact of business acquisition and other integration costs from Adjusted EBITDA in order to enhance the visibility of the underlying operating performance of the Company. The impact of "Business acquisition and other integration costs", which are costs presented above associated with our pending acquisition of Aleris, is now reported as a separate line item in this reconciliation and on our condensed consolidated statement of operations. This change in presentation does not impact our condensed consolidated financial statements. |
Free Cash Flow (unaudited) | |||||||
The following table shows "Free cash flow" for the nine months ended December 31, 2018 and 2017. | |||||||
(in millions) | Nine Months Ended December 31, | ||||||
2018 | 2017 | ||||||
Net cash provided by operating activities | $ | 324 | $ | 227 | |||
Net cash (used in) provided by investing activities | (434) | 180 | |||||
Plus: Cash used in the acquisition of assets under a capital lease | 239 | — | |||||
Less: Proceeds from sales of assets and business, net of transaction fees, cash income taxes and hedging | (2) | (304) | |||||
Free cash flow (A) | $ | 127 | $ | 103 | |||
_________________________ | |
(A) | Effective in the second quarter of fiscal 2019, management clarified the definition of "Free cash flow" (a non-GAAP measure) to exclude the impact of cash outflows related to the "Acquisition of assets under a capital lease". This change further enables users of the financial statements to understand cash generated internally by the Company. This change does not impact the condensed consolidated financial statements or prior periods reported. |
Cash and Cash Equivalents and Total Liquidity (unaudited) | |||||||
The following table reconciles the ending balances of cash and cash equivalents to total liquidity as of December 31, 2018 and March 31, 2018. | |||||||
(in millions) | December 31, 2018 | March 31, 2018 | |||||
Cash and cash equivalents | $ | 797 | $ | 920 | |||
Availability under committed credit facilities | 884 | 998 | |||||
Total liquidity | $ | 1,681 | $ | 1,918 | |||
Reconciliation of Net income attributable to our common shareholder to Net income attributable to our common shareholder, excluding special items (unaudited) | |||||||||||||||
The following table presents Net income attributable to our common shareholder excluding special items. We adjust for items which may recur in varying magnitude which affect the comparability of the operational results of our underlying business. | |||||||||||||||
(in millions) | Three Months Ended December 31, | Nine Months Ended December 31, | |||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||
Net income attributable to our common shareholder | $ | 78 | $ | 121 | $ | 331 | $ | 529 | |||||||
Special Items: | |||||||||||||||
Business acquisition and other integration related costs | 14 | — | 24 | — | |||||||||||
Gain on sale of a business | — | — | — | (318) | |||||||||||
Metal price lag expense (income) | 13 | (1) | (21) | 5 | |||||||||||
Restructuring and impairment, net | 1 | 25 | 2 | 33 | |||||||||||
Tax effect on special items | (5) | (7) | 2 | 70 | |||||||||||
Net income attributable to our common shareholder, excluding special items | $ | 101 | $ | 138 | $ | 338 | $ | 319 | |||||||
Segment Information (unaudited) | ||||||||||||||||||||||||
The following table shows selected segment financial information (in millions, except shipments which are in kilotonnes). | ||||||||||||||||||||||||
Selected Operating Results Three Months Ended December 31, 2018 | North | Europe | Asia | South | Eliminations and Other | Total | ||||||||||||||||||
Adjusted EBITDA | $ | 125 | $ | 48 | $ | 49 | $ | 100 | $ | — | $ | 322 | ||||||||||||
Shipments (in kt) | ||||||||||||||||||||||||
Rolled products - third party | 279 | 206 | 176 | 139 | — | 800 | ||||||||||||||||||
Rolled products - intersegment | — | 5 | 6 | 3 | (14) | — | ||||||||||||||||||
Total rolled products | 279 | 211 | 182 | 142 | (14) | 800 | ||||||||||||||||||
Selected Operating Results Three Months Ended December 31, 2017 | North | Europe | Asia | South | Eliminations and Other | Total | ||||||||||||||||||
Adjusted EBITDA | $ | 111 | $ | 50 | $ | 43 | $ | 107 | $ | (6) | $ | 305 | ||||||||||||
Shipments (in kt) | ||||||||||||||||||||||||
Rolled products - third party | 268 | 217 | 173 | 138 | — | 796 | ||||||||||||||||||
Rolled products - intersegment | 1 | 5 | 4 | 8 | (18) | — | ||||||||||||||||||
Total rolled products | 269 | 222 | 177 | 146 | (18) | 796 | ||||||||||||||||||
Selected Operating Results Nine Months Ended December 31, 2018 | North | Europe | Asia | South | Eliminations and Other | Total | ||||||||||||||||||
Adjusted EBITDA | $ | 395 | $ | 170 | $ | 151 | $ | 295 | $ | — | $ | 1,011 | ||||||||||||
Shipments (in kt) | ||||||||||||||||||||||||
Rolled products - third party | 848 | 656 | 514 | 386 | — | 2,404 | ||||||||||||||||||
Rolled products - intersegment | — | 16 | 11 | 8 | (35) | — | ||||||||||||||||||
Total rolled products | 848 | 672 | 525 | 394 | (35) | 2,404 | ||||||||||||||||||
Selected Operating Results Nine Months Ended December 31, 2017 | North | Europe | Asia | South | Eliminations and Other | Total | ||||||||||||||||||
Adjusted EBITDA | $ | 351 | $ | 158 | $ | 124 | $ | 269 | $ | (6) | $ | 896 | ||||||||||||
Shipments (in kt) | ||||||||||||||||||||||||
Rolled products - third party | 809 | 682 | 527 | 365 | — | 2,383 | ||||||||||||||||||
Rolled products - intersegment | 7 | 12 | 10 | 22 | (51) | — | ||||||||||||||||||
Total rolled products | 816 | 694 | 537 | 387 | (51) | 2,383 | ||||||||||||||||||
SOURCE Novelis Inc.
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