Novelis’ aluminum shipments decline 7 percent in Q4 of fiscal 2020

　　Excluding tax-effected special items in both years, the company grew its fourth-quarter fiscal 2020 net income 18 percent to $153 million and its full-year net income by 26 percent to $590 million. The increase for both the quarter and year is primarily because of higher adjusted earnings before interest, taxes, depreciate and amortization (EBITDA) and lower interest expense.

　　"Our strategy to invest in our operations and our people has delivered four consecutive years of record financial results and an exceptionally strong balance sheet,” says Steve Fisher, president and CEO, Novelis Inc., in the news release announcing the company's earnings. “It is this solid foundation, coupled with an unwavering commitment to our purpose of shaping a sustainable world together, that will help us safely and successfully navigate the challenges posed by the novel coronavirus and extend our leadership position in the aluminum industry.

　　“In addition, with the acquisition of Aleris now complete, I am more confident than ever that our diverse product portfolio, global footprint, deep customer relationships, reliable assets and disciplined investments will deliver even more value to our customers and shareholders moving forward,” he adds.

　　Q4 highlights

　　Net sales for the recently completed fourth quarter decreased 12 percent from Q4 of 2019 to $2.7 billion. Lower average London Metal Exchange (LME) aluminum prices and local market premiums and a 7 percent decline in shipments drove the decrease, according to the company. The decline in flat-rolled product shipments to 811,000 metric tons was against a very strong prior-year record level and partially because of the initial impacts from COVID-19-related disruptions in March.

　　Adjusted EBITDA increased 7 percent to $383 million in the fourth quarter of fiscal 2020 compared with $357 million in the prior-year period. The current quarter includes a cumulative positive impact of $29 million from a contractual customer obligation pertaining to the full fiscal year. Other favorable drivers for the year-over-year improvement include lower metal and other operating costs, lower selling, general and administrative expenses and favorable foreign exchange, mostly offset by lower shipments, Novelis reports.

　　Full-year highlights

　　Net sales decreased 9 percent from the prior year to $11.2 billion for the full year driven by lower average LME aluminum prices and local market premiums. Flat-rolled product shipments were flat compared with the prior year at 3.28 million metric tons, the company says.

　　Adjusted EBITDA increased 8 percent to a record $1,472 million in fiscal 2020 compared with $1,368 million in the prior year, Novelis reports, primarily driven by portfolio optimization efforts, favorable North American Specialties product pricing, operating cost efficiencies and favorable foreign exchange, partially offset by less favorable recycling benefits due to lower aluminum prices.

　　Fiscal 2020 free cash flow before capital expenditures improved 30 percent over the prior year to $983 million, driven primarily by higher adjusted EBITDA and favorable working capital. Capital expenditures increased to $599 million for the fiscal year ended 2020, mainly to support strategic investments in incremental rolling, recycling and automotive finishing capacity, the company says. As a result of this increased capital spending, fiscal 2020 free cash flow of $384 million compares with $408 million in the prior year period.

　　In fiscal 2020, the company’s shipment mix was 66 percent can, 19 percent automotive and 15 percent specialty, according to the earnings call to review its financial results. Fisher said the can segment provides a “resilient backstop” as it is “a more recessionary resistant end market.”

　　During the call, Fisher said the company continues to invest in its recycling capabilities “to secure our metals supply, manage costs and support the sustainability goals of our customers by utilizing high levels of recycled content.” He said the company’s products contained 60 percent recycled content in fiscal 2020, adding that that was a “significant increase from 49 percent just five years ago.” ?

　　"We entered a period of challenging market conditions in a position of strength with ample cash and liquidity," says Devinder Ahuja, Novelis senior vice president and chief financial officer. "We remain committed to completing our strategic capacity expansion projects to position the company for long-term growth while at the same time taking decisive steps to reduce costs and prioritize capital spend to ensure Novelis is positioned to continue to drive sustainable growth."

　　As of March 31, the company reported a strong total liquidity position of $2.6 billion, including $400 million in cash used to partially fund the Aleris acquisition in April 2020 and reduced its net leverage ratio to 2.1 times as compared with 2.5 times in the prior-year period.

　　COVID-19 response

　　Novelis says it is experiencing increasing disruption to its global aluminum production and supply chain–including the shutdown of some of our plants—as a result of government decrees and some customers temporarily shutting down their own manufacturing operations in response to the COVID-19 pandemic. The extent to which the pandemic impacts the business and its financial condition will depend on future developments that the company says are highly uncertain and cannot be predicted.

　　Novelis says it expects anticipated lower demand to negatively affect its sales in the near term, particularly in the automotive segment. The company has slowed the expansion of its automotive finishing plants in U.S. and China in response to reduced automotive demand arising from the COVID-19 outbreak, Fisher said in the conference call.

　　However, the company says it has several strategic advantages that make it confidence in its ability to maintain business continuity for the long term because of its strong balance sheet, diverse product mix and global operating footprint. Novelis adds that it is working closely with relevant parties to address challenges and making decisions that are in the best interest of its employees, customers and communities.

　　Aleris acquisition

　　Novelis closed its acquisition of Cleveland-based Aleris Corp. April 14 and says it has begun integrating the two companies. The acquisition provides many strategic benefits, including product portfolio diversification with the entry into high-value aerospace, an enhanced strategic position in Asia and approximately $150 million in potential annual cost synergies, according to the company.

　　Fisher said the purchase also expands Novelis’ capabilities by adding a high-recycled-content building and construction business.

　　The financial results it is reporting now reflect legacy Novelis stand-alone performance. Novelis says it will report combined company results beginning in the first quarter fiscal 2021, for the period ending June 30.