Novelis sees record automotive shipments in fiscal 2016

Atlanta-based Novelis has reported net income of $29 million for the fourth quarter of its 2016 fiscal year. Excluding tax-effected special items, the company reported net income of $50 million in the fourth quarter of fiscal 2016, a 35 percent increase over the prior year period. For fiscal 2016, the company recorded a net loss of $38 million. Excluding tax-effected special items, net income was $131 million for the full year, the company says.

Shipments of rolled aluminum products grew 4 percent to 788 kilotons in the fourth quarter of fiscal 2016. Despite higher shipments, revenues decreased 14 percent to $2.4 billion as a result of lower average aluminum prices and local market premiums.

“We ended fiscal 2016 with strong operational performance globally, enabling us to achieve record total shipments and automotive sheet shipments for the year,” says Steve Fisher, Novelis president and CEO. “This volume growth and our portfolio management strategy translated into our highest full year EBITDA (earnings before interest, taxes, depreciation and amortization), excluding metal price lag since fiscal 2012.”

Fisher continues, “Heading into fiscal 2017, we remain focused on driving asset efficiency as well as managing costs and working capital. In addition, we will continue to strengthen our product portfolio through further growth in the premium automotive sheet segment while continuing to deliver quality products and service to all of our customers.”

Excluding the impact of metal price lag, adjusted EBITDA was $277 million in the fourth quarter of fiscal 2016, up 29 percent compared with $214 million in the prior year. This increase was a result of record global shipments in a seasonally strong quarter, as well as positive product mix primarily driven by a 23 percent increase in automotive shipments over the prior year. The strong fourth quarter EBITDA improvement also was driven by operational performance and favorable currency effects, resulting in the highest quarterly EBITDA since fiscal 2012. In addition, the company demonstrated operating leverage on record shipments, achieving EBITDA per ton excluding metal price lag above $350, a 25 percent increase over the prior year.

The company reported negative metal price lag of $7 million in the fourth quarter of fiscal 2016 as compared with negative $13 million in the prior year period. Volatility in average local market metal premiums has greatly reduced over the last several months, lessening the impact of metal price lag on current results as expected, according to Novelis. Adjusted EBITDA including metal price lag was $270 million, a 34 percent increase over $201 million in the prior year.

Higher shipments of beverage can and automotive sheet drove total flat rolled aluminum product shipments up 2 percent to 3,123 kilotons in fiscal 2016. For the full fiscal year, the percentage of the company’s shipment portfolio stemming from automotive sheet grew to 15 percent, up from 11 percent in the prior year. By the end of fiscal 2016, all five of the company’s recently constructed automotive finishing lines were producing and shipping automotive sheet products to customers. When all of these automotive finishing lines are fully utilized, automotive shipments will grow to approximately 25 percent of total shipments, Novelis says.

Revenues decreased 11 percent to $9.9 billion in fiscal 2016, as higher shipments were more than offset by a 16 percent decrease in average base aluminum prices and a 58 percent decrease in local market premiums.

The rapid decline in local market premiums over the early months of fiscal 2016 resulted in $172 million in negative metal price lag for the full year, and was the primary driver of the 12 percent decrease in adjusted EBITDA to $791 million in fiscal 2016. Although the company uses derivatives contracts to minimize the price lag associated with LME (London Metal Exchange) base aluminum prices, adequate cost-effective hedges are not available for local market premiums, the company says.

Excluding the impact of metal price lag in both years, adjusted EBITDA was $963 million in fiscal 2016, up 7 percent compared to $896 million in fiscal 2015. The increase was driven by strong operational performance, higher total shipments, product mix benefits mainly the result of a 47 percent increase in automotive shipments, and favorable foreign exchange in Brazil. Current year results were partially offset by less favorable recycling benefits due to significantly lower aluminum prices as compared to the prior year, as well as general inflation and higher fixed costs associated with new automotive and recycling operations.

The company more than doubled its free cash flow as compared with the prior year, generating $160 million in fiscal 2016 after investing $370 million in capital expenditures. “Our strong cash flow performance for the year was a result of our improved operating results, effective working capital management and disciplined capital spending,” says Steve Pohl, interim chief financial officer for Novelis. “For fiscal 2017, we anticipate even stronger cash flow generation as EBITDA expands and capital expenditures decrease to approximately $250 million.”

As of March 31, 2016, the company reported liquidity of $1.2 billion.

Novelis Inc. is a global leader in aluminum rolled products and the world’s largest recycler of aluminum. The company operates in 11 countries, has approximately 12,000 employees and reported $10 billion in revenue for its 2016 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.