Novelis sees net income rise despite flat shipments

Aluminum rolling and recycling company Novelis Inc., Atlanta, has reported a year-over-year increase in net income for the third quarter of its 2022 fiscal year, which ended Dec. 31, 2021. The company’s Q3 2022 net income attributable to its common shareholder of $262 million increased $86 million from $176 million in the prior-year period, while its net income from continuing operations increased to $259 million from $195 million in the prior-year period. Excluding special items in both years, third-quarter fiscal year 2022 net income from continuing operations increased 15 percent to $241 million, driven mainly by lower interest expense and unrealized derivative gains in the current year, the company says.

Net sales increased 33 percent to $4.3 billion for the third quarter of fiscal year 2022 compared with $3.2 billion in the prior-year period, primarily driven by higher average aluminum prices. Flat-rolled product shipments totaled 930,000 metric tons in the third quarter of fiscal year 2022, in line with the prior-year quarterly shipments of 933,000 metric tons. Novelis says shipment growth was constrained by the continued semiconductor chip shortage that has affected the automotive industry.

Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) increased 1 percent to $506 million in the third quarter of fiscal year 2022 compared to $501 million in the prior-year period, according to the company, which included a $25 million customer contractual obligation benefit. The underlying increase in adjusted EBITDA is primarily because of favorable product pricing and mix, as well as favorable metal benefits, which mitigated inflationary cost pressures and supply chain disruption-related costs, the company adds. Adjusted EBITDA per ton shipped increased to $544 in the third quarter of fiscal year 2022 compared with $537 in the prior-year period.

"Our strong third-quarter results reflect our team's ability to deftly navigate headwinds mainly arising from global supply chain disruptions," says Steve Fisher, the company’s president and chief executive officer. "We will continue to manage through these challenges while keeping our eyes on our strategic growth path and meeting growing demand for high-recycled-content, sustainable aluminum products."

Since October 2021, Novelis has announced several capital expansion projects designed to increase capacity and capabilities and achieve its sustainability goal to become net carbon-neutral by 2050. In January 2022, Novelis announced plans to build a $365 million recycling center for the U.S. automotive market in Guthrie, Kentucky. With an annual casting capacity of 240,000 metric tons of sheet ingot, Novelis says it expects the facility will enable it to grow closed-loop recycling programs with more automotive customers in North America and reduce the company's carbon emissions by more than 1 million tons annually. Previously, the company announced strategic growth capital projects totaling approximately $500 million, including a $375 million investment to expand its rolling and recycling capabilities in Zhenjiang, China, and a $130 million investment at its Oswego, New York, plant to increase hot mill capacity and enhance automotive sheet finishing capabilities. Novelis says it expects these projects to begin during the 2022 calendar year and begin commissioning in 2024.

Beatriz Landa, vice president of Metal Procurement & Recycling for Novelis North America, tells Recycling Today the investment in Guthrie, Kentucky, will allow Novelis to create its own recycled ingots for use in the automotive market, enabling the company to be more sustainable and more independent in the market. 

Fiscal year-to-date adjusted free cash flow from continuing operations was $217 million compared with $331 million in the prior-year period. Significantly higher working capital requirements, largely because of rising aluminum prices in fiscal 2022, were partially offset by higher adjusted EBITDA and favorable metal price lag, according to the company.

"Novelis has generated more than $1 billion in trailing-12-month adjusted free cash flow before capital investments, despite the significant impact from higher aluminum prices this year," says Devinder Ahuja, Novelis executive vice president and chief financial officer. "Continued strong cash generation, coupled with our disciplined capital allocation strategy, enables us to continue to strategically invest in sustainably growing the business while remaining  within our targeted net leverage range."