Novelis Inc., the world leader in aluminum rolling and recycling, today reported a net loss attributed to its common shareholder of $37 million, down 130 percent versus the prior year due to a $181 million net loss associated with discontinued operations. Net income from continuing operations increased 17 percent versus the prior year to $144 million for the second quarter of fiscal year 2021. Excluding tax-effected special items in both years, second quarter fiscal 2021 net income was $158 million, down one percent versus the prior year period, as higher after-tax Adjusted EBITDA was offset by higher depreciation, amortization, and interest expense mainly associated with the acquisition of Aleris.
Second quarter results reflect outstanding operational performance, flexible and efficient customer service, and the ability to meet rapid recovery in customer demand across end markets, with total flat rolled product shipments up 19 percent sequentially as compared to the first quarter of fiscal 2021. The recovery is most pronounced in the automotive market, with second quarter automotive shipments double compared to the first quarter, led by North America and the second consecutive quarter of record automotive shipments in Asia. In South America, increased at-home beverage consumption has significantly shifted package mix towards aluminum cans, resulting in record shipments in this segment. While the COVID-19 pandemic has caused muted demand in the aerospace market, the North American building and construction market has rebounded quickly, exiting the quarter at pre-pandemic levels. The company is also encouraged by the improving demand levels across several other specialty markets, including electronics, coffee capsules and painted products.
"Our outstanding performance this quarter was largely driven by our ability to effectively manage our business and work with customers to meet a sharp increase in demand," said Steve Fisher, President and CEO, Novelis Inc. "While future economic implications resulting from the pandemic remain uncertain, our diverse product portfolio, geographic footprint, and strong financial position will enable Novelis to continue to successfully meet customer needs and continue to invest in our business."
Net sales increased four percent from the prior year period to $3.0 billion for the second quarter of fiscal 2021, primarily driven by an eleven percent increase in shipments, partially offset by lower average aluminum prices. Total flat rolled product shipments increased to a record 923 kilotonnes, mainly reflecting the addition of the acquired Aleris business.
Adjusted EBITDA increased 22 percent to a record $455 million in the second quarter of fiscal 2021 compared to $374 million in the prior year period. Adjusted EBITDA increased versus the prior year even before the positive EBITDA contribution from the acquired Aleris business or acquisition synergies, driven by targeted cost control initiatives, as well as favorable metal costs. On a consolidated per ton basis, Novelis achieved a record EBITDA per ton of $493 in the quarter.
Year-to-date fiscal 2021 free cash flow of $132 million compares to $18 million in the prior year period, driven primarily by lower capital expenditures and working capital, partially offset by lower Adjusted EBITDA, negative metal price lag, and exceptional items recorded in the first quarter fiscal 2021. Capital expenditures decreased versus the prior year to $222 million, as the company reduces and defers non-strategic capital spending to prioritize cash.
| Three Months EndedSeptember 30, | Six Months EndedSeptember 30, | ||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||
| 113 | 143 | 222 | 305 | ||||||||||
| Free cash flow before capital expenditures | $ | 396 | $ | 255 | $ | 354 | $ | 323 | |||||
"Our financial strength, particularly as it relates to cash flow generation, is enabling us to move forward with our strategic plans to invest in new capacity and grow the business," said Devinder Ahuja, Senior Vice President and Chief Financial Officer, Novelis Inc. "We also remain committed to reducing net leverage and total debt, while maintaining ample liquidity levels that allow us to adapt quickly to changes in customer demand during these unprecedented times."
As of September 30, 2020, the company reported a strong total liquidity position of $2.6 billion. Net leverage improved during the quarter to 3.7x, compared to 3.8x at the end of the first fiscal quarter.
COVID-19 Response
Novelis' primary focus remains the health and well-being of its employees. The company is closely monitoring the changing landscape with respect to the COVID-19 pandemic and taking actions to manage its business and support customers. Novelis has bolstered its Environmental Health and Safety protocols to align with guidance from global health authorities and government agencies across company operations to help ensure the safety of its employees, customers, suppliers, communities and other stakeholders. While customer demand recovered across many end markets during its fiscal second quarter, Novelis is actively managing its costs and continues to work closely with customers to leverage its global manufacturing footprint and adjust production levels to meet their needs.
Update on Aleris Acquisition and Required DivestmentsOn April 14, 2020, Novelis closed its acquisition of Aleris Corporation and is integrating the two companies to drive a number of strategic benefits and allow for at least $180 million in potential annual synergies. The results from continuing operations reported today for the period ending September 30, 2020 reflect the acquired businesses. Results related to the Duffel and Lewisport plants are reflected as results from discontinued operations. The company filed a form 8-K/A with the Securities and Exchange Commission on June 30, 2020, providing historical and pro forma financial information related to the acquisition.
On September 30, 2020, Novelis completed the required divestment of the Duffel plant to ALVANCE, the international aluminum business of the GFG Alliance. On November 8, 2020, Novelis signed an agreement to sell the Lewisport automotive body sheet business to American Industrial Partners, a private equity firm, for estimated net cash proceeds of approximately $171 million. With divestments now complete, Novelis is focusing on integration of the continuing operations to drive value creation. Novelis' acquisition of Aleris provides a strong pro-forma financial profile, many strategic benefits, namely securing an integrated manufacturing footprint in China, further portfolio diversification with the addition of aerospace and building and construction, well as new technology and operational capabilities. The acquisition continues to be value accretive, with the long term outlook in line with the original acquisition case.
About Novelis
Novelis Inc. is driven by its purpose to shape a sustainable world together. As a global leader in innovative products and services and the world's largest recycler of aluminum, we partner with customers in the aerospace, automotive, beverage can and specialties industries to deliver solutions that maximize the benefits of lightweight aluminum throughout North America, Europe, Asia and South America. Novelis is a subsidiary of Hindalco Industries Limited, an industry leader in aluminum and copper, and the metals flagship company of the Aditya Birla Group, a multinational conglomerate based in Mumbai, India. For more information, visit novelis.com.
