3 November
ATLANTA,
Press Release

World’s Leading Producer of Aluminum Rolled Products Credits Continued Success of Operational Efficiency Initiatives for the Higher Results

Novelis Inc., the world’s leading producer of aluminum rolled products, today reported net income attributable to its common shareholder of $195 million for the second quarter of fiscal 2010 ended September 30, 2009, a 36 percent increase over net income of $143 million reported for the immediately preceding first fiscal quarter. Second quarter net income for the current year compares to a net loss of $104 million reported for the same period a year ago.

Results for the second fiscal quarter included $254 million of unrealized gains on derivatives as compared to $299 million of gains in the immediately preceding first quarter of fiscal 2010, and $221 million of losses in the corresponding three-month period a year ago. The company uses these derivatives primarily to hedge exposures to fluctuations in aluminum prices related to customer fixed-price contracts as well as fluctuations in other commodities and currencies.

Shipments of aluminum rolled products totaled 693 kilotonnes for the quarter, an increase of nearly 7 percent over shipments of 650 kilotonnes for the immediately preceding first quarter. Shipments increased across each of the company’s four geographic regions, with the most significant increases in sequential quarter shipments recorded in Europe and South America.

Net sales for the second quarter reached $2.2 billion, an increase of more than 11 percent over net sales for the immediately preceding first quarter of fiscal 2010, driven primarily by higher metal prices and modest increases in demand. Net sales for this year’s second quarter were 26 percent lower than net sales of $3.1 billion posted during the same period a year ago, the result of industry-wide reductions in year-over-year demand for aluminum and the corresponding impact of lower metal prices.

"I am pleased to report that Novelis continued to make strong improvements in virtually all aspects of operational performance during the most recently completed quarter," said Phil Martens, President and Chief Operating Officer for the company. "I am particularly pleased that the effects of our cash management and operational efficiency initiatives continue to generate measurable returns across Novelis' global operations. We believe these initiatives are gaining traction as we continue to refine our business model, positioning Novelis for improved performance as we prepare to take advantage of future growth in demand for our premium rolled products around the globe."

Financial highlights of the company’s overall performance for the second fiscal quarter include:

Pre-tax earnings of $301 million for the second fiscal quarter grew 10 percent over the $273 million in pre-tax earnings recorded for the first quarter of the fiscal year, and compare to a pre-tax loss of $272 million posted for the same period a year ago.
 
Adjusted EBITDA for the second quarter of fiscal 2010 grew to $200 million, an increase of 61 percent over adjusted EBITDA of $124 million recorded for the first quarter of the fiscal year, and an increase of 125 percent over adjusted EBITDA of $89 million posted for the same three-month period a year ago. 
Liquidity improved to $555 million at the end of the second fiscal quarter, representing an increase of $109 million, or 24 percent, over liquidity of $446 million reported at the close of the first fiscal quarter. The improved liquidity resulted primarily from net cash generated from operating activities and proceeds from the completion of the company’s $185 million offering of Senior Unsecured Notes on August 11, 2009, $94 million of which was used to pay down other debt.
 
Steve Fisher, Chief Financial Officer for Novelis, pointed to the progress made by the company in reducing conversion costs as a key contributor to Novelis' improved financial results for the second quarter. "We continue to make significant progress in reducing conversion costs through internal cost controls, ongoing restructuring initiatives and the benefits of overall cost deflation," said Fisher. "Among the conversion costs that showed measurable declines again this quarter were costs related to labor, energy, alloys, hardeners and coatings."

Other factors impacting the company’s financial performance for the second quarter include:

Aluminum prices continued to rise during the second quarter, with the average price of aluminum on the London Metal Exchange (LME) in the second quarter reaching $1,805 per metric ton, an increase of 21 percent from the average price on the LME of $1,488 in the first quarter. Despite the rise of aluminum prices over the past few quarters, average prices remain 35 percent lower than the average LME price of $2,792 per metric ton for the same period a year ago. 

Price and product mix improvements more than offset volume reductions as compared to the same three-month period a year ago. 

Second quarter cash flow was reduced by $54 million as a result of metal price ceilings previously negotiated with a major customer which expire at the end of the current calendar year. Effective January 1, 2010, the company’s contracts no longer contain metal price ceilings. 

Second quarter results were also impacted by a $26 million reduction in tax expense related to reserves for withholding tax issues in the U.S. and $3 million in restructuring charges.  
Quarterly Report on Form 10-Q

The results described in this news release have been reported in detail on the company’s Form 10-Q on file with the SEC, and investors are directed to that document for a complete explanation of the company’s financial position and results through September 30, 2009. The Novelis Form 10-Q and other SEC filings are available for review on the company’s website at www.novelis.mediaroom.com under "SEC Filings".

About Novelis

Novelis Inc. is the global leader in aluminum rolled products and aluminum can recycling. The company operates in 11 countries, has approximately 12,000 employees and reported revenue of $10.2 billion in fiscal year 2009. Novelis supplies premium aluminum sheet and foil products to automotive, transportation, packaging, construction, industrial, electronics and printing markets throughout North America, South America, Europe and Asia. Novelis is a subsidiary of Hindalco Industries Limited (BSE: HINDALCO), one of Asia’s largest integrated producers of aluminum and a leading copper producer. Hindalco is a flagship company of the Aditya Birla Group, a multinational conglomerate based in Mumbai, India. For more information, please visit www.novelis.com.