Novelis’ net income from operations fall 23% for 2QFY23 despite growing net sales, higher input costs being liable

Novelis Inc., the world’s leading recycler and aluminium flat rolled producer announced its second-quarter results for the financial year 2023 on Tuesday, November 8. The company declared its net income attributable to common shareholders decreased by 23 per cent year-on-year to $183 million. Net income from continuing operations also shrank 23 per cent from the prior year to $184 million, while the same, excluding special items, declined 17 per cent Y-o-Y to $203 million, primarily due to lower Adjusted EBITDA.

Adjusted EBITDA lost 8 per cent over the year in 2QFY23 from $553 million to $506 million, owing to higher energy costs and other raw materials prices driven by geopolitical instability, inflation, and global supply chain disruptions. However, these were partially offset by increased aluminium prices, higher production volume, and favourable product mix.

In contrast to the decline in net income, Novelis’ net sales grew 17 per cent to $4.8 billion in the second quarter of FY23 from $4.1 billion a year ago, attributable to a 2 per cent increase in flat rolled product shipments to 984,000 tonnes. Favourable product mix and higher average aluminium prices also contributed to the increased net income of the company.

"We delivered a solid second quarter despite challenging headwinds from inflation, the stronger US dollar, and reduced metal benefits, with good operational performance that allowed us to capture robust end market demand in the quarter and increase total shipments,” said Steve Fisher, President and CEO, Novelis Inc. "Although the current macro-economic environment is uncertain, we believe long-term demand for sustainable, lightweight, infinitely recyclable aluminum remains intact. We continue to progress our transformational investment strategy to grow with our customers, reaching an exciting milestone in the US with the ground-breaking of our new recycling and rolling plant in Alabama last month."

Adjusted free cash flow from continuing operations also stood lower at $90 million for the first six months of FY23, compared to $158 million during the same period last year. That was due to a negative metal price lag in the current year compared to a positive lag a year earlier, owing to volatile aluminium prices, lower Adjusted EBITDA, and higher capital expenditures.

"While demand for aluminum rolled products broadly remains solid, we expect high energy costs and inflationary impacts to intensify in the near-term," said Devinder Ahuja, Executive Vice President and CFO, Novelis Inc. "We are actively working with our customers to share these extraordinary inflationary impacts, while also driving operational efficiencies and cost control measures to partially mitigate these macroeconomic headwinds. We also will continue our disciplined approach to maintaining a strong balance sheet, prioritizing and pacing capital spending for our strategic growth initiatives that we believe will allow us to grow over the long term."

The company had a strong Total Liquidity position of $2.8 billion as of September 30, 2022.