Novelis’ net sales fall to $4.2 billion in 3QFY23 due to 2% drop in shipments

Novelis Inc., a top provider of sustainable aluminium solutions and a global pioneer in the rolling and recycling of aluminium, released its third-quarter financial 2023 results. As per the results, net income attributable to its common shareholders fell by 95 per cent from the preceding year to $12 million, primarily due to lower adjusted EBITDA and an adverse metal price lag brought on by the current year's declining aluminium local market premiums.

In comparison to the same period last year, net sales for the third quarter of FY2023 dropped by 3 per cent to $4.2 billion from $4.3 billion, primarily due to lower average aluminium prices and a 2 per cent decline in total shipments of flat rolled products to 908 kilotonnes.

However, higher product pricing and a more favourable product mix partially offset these factors. Lower beverage can shipments as clients reduce their inventories and adapt to more normalised levels of can demand post-pandemic, as well as slower demand for speciality goods in this more challenging macroeconomic climate, are the fundamental causes of the drop in shipments. In contrast, fewer supply chain restrictions—including more semiconductor availability—led to increased vehicle export volume over the previous year.

Net income from continuing operations during the third quarter of the fiscal year 2023 (FY2023) plunged by 60 per cent Y-o-Y to $96 million after excluding exceptional items in both years, principally because of lower adjusted EBITDA. On a Y-o-Y calculation, the adjusted EBITDA for the third quarter of FY2023 fell 33 per cent to $341 million from $506 million in the same quarter of the previous year, driven by an exceptionally high inflation environment and increased energy prices as a result of geopolitical unrest.

The results were influenced by less favourable metal advantages from recycling, adverse foreign currency, and reduced volume. An upbeat product mix and better product price, which included some higher cost pass-through to customers, offset these challenges.

"As expected, our results were pressured by continued unprecedented inflationary headwinds but were also further impacted by lower shipments resulting from significantly larger than anticipated customer inventory reduction actions in the beverage packaging market. We will continue to address these short-term challenges while remaining focused on building for our future in a prudent manner. Importantly, we believe the underlying demand fundamentals driven by increasing consumer preferences for lightweight, sustainable aluminum solutions in all our key end markets remains unchanged," said Steve Fisher, President and CEO of Novelis Inc.

For the first nine months of FY2023, adjusted free cash flow from continuing operations was negative $158 million, as opposed to being positive $217 million at the same time last year. Lower adjusted EBITDA, greater capital expenditures, and an unfavourable metal price lag in the current year compared to a favourable lag in the preceding year are the leading causes of the decline. After the third quarter of the fiscal year 2023, the company's net leverage ratio (Net Debt / TTM Adjusted EBITDA) was 2.6x, up from 2.3x in the same quarter the previous year.

"We are navigating a challenging period of intensified inflationary headwinds, and continuing to implement cost control measures and work with our customers to share these extraordinary inflation impacts. We see some of these inflated costs gradually settling down, however, we are applying a disciplined approach to capital expenditures and working capital that will allow us to maintain a strong balance sheet through these near-term headwinds while strategically investing in projects to drive future growth,” mentioned Dev Ahuja, Executive Vice President and CFO, Novelis Inc.