Novelis Inc.

11/06/2024 | Press release | Distributed by Public on 11/06/2024 10:18

Quarterly Report for Quarter Ending September 30, 2024 (Form 10-Q)

nvl-20240930
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2024
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number:001-32312
Novelis Inc.
(Exact name of registrant as specified in its charter)
Canada 98-0442987
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
3550 Peachtree Road NE, Suite 1100
Atlanta, GA
30326
(Address of principal executive offices) (Zip Code)
(404) 760-4000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
N/A N/A N/A
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ¨ No ☒
The registrant is a voluntary filer and is not subject to the filing requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934. However, the registrant has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ¨ Accelerated filer ¨
Non-accelerated filer ☒ Smaller reporting company ¨
Emerging growth company ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ☒
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of November 5, 2024, the registrant had 600,000,000 shares of common stock, no par value, outstanding. All of the registrant's outstanding shares were held indirectly by Hindalco Industries Ltd., the registrant's parent company.
TABLE OF CONTENTS
Commonly Used or Defined Terms
3
PART I-FINANCIAL INFORMATION
Item 1.
Financial Statements (unaudited).
4
Condensed Consolidated Statements of Operations (unaudited)
4
Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited)
5
Condensed Consolidated Balance Sheets (unaudited)
6
Condensed Consolidated Statements of Cash Flows (unaudited)
7
Condensed Consolidated Statements of Shareholder's Equity (unaudited)
8
Notes to the Condensed Consolidated Financial Statements (unaudited)
9
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations.
35
Item 3.
Quantitative and Qualitative Disclosures About Market Risk.
52
Item 4.
Controls and Procedures.
54
PART II-OTHER INFORMATION
Item 1.
Legal Proceedings.
55
Item 1A.
Risk Factors.
55
Item 6.
Exhibits.
56
SIGNATURES
57
2
COMMONLY USED OR DEFINED TERMS
Term Definition
Adjusted EBITDA
As defined in Note 16 - Segment, Geographical Area, Major Customer and Major Supplier Information
AluInfra AluInfra Services SA
Alunorf Aluminium Norf GmbH
ASC FASB Accounting Standards Codification
ASU FASB Accounting Standards Update
ERM Enterprise Risk Management
Exchange Act Securities Exchange Act of 1934, as amended
FASB Financial Accounting Standards Board
fiscal 2007 Fiscal year ended March 31, 2007
fiscal 2016 Fiscal year ended March 31, 2016
fiscal 2020 Fiscal year ended March 31, 2020
fiscal 2022
Fiscal year ended March 31, 2022
fiscal 2023
Fiscal year ended March 31, 2023
fiscal 2024
Fiscal year ended March 31, 2024
fiscal 2025
Fiscal year ending March 31, 2025
fiscal 2026
Fiscal year ending March 31, 2026
Form 10-Q Quarterly Report on Form 10-Q
FRP Flat-rolled products
GAAP Generally Accepted Accounting Principles
Kobe Kobe Steel, Ltd.
kt kilotonne (One kt is 1,000 metric tonnes)
LME The London Metals Exchange
LMP Local market premium
Logan Logan Aluminum Inc.
MMBtu One decatherm or 1 million British Thermal Units
OEM Original equipment manufacturer
PET Polyethylene terephthalate
RSUs Restricted stock units
SARs Stock appreciation rights
SEC United States Securities and Exchange Commission
SG&A Selling, general and administrative expenses
SOFR Secured Overnight Financing Rate
Tri-Arrows Tri-Arrows Aluminum Inc.
UAL Ulsan Aluminum Ltd.
UBC Used beverage can
U.S. United States
U.K. United Kingdom
VIE Variable interest entity
2024 Form 10-K
Our Annual Report on Form 10-K for the fiscal year ended March 31, 2024, as filed with the SEC on May 6, 2024
3
PART I-FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited).
Novelis Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
Three Months Ended
September 30,
Six Months Ended
September 30,
in millions 2024 2023 2024 2023
Net sales $ 4,295 $ 4,107 $ 8,482 $ 8,198
Cost of goods sold (exclusive of depreciation and amortization) 3,610 3,477 7,091 6,978
Selling, general and administrative expenses 183 182 364 356
Depreciation and amortization 141 136 281 267
Interest expense and amortization of debt issuance costs 72 78 144 155
Research and development expenses 25 23 50 48
Loss on extinguishment of debt, net
- 5 - 5
Restructuring and impairment expenses, net
21 4 40 7
Equity in net income of non-consolidated affiliates
(2) (4) (3) (7)
Other expenses (income), net
65 (2) 125 (29)
4,115 3,899 8,092 7,780
Income before income tax provision
180 208 390 418
Income tax provision
51 51 111 105
Net income
129 157 279 313
Net income attributable to noncontrolling interests
1 - - -
Net income attributable to our common shareholder
$ 128 $ 157 $ 279 $ 313
____________________
See accompanying notes to the condensed consolidated financial statements.
4
Novelis Inc.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (unaudited)
Three Months Ended
September 30,
Six Months Ended
September 30,
in millions 2024 2023 2024 2023
Net income
$ 129 $ 157 $ 279 $ 313
Other comprehensive income (loss):
Currency translation adjustment 138 (63) 116 (79)
Net change in fair value of effective portion of cash flow hedges (12) (251) (44) (84)
Net change in pension and other benefits (4) (3) (7) (7)
Other comprehensive income (loss) before income tax effect
122 (317) 65 (170)
Income tax benefit related to items of other comprehensive income (loss)
- (68) (10) (26)
Other comprehensive income (loss), net of tax
122 (249) 75 (144)
Comprehensive income (loss)
251 (92) 354 169
Comprehensive loss attributable to noncontrolling interests, net of tax
- - (1) -
Comprehensive income (loss) attributable to our common shareholder
$ 251 $ (92) $ 355 $ 169
____________________
See accompanying notes to the condensed consolidated financial statements.
5
Novelis Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
in millions, except number of shares September 30,
2024 		March 31,
2024
ASSETS
Current assets:
Cash and cash equivalents $ 1,071 $ 1,309
Accounts receivable, net
- third parties (net of allowance for credit losses of $7 as of September 30, 2024, and March 31, 2024)
2,030 1,760
- related parties 138 161
Inventories 2,832 2,515
Prepaid expenses and other current assets 136 152
Fair value of derivative instruments 123 45
Assets held for sale 3 1
Total current assets 6,333 5,943
Property, plant and equipment, net 6,253 5,741
Goodwill 1,077 1,074
Intangible assets, net 526 545
Investment in and advances to non-consolidated affiliates 952 905
Deferred income tax assets 143 143
Other long-term assets
- third parties 271 274
- related parties 5 3
Total assets $ 15,560 $ 14,628
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Current portion of long-term debt $ 30 $ 33
Short-term borrowings 868 759
Accounts payable
- third parties 3,419 2,992
- related parties 292 280
Fair value of derivative instruments 222 144
Accrued expenses and other current liabilities 587 627
Total current liabilities 5,418 4,835
Long-term debt, net of current portion 4,889 4,866
Deferred income tax liabilities 246 253
Accrued postretirement benefits 544 559
Other long-term liabilities 299 305
Total liabilities 11,396 10,818
Commitments and contingencies
Shareholder's equity:
Common stock, no par value; Unlimited number of shares authorized; 600,000,000 shares issued and outstanding as of September 30, 2024, and March 31, 2024
- -
Additional paid-in capital 1,108 1,108
Retained earnings
3,351 3,072
Accumulated other comprehensive loss
(305) (381)
Total equity of our common shareholder 4,154 3,799
Noncontrolling interests 10 11
Total equity 4,164 3,810
Total liabilities and equity $ 15,560 $ 14,628
____________________
See accompanying notes to the condensed consolidated financial statements. Refer to Note 4 - Consolidationfor information on our consolidated VIE.
6
Novelis Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Six Months Ended
September 30,
in millions 2024 2023
OPERATING ACTIVITIES
Net income
$ 279 $ 313
Adjustments to determine net cash provided by operating activities:
Depreciation and amortization 281 267
(Gain) loss on unrealized derivatives and other realized derivatives in investing activities, net
(46) 10
Loss on sale or disposal of assets, net
2 -
Non-cash restructuring and impairment charges 33 3
Loss on extinguishment of debt, net
- 5
Deferred income taxes, net - 23
Equity in net income of non-consolidated affiliates (3) (7)
Loss (gain) on foreign exchange remeasurement of debt
15 (6)
Amortization of debt issuance costs and carrying value adjustments 6 7
Non-cash charges related to Sierre flooding 42 -
Other, net 2 3
Changes in assets and liabilities including assets and liabilities held for sale:
Accounts receivable (202) (90)
Inventories (289) (72)
Accounts payable 341 (110)
Other assets 21 21
Other liabilities (108) (77)
Net cash provided by operating activities
$ 374 $ 290
INVESTING ACTIVITIES
Capital expenditures $ (717) $ (618)
(Outflows) proceeds from investment in and advances to non-consolidated affiliates, net
(7) 12
(Outflows) proceeds from the settlement of derivative instruments, net
(1) 8
Other 6 8
Net cash used in investing activities
$ (719) $ (590)
FINANCING ACTIVITIES
Proceeds from issuance of long-term and short-term borrowings $ 64 $ 532
Principal payments of long-term and short-term borrowings (68) (531)
Revolving credit facilities and other, net 106 (24)
Debt issuance costs - (3)
Net cash provided by (used in) financing activities
$ 102 $ (26)
Net decrease in cash, cash equivalents and restricted cash
(243) (326)
Effect of exchange rate changes on cash 2 (14)
Cash, cash equivalents and restricted cash - beginning of period 1,322 1,511
Cash, cash equivalents and restricted cash - end of period $ 1,081 $ 1,171
Cash and cash equivalents $ 1,071 $ 1,158
Restricted cash (included in other long-term assets)
10 13
Cash, cash equivalents and restricted cash - end of period $ 1,081 $ 1,171
Supplemental Disclosures:
Accrued capital expenditures $ 250 $ 176
Leased assets obtained in exchange for new operating lease liabilities 13 6
____________________
See accompanying notes to the condensed consolidated financial statements.
7
Novelis Inc.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY (unaudited)
Equity of our Common Shareholder
Common Stock Additional Paid-in Capital
Retained Earnings
Accumulated Other Comprehensive Loss
Noncontrolling Interests Total Equity
in millions, except number of shares Shares Amount
Balance as of March 31, 2023
600,000,000 $ - $ 1,208 $ 2,472 $ (238) $ 12 $ 3,454
Net income attributable to our common shareholder
- - - 313 - - 313
Currency translation adjustment included in other comprehensive income (loss)
- - - - (79) - (79)
Change in fair value of effective portion of cash flow hedges, net of tax benefit of $24 included in other comprehensive income (loss)
- - - - (60) - (60)
Change in pension and other benefits, net of tax benefit of $2 included in other comprehensive income (loss)
- - - - (5) - (5)
Balance as of September 30, 2023
600,000,000 $ - $ 1,208 $ 2,785 $ (382) $ 12 $ 3,623
Equity of our Common Shareholder
Common Stock Additional Paid-in Capital
Retained Earnings
Accumulated Other Comprehensive Loss
Noncontrolling Interests Total Equity
Shares Amount
Balance as of March 31, 2024
600,000,000 $ - $ 1,108 $ 3,072 $ (381) $ 11 $ 3,810
Net income attributable to our common shareholder
- - - 279 - - 279
Currency translation adjustment included in other comprehensive income (loss)
- - - - 116 - 116
Change in fair value of effective portion of cash flow hedges, net of tax benefit of $9 included in other comprehensive income (loss)
- - - - (35) - (35)
Change in pension and other benefits, net of tax benefit of $1 included in other comprehensive income (loss)
- - - - (5) (1) (6)
Balance as of September 30, 2024
600,000,000 $ - $ 1,108 $ 3,351 $ (305) $ 10 $ 4,164
Equity of our Common Shareholder
Common Stock Additional Paid-in Capital
Retained Earnings
Accumulated Other Comprehensive Loss
Noncontrolling Interests Total Equity
Shares Amount
Balance as of June 30, 2023
600,000,000 $ - $ 1,208 $ 2,628 $ (133) $ 12 $ 3,715
Net income attributable to our common shareholder
- - - 157 - - 157
Currency translation adjustment included in other comprehensive income (loss)
- - - - (63) - (63)
Change in fair value of effective portion of cash flow hedges, net of tax benefit of $67 included in other comprehensive income (loss)
- - - - (184) - (184)
Change in pension and other benefits, net of tax benefit of $1 included in other comprehensive income (loss)
- - - - (2) - (2)
Balance as of September 30, 2023
600,000,000 $ - $ 1,208 $ 2,785 $ (382) $ 12 $ 3,623
Equity of our Common Shareholder
Common Stock Additional Paid-in Capital
Retained Earnings
Accumulated Other Comprehensive Loss
Noncontrolling Interests Total Equity
Shares Amount
Balance as of June 30, 2024
600,000,000 $ - $ 1,108 $ 3,223 $ (428) $ 10 $ 3,913
Net income attributable to our common shareholder
- - - 128 - - 128
Net income attributable to noncontrolling interests
- - - - - 1 1
Currency translation adjustment included in other comprehensive income (loss)
- - - - 138 - 138
Change in fair value of effective portion of cash flow hedges, net of tax provision of $0 included in other comprehensive income (loss)
- - - - (12) - (12)
Change in pension and other benefits, net of tax provision of $0 included in other comprehensive income (loss)
- - - - (3) (1) (4)
Balance as of September 30, 2024
600,000,000 $ - $ 1,108 $ 3,351 $ (305) $ 10 $ 4,164
____________________
See accompanying notes to the condensed consolidated financial statements.
8
Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
References herein to "Novelis," the "Company," "we," "our," or "us" refer to Novelis Inc. and its subsidiaries unless the context specifically indicates otherwise. References herein to "Hindalco" refer to Hindalco Industries Limited. Hindalco acquired Novelis in May 2007. All of the common shares of Novelis are owned directly by AV Minerals (Netherlands) N.V. and indirectly by Hindalco.
All tonnages are stated in metric tonnes. One metric tonne is equivalent to 2,204.6 pounds. One kt is 1,000 metric tonnes.
Organization and Description of Business
We produce aluminum sheet and light gauge products for use in the packaging market, which includes beverage and food can and foil products, as well as for use in the automotive, transportation, aerospace, electronics, architectural, and industrial product markets. As of September 30, 2024, we had manufacturing operations in nine countries on four continents: North America, South America, Asia, and Europe, through 31 operating facilities, which may include any combination of hot or cold rolling, finishing, casting, or recycling capabilities. We have recycling operations in 14 of our operating facilities to recycle post-consumer aluminum, such as UBCs, and post-industrial aluminum, such as class scrap.
Basis of Presentation
The condensed consolidated balance sheet data as of March 31, 2024, was derived from the March 31, 2024, audited financial statements but does not include all disclosures required by U.S. GAAP. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and accompanying notes in our 2024 Form 10-K. Management believes that all adjustments necessary for the fair statement of results, consisting of normally recurring items, have been included in the unaudited condensed consolidated financial statements for the interim periods presented.
Consolidation Policy
Our condensed consolidated financial statements have been prepared in accordance with U.S. GAAP and include the assets, liabilities, revenues, and expenses of all wholly owned subsidiaries, majority-owned subsidiaries over which we exercise control, and entities in which we have a controlling financial interest or are deemed to be the primary beneficiary. We eliminate intercompany accounts and transactions from our condensed consolidated financial statements.
We use the equity method to account for our investments in entities that we do not control but have the ability to exercise significant influence over operating and financial policies. Consolidated net income attributable to our common shareholder includes our share of the net income (loss) of these entities. The difference between consolidation and the equity method impacts certain of our financial ratios because of the presentation of the detailed line items reported in the condensed consolidated financial statements for consolidated entities, compared to a two-line presentation of investment in and advances to non-consolidated affiliates and equity in net income of non-consolidated affiliates.
Supplier Finance Programs
The Company participates in supply chain finance programs under which participating suppliers may elect to sell some or all of their Novelis receivables to a third-party financial institution. Supplier participation in the programs is solely up to the supplier, and participating suppliers negotiate their arrangements directly with the financial institutions. On September 30, 2024, and March 31, 2024, confirmed supplier invoices that are outstanding and subject to the third-party programs included in accounts payable on the condensed consolidated balance sheets were $828 million and $612 million, respectively.
9
Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Use of Estimates and Assumptions
The preparation of our condensed consolidated financial statements in accordance with U.S. GAAP requires us to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. The principal areas of judgment relate to (1) impairment of goodwill; (2) actuarial assumptions related to pension and other postretirement benefit plans; (3) tax uncertainties and valuation allowances; and (4) assessment of loss contingencies, including environmental and litigation liabilities. Future events and their effects cannot be predicted with certainty, and accordingly, our accounting estimates require the exercise of judgment. The accounting estimates used in the preparation of our condensed consolidated financial statements may change as new events occur, more experience is acquired, additional information is obtained, and our operating environment changes. We evaluate and update our assumptions and estimates on an ongoing basis and may employ outside experts to assist in our evaluations. Actual results could differ from the estimates we have used.
Share Split
The Company filed articles of amendment, effective May 24, 2024, to subdivide the Company's 1,100 issued and outstanding common shares into 600,000,000 issued and outstanding common shares. There was no change to the number of authorized shares and the par value to each common share as a result of the articles of amendment.
All shares information included in the Company's balance sheets, statements of shareholder's equity, and the accompanying notes to the condensed consolidated financial statements has been retroactively adjusted to reflect the share split.
Recently Adopted Accounting Standards
In September 2022, the FASB issued ASU 2022-04, Liabilities-Supplier Finance Programs (Topic 405-50): Disclosure of Supplier Finance Program Obligations("ASU 2022-04"). This ASU requires a buyer in a supplier finance program to disclose qualitative and quantitative information about its supplier finance programs, including the key terms of the program, the amount of obligations outstanding at the end of the reporting period, and a description of where those obligations are presented in the balance sheet. On April 1, 2023, the Company adopted ASU 2022-04, except for the amendment on roll-forward information, which is effective for fiscal years beginning after December 15, 2023. The adoption of this guidance resulted in enhanced disclosures regarding these programs (see Supplier Finance Programs above) and did not have a material impact on our consolidated financial condition, results of operations, or cash flows.
We did not adopt any new accounting pronouncements during the six months ended September 30, 2024, that had a material impact on our consolidated financial condition, results of operations, or cash flows.
Recently Issued Accounting Standards (Not Yet Adopted)
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures.This ASU updates reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses. This ASU is effective for all entities for fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The amendments should be applied retrospectively to all prior periods presented in the financial statements. We are currently evaluating this ASU to determine its impact on the Company's disclosures.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures.This ASU expands disclosures in an entity's income tax rate reconciliation table and disclosures regarding cash taxes paid both in the U.S. and foreign jurisdictions. This ASU is effective for all entities for fiscal years beginning after December 15, 2024. We are currently evaluating this ASU to determine its impact on the Company's disclosures.
There are no other recent accounting pronouncements pending adoption that we expect will have a material impact on our consolidated financial condition, results of operations, or cash flows.
10
Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
2. RESTRUCTURING AND IMPAIRMENT
Restructuring and impairment expenses, net includes restructuring costs, impairments, and other related expenses or reversal of expenses. Restructuring and impairment expenses, net for the three and six months ended September 30, 2024 and September 30, 2023 are as follows:
Three Months Ended
September 30,
Six Months Ended
September 30,
in millions 2024 2023 2024 2023
Restructuring expenses, net $ 4 $ 2 $ 23 $ 5
Impairment expenses 17 2 17 2
Restructuring and impairment expenses, net
$ 21 $ 4 $ 40 $ 7
Restructuring expenses, net for the three and the six months ended September 30, 2024 include restructuring charges relating to the Buckhannon plant closure of $1 million and $19 million, respectively, which consisted primarily of charges for accelerated depreciation and employee-related restructuring expenses. Impairment charges for the three and six months ended September 30, 2024 include $17 million of impairment charges related to the write-off of costs previously capitalized.
11
Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
3. INVENTORIES
Inventories consists of the following.
in millions September 30,
2024 		March 31,
2024
Finished goods $ 605 $ 616
Work in process 1,275 1,158
Raw materials 661 451
Supplies 291 290
Inventories $ 2,832 $ 2,515
12
Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
4. CONSOLIDATION
Variable Interest Entity
The entity that has a controlling financial interest in a VIE is referred to as the primary beneficiary and consolidates the VIE. An entity is deemed to have a controlling financial interest and is the primary beneficiary of a VIE if it has both the power to direct the activities of the VIE that most significantly impact the VIE's economic performance and an obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE.
Logan is a consolidated joint venture in which we hold 40% ownership. Our joint venture partner is Tri-Arrows. Logan processes metal received from Novelis and Tri-Arrows and charges the respective partner a fee to cover expenses. Logan is a thinly capitalized VIE that relies on the regular reimbursement of costs and expenses from Novelis and Tri-Arrows to fund its operations. Novelis is considered the primary beneficiary and consolidates Logan since it has the power to direct activities that most significantly impact Logan's economic performance, an obligation to absorb expected losses, and the right to receive benefits that could potentially be significant to the VIE.
Other than the contractually required reimbursements, we do not provide additional material support to Logan. Logan's creditors do not have recourse to our general credit. There are significant other assets used in the operations of Logan that are not part of the joint venture, as they are directly owned and consolidated by Novelis or Tri-Arrows.
The following table summarizes the carrying value and classification of assets and liabilities owned by the Logan joint venture and consolidated in our condensed consolidated balance sheets.
in millions September 30,
2024 		March 31,
2024
ASSETS
Current assets:
Cash and cash equivalents $ 8 $ 4
Accounts receivable, net 9 10
Inventories 127 142
Prepaid expenses and other current assets 6 8
Total current assets 150 164
Property, plant and equipment, net 107 104
Goodwill 12 12
Deferred income tax assets 36 36
Other long-term assets 3 4
Total assets $ 308 $ 320
LIABILITIES
Current liabilities:
Accounts payable $ 146 $ 135
Accrued expenses and other current liabilities 30 34
Total current liabilities 176 169
Accrued postretirement benefits 104 121
Other long-term liabilities 2 2
Total liabilities $ 282 $ 292
13
Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
5. INVESTMENT IN AND ADVANCES TO NON-CONSOLIDATED AFFILIATES AND RELATED PARTY TRANSACTIONS
Included in the accompanying condensed consolidated financial statements are transactions and balances arising from business we conducted with our equity method non-consolidated affiliates.
Alunorf
Alunorf is a joint venture investment between Novelis Deutschland GmbH, a subsidiary of Novelis, and Speira GmbH. Each of the parties to the joint venture holds a 50% interest in the equity, profits and losses, shareholder voting, management control, and rights to use the production capacity of the facility. Alunorf tolls aluminum and charges the respective partner a fee to cover the associated expenses.
UAL
UAL is a joint venture investment between Novelis Korea Ltd., a subsidiary of Novelis, and Kobe. UAL is a thinly capitalized VIE that relies on the regular reimbursement of costs and expenses from Novelis and Kobe. UAL is controlled by an equally represented board of directors in which neither entity has sole decision-making ability regarding production operations or other significant decisions. Furthermore, neither entity has the ability to take the majority share of production or associated costs over the life of the joint venture. Our risk of loss is limited to the carrying value of our investment in and inventory-related receivables from UAL. UAL's creditors do not have recourse to our general credit. Therefore, UAL is accounted for as an equity method investment, and Novelis is not considered the primary beneficiary. UAL currently produces flat-rolled aluminum products exclusively for Novelis and Kobe. As of September 30, 2024, Novelis and Kobe both hold a 50% interest in UAL. During the three and six months ended September 30, 2024, we made additional contributions to UAL in the amount of $3 million and $12 million, respectively. During the three and six months ended September 30, 2023, we made contributions to UAL in the amount of $4 million and $7 million, respectively.
AluInfra
AluInfra is a joint venture investment between Novelis Switzerland SA, a subsidiary of Novelis, and Constellium SE. Each of the parties to the joint venture holds a 50% interest in the equity, profits and losses, shareholder voting, management control, and rights to use the facility.
The following table summarizes the results of operations of our equity method non-consolidated affiliates in the aggregate and the nature and amounts of significant transactions we have with our non-consolidated affiliates. The amounts in the table below are disclosed at 100% of the operating results of these affiliates.
Three Months Ended
September 30,
Six Months Ended
September 30,
in millions 2024 2023 2024 2023
Net sales $ 401 $ 394 $ 800 $ 790
Costs and expenses related to net sales 394 381 780 762
Income tax provision
2 4 5 8
Net income
$ 5 $ 9 $ 15 $ 20
Purchases of tolling services from Alunorf $ 77 $ 81 $ 152 $ 158
The following table describes related party balances in the accompanying condensed consolidated balance sheets. We had no other material related party balances with non-consolidated affiliates.
in millions September 30,
2024 		March 31,
2024
Accounts receivable, net - related parties
$ 138 $ 161
Other long-term assets - related parties
5 3
Accounts payable - related parties
292 280
14
Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Transactions with Hindalco
We occasionally have related party transactions with Hindalco. During the three and six months ended September 30, 2024, we recorded net sales of less than $1 million and $1 million, respectively, between Novelis and Hindalco related primarily to sales of equipment and other services. During the three and six months ended September 30, 2023, we recorded net sales of less than $1 million and $1 million, respectively, between Novelis and Hindalco related primarily to sales of equipment and other services. As of September 30, 2024, and March 31, 2024, there was $1 million and $2 million, respectively, of outstanding accounts receivable, net - related parties net of accounts payable - related parties related to transactions with Hindalco.
15
Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
6. DEBT
Debt consists of the following.
September 30, 2024 March 31, 2024
in millions
Interest Rates(1)
Principal
Unamortized Carrying
Value Adjustments(2)
Carrying Value Principal
Unamortized Carrying
Value Adjustments(2)
Carrying Value
Short-term borrowings 6.45 % $ 868 $ - $ 868 $ 759 $ - $ 759
Floating rate Term Loans, due September 2026 6.25 % 743 (3) 740 746 (4) 742
Floating rate Term Loans, due March 2028 6.75 % 482 (5) 477 485 (5) 480
3.25% Senior Notes, due November 2026
3.25 % 750 (4) 746 750 (6) 744
3.375% Senior Notes, due April 2029
3.375 % 558 (7) 551 540 (7) 533
4.75% Senior Notes, due January 2030
4.75 % 1,600 (17) 1,583 1,600 (18) 1,582
3.875% Senior Notes, due August 2031
3.875 % 750 (8) 742 750 (8) 742
China Bank Loans, due August 2027 3.90 % 49 - 49 53 - 53
China Loan, due September 2027 2.80 % 14 - 14 - - -
Finance lease obligations and other debt, due through December 2031 4.44 % 17 - 17 23 - 23
Total debt $ 5,831 $ (44) $ 5,787 $ 5,706 $ (48) $ 5,658
Less: Short-term borrowings
(868) - (868) (759) - (759)
Less: Current portion of long-term debt
(30) - (30) (33) - (33)
Long-term debt, net of current portion $ 4,933 $ (44) $ 4,889 $ 4,914 $ (48) $ 4,866
____________________
(1)Interest rates are the stated rates of interest on the debt instrument (not the effective interest rate) as of September 30, 2024, and therefore exclude the effects of related interest rate swaps and accretion and amortization of debt issuance costs related to refinancing transactions and additional borrowings. We present stated rates of interest because they reflect the rate at which cash will be paid for future debt service.
(2)Amounts include unamortized debt issuance costs, fair value adjustments, and debt discounts.
Principal repayment requirements for our total debt over the next five years and thereafter using exchange rates as of September 30, 2024, for our debt denominated in foreign currencies are as follows (in millions).
As of September 30, 2024
Amount
Short-term borrowings and current portion of long-term debt due within one year $ 898
2 years 761
3 years 792
4 years 470
5 years 559
Thereafter 2,351
Total $ 5,831
Short-Term Borrowings
As of September 30, 2024, our short-term borrowings totaled $868 million, which consisted of $620 million of borrowings on our ABL Revolver, $200 million in short-term Brazil loans, and $48 million in short-term China loans (CNY 339 million). The weighted average interest rate on the short-term borrowings was 6.45% and 5.78% as of September 30, 2024, and March 31, 2024, respectively.
Term Loan Facility
In September 2023, Novelis amended the Term Loan Facility and borrowed $750 million of term loans (the "2023 Term Loans"). The proceeds of the 2023 Term Loan were used to repay the previously issued term loans due January 2025 (the "2020 Term Loans"). The 2023 Term Loans mature on September 25, 2026, are subject to 0.25% quarterly amortization payments and accrue interest at SOFR plus 1.65%.
16
Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
In accordance with ASC 470, Debt, the amendment was accounted for as a partial extinguishment of the 2020 Term Loans, whereby $482 million of the $750 million outstanding at the time of the transaction was deemed an extinguishment and $268 million was deemed a modification of debt. As a result of this transaction, we recorded a loss on extinguishment of debt of $5 million in the second quarter of fiscal 2024.
In April 2024, the Company amended the Term Loan facility. The amendment made certain changes that provide the Company with additional flexibility to operate its business.
As of September 30, 2024, we were in compliance with the covenants of our Term Loan Facility.
ABL Revolver
In April 2024, the Company amended the ABL Revolver facility. The amendment made certain changes to provide the Company with additional flexibility to operate its business, including with relation to fees on obligations denominated in foreign currencies.
As of September 30, 2024, we had $620 million in borrowings under the ABL Revolver and were in compliance with its debt covenants. We utilized $64 million of the ABL Revolver for letters of credit. We had availability of $845 million on the ABL Revolver, including $211 million of remaining availability that can be utilized for letters of credit.
Senior Notes
The Senior Notes are guaranteed, jointly and severally, on a senior unsecured basis, by Novelis Inc. and certain of its subsidiaries. The Senior Notes contain customary covenants and events of default that will limit our ability and, in certain instances, the ability of certain of our subsidiaries to incur additional debt and provide additional guarantees; pay dividends or return capital beyond certain amounts and make other restricted payments; create or permit certain liens; make certain asset sales; use the proceeds from the sales of assets and subsidiary stock; create or permit restrictions on the ability of certain of Novelis' subsidiaries to pay dividends or make other distributions to Novelis or certain of Novelis' subsidiaries, as applicable; engage in certain transactions with affiliates; enter into sale and leaseback transactions; designate subsidiaries as unrestricted subsidiaries; and consolidate, merge, or transfer all or substantially all of our assets and the assets of certain of our subsidiaries. During any future period in which either Standard & Poor's Ratings Group, Inc. or Moody's Investors Service, Inc. have assigned an investment grade credit rating to the Senior Notes and no default or event of default under the indenture has occurred and is continuing, certain of the covenants will be suspended. The Senior Notes include customary events of default, including a cross-acceleration event of default. The Senior Notes also contain customary call protection provisions for our bondholders that extend through November 2023 for the 3.25% Senior Notes due November 2026, through April 2024 for the 3.375% Senior Notes due April 2029, through January 2025 for the 4.75% Senior Notes due January 2030, and through August 2026 for the 3.875% Senior Notes due August 2031.
As of September 30, 2024, we were in compliance with the covenants of our Senior Notes.
China Loan
In the second quarter of fiscal 2025, we borrowed $14 million of bank loans (the "China Loan"). The China Loan matures on September 20, 2027, is subject to monthly interest payments, and accrues interest at China Loan Prime Rate less 0.55%. The loan amount is due in full at the maturity date.
17
Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
7. SHARE-BASED COMPENSATION
During the six months ended September 30, 2024, we granted 1,676,028 Hindalco phantom RSUs and 1,440,152 Hindalco SARs. Total share-based compensation expense was $8 million and $26 million for the three and six months ended September 30, 2024, respectively. Total share-based compensation expense was $8 million and $14 million for the three and six months ended September 30, 2023, respectively. As of September 30, 2024, the outstanding liability related to share-based compensation was $37 million.
The cash payments made to settle all Hindalco SAR liabilities were $10 million and $4 million in the six months ended September 30, 2024, and 2023, respectively. Total cash payments made to settle RSUs were $15 million and $13 million in the six months ended September 30, 2024, and 2023, respectively. As of September 30, 2024, unrecognized compensation expense related to the non-vested Hindalco SARs (assuming all future performance criteria are met) and the RSUs was $11 million and $23 million, respectively. The unrecognized expense related to the non-vested Hindalco SARs and the RSUs is expected to be recognized over weighted average periods of 1.4 years and 1.5 years, respectively.
18
Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
8. POSTRETIREMENT BENEFIT PLANS
The Company recognizes actuarial gains and losses and prior service costs in the condensed consolidated balance sheet and recognizes changes in these amounts during the year in which changes occur through other comprehensive income (loss). The Company uses various assumptions when computing amounts relating to its defined benefit pension plan obligations and their associated expenses (including the discount rate and the expected rate of return on plan assets). Net actuarial gains and losses are amortized over periods of 15 years or less, which represent the group's average future service life of the employees or the group's average life expectancy.
Components of net periodic benefit cost for all of our postretirement benefit plans are shown in the table below.
Pension Benefit Plans Other Benefit Plans
Three Months Ended
September 30,
Three Months Ended
September 30,
in millions 2024 2023 2024 2023
Service cost $ 6 $ 6 $ 1 $ 1
Interest cost 18 19 2 2
Expected return on assets (19) (20) - -
Amortization - losses (gains), net 1 - (1) (1)
Amortization - prior service credit, net - (1) (1) (1)
Net periodic benefit cost(1)
$ 6 $ 4 $ 1 $ 1
Pension Benefit Plans Other Benefit Plans
Six Months Ended
September 30,
Six Months Ended
September 30,
2024 2023 2024 2023
Service cost $ 11 $ 11 $ 1 $ 1
Interest cost 37 38 3 3
Expected return on assets (38) (39) - -
Amortization - losses (gains), net 1 (1) (1) (1)
Amortization - prior service credit, net (1) (1) (2) (2)
Net periodic benefit cost(1)
$ 10 $ 8 $ 1 $ 1
____________________
(1)Service cost is included within cost of goods sold (exclusive of depreciation and amortization) and selling, general and administrative expenses, while all other cost components are recorded within other expenses (income), net.
The average expected long-term rate of return on all plan assets is 6.3% in fiscal 2025.
Employer Contributions to Plans
For pension plans, our policy is to fund an amount required to provide for contractual benefits attributed to service to date and amortize unfunded actuarial liabilities typically over periods of 15 years or less. We also participate in savings plans in Canada and the U.S., as well as defined contribution pension plans in the U.S., the U.K., Canada, Germany, Italy, Switzerland, and Brazil. We contributed the following amounts to all plans.
Three Months Ended
September 30,
Six Months Ended
September 30,
in millions 2024 2023 2024 2023
Funded pension plans $ - $ 19 $ 23 $ 21
Unfunded pension plans 4 3 8 7
Savings and defined contribution pension plans 14 14 32 30
Total contributions $ 18 $ 36 $ 63 $ 58
During the remainder of fiscal 2025, we expect to contribute an additional $15 million to our funded pension plans, $9 million to our unfunded pension plans, and $30 million to our savings and defined contribution pension plans.
19
Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
9. CURRENCY LOSSES (GAINS)
The following currency losses are included in other expenses (income), net in the accompanying condensed consolidated statements of operations.
Three Months Ended
September 30,
Six Months Ended
September 30,
in millions 2024 2023 2024 2023
Losses (gains) on remeasurement of monetary assets and liabilities, net
$ 34 $ (16) $ 24 $ (4)
(Gains) losses recognized on balance sheet remeasurement currency exchange contracts, net
(32) 17 (21) 9
Currency losses, net
$ 2 $ 1 $ 3 $ 5
20
Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
10. FINANCIAL INSTRUMENTS AND COMMODITY CONTRACTS
The following tables summarize the gross fair values of our financial instruments and commodity contracts as of the periods presented.
September 30, 2024
Assets Liabilities Net Fair Value
in millions Current
Noncurrent(1)
Current
Noncurrent(1)
Assets / (Liabilities)
Derivatives designated as hedging instruments:
Cash flow hedges
Metal contracts $ 7 $ - $ (110) $ (1) $ (104)
Currency exchange contracts 11 2 (9) (1) 3
Energy contracts 1 1 (3) - (1)
Interest rate swap contracts - - - (10) (10)
Net investment hedges
Currency exchange contracts - - (5) - (5)
Total derivatives designated as hedging instruments $ 19 $ 3 $ (127) $ (12) $ (117)
Derivatives not designated as hedging instruments:
Metal contracts $ 68 $ 3 $ (84) $ (1) $ (14)
Currency exchange contracts 36 - (10) - 26
Energy contracts - - (1) - (1)
Total derivatives not designated as hedging instruments $ 104 $ 3 $ (95) $ (1) $ 11
Total derivative fair value $ 123 $ 6 $ (222) $ (13) $ (106)
March 31, 2024
Assets Liabilities Net Fair Value
Current
Noncurrent(1)
Current
Noncurrent(1)
Assets / (Liabilities)
Derivatives designated as hedging instruments:
Cash flow hedges
Metal contracts $ 3 $ - $ (56) $ (2) $ (55)
Currency exchange contracts 4 1 (13) - (8)
Energy contracts 1 - (4) - (3)
Interest rate swap contracts - - - (2) (2)
Total derivatives designated as hedging instruments $ 8 $ 1 $ (73) $ (4) $ (68)
Derivatives not designated as hedging instruments:
Metal contracts $ 30 $ - $ (53) $ (1) $ (24)
Currency exchange contracts 6 - (17) - (11)
Energy contracts 1 - (1) - -
Total derivatives not designated as hedging instruments $ 37 $ - $ (71) $ (1) $ (35)
Total derivative fair value $ 45 $ 1 $ (144) $ (5) $ (103)
____________________
(1)The noncurrent portions of derivative assets and liabilities are included in other long-term assets and other long-term liabilities, respectively, in the accompanying condensed consolidated balance sheets.
21
Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Metal
We use derivative instruments to preserve our conversion margins and manage the timing differences associated with metal price lag. We use over-the-counter derivatives indexed to the LME (referred to as our "aluminum derivative forward contracts") to reduce our exposure to fluctuating metal prices associated with the period of time between the pricing of our purchases of inventory and the pricing of the sale of that inventory to our customers, which is known as "metal price lag." We also purchase forward LME aluminum contracts simultaneously with our sales contracts with customers that contain fixed metal prices. These LME aluminum forward contracts directly hedge the economic risk of future metal price fluctuations to better match the selling price of the metal with the purchase price of the metal. The volatility in LMPs also results in metal price lag.
Price risk arises due to fluctuating aluminum prices between the time the sales order is committed and the time the order is shipped. We identify and designate certain LME aluminum forward purchase contracts as cash flow hedges of the metal price risk associated with our future metal purchases that vary based on changes in the price of aluminum. These contracts are undesignated, with an average duration of one year.
Price risk exposure arises due to the timing lag between the LME based pricing of raw material aluminum purchases and the LME based pricing of finished product sales. We identify and designate certain LME aluminum forward sales contracts as cash flow hedges of the metal price risk associated with our future metal sales that vary based on changes in the price of aluminum. Generally, such designated exposures do not extend beyond two years in length. The average duration of those contracts is less than one year.
In addition to aluminum, we entered into LME copper and zinc forward contracts, as well as LMP forward contracts. As of September 30, 2024, and March 31, 2024, the fair value of these contracts represented a liability of $4 million and a liability of $6 million, respectively. These contracts are undesignated, with an average duration of one year.
The following table summarizes our notional amount.
in kt September 30,
2024 		March 31,
2024
Hedge type
Purchase (sale)
Cash flow sales (796) (755)
Not designated (254) (306)
Total, net (1,050) (1,061)
Foreign Currency
We use foreign exchange forward contracts and cross-currency swaps to manage our exposure to changes in exchange rates. These exposures arise from recorded assets and liabilities, firm commitments, and forecasted cash flows denominated in currencies other than the functional currency of certain operations.
We use foreign currency contracts to hedge expected future foreign currency transactions, which include capital expenditures. These contracts cover the same periods as known or expected exposures. We had total notional amounts of $1 billion in outstanding foreign currency forwards designated as cash flow hedges as of September 30, 2024, and March 31, 2024.
During the current fiscal year, we entered into forward contracts to hedge our investments in our European operations. The effective portion of changes in the fair value of the derivative is included in Other comprehensive income (loss) under Currency translation adjustments. The excluded portion of gain or loss on derivatives is included in other expenses (income), net. We had a total notional amount of $271 million in outstanding foreign currency forwards designated as net investment hedges as of September 30, 2024.
As of September 30, 2024, and March 31, 2024, we had outstanding foreign currency exchange contracts with a total notional amount of $1.4 billion and $1.5 billion, respectively, to primarily hedge balance sheet remeasurement risk, which were not designated as hedges. Contracts representing the majority of this notional amount will mature by the fourth quarterof fiscal 2025 and offset the remeasurement impact.
22
Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Interest rate
We use interest rate swaps to partially manage our exposure to changes in the SOFR interest rate, which impacts our variable-rate debt. As of September 30, 2024, and March 31, 2024, we had interest rate swaps in place to convert $400 million of our variable rate exposure to a weighted average fixed rate of 4.4%. These interest rate swaps, designated as cash flow hedges, are effective from September 2023 through March 31, 2027.
Energy
We use natural gas forward purchase contracts to manage our exposure to fluctuating energy prices in North America. We had a notional amount of 8 million MMBtu designated as cash flow hedges as of September 30, 2024, and the fair value was an asset of $1 million. There was a notional amount of 7 million MMBtu of natural gas forward purchase contracts designated as cash flow hedges as of March 31, 2024, and the fair value was a liability of $3 million. As of September 30, 2024, we had a notional amount of less than 1 million MMBtu forward contracts that were not designated as hedges, and the fair value was a liability of less than $1 million. As of March 31, 2024, we had a notional amount of less than 1 million MMBtu and the fair value was a liability of less than $1 million. The average for all natural gas contracts is less than one year in length.
We use diesel fuel forward purchase contracts to manage our exposure to fluctuating fuel prices in North America and Europe. We had a notional amount of 3 million gallons designated as cash flow hedges as of September 30, 2024, and the fair value was a liability of $2 million. There was a notional amount of 6 million gallons designated as cash flow hedges as of March 31, 2024, and the fair value was a liability of less than $1 million. As of September 30, 2024, we had a notional amount of less than 1 million metric tonnes not designated as hedges, and the fair value was a liability of $1 million. As of March 31, 2024, we had a notional amount of less than 1 million metric tonnes of forward contracts that were not designated as hedges, and the fair value was an asset of less than $1 million. The average duration for all diesel fuel contracts is one year in length.
(Gain) Loss Recognition
The following table summarizes the (gains) losses associated with the change in fair value of derivative instruments not designated as hedges and the excluded portion of designated derivatives recognized in other expenses (income), net. (Gains) losses recognized in other line items in the condensed consolidated statement of operations are separately disclosed within this footnote.
Three Months Ended
September 30
Six Months Ended
September 30
in millions 2024 2023 2024 2023
Derivative instruments not designated as hedges
Metal contracts $ - $ (1) $ 15 $ (25)
Currency exchange contracts (35) 18 (20) 7
Energy contracts(1)
2 (1) 2 (1)
(Gain) loss recognized in other expenses (income), net
(33) 16 (3) (19)
Derivative instruments designated as hedges
Gain recognized in other expenses (income), net(1)
(2) (1) (2) (2)
Total (gain) loss recognized in other expenses (income), net
$ (35) $ 15 $ (5) $ (21)
(Gains) losses recognized on balance sheet remeasurement currency exchange contracts, net
$ (32) $ 17 $ (21) $ 9
Realized losses (gains) on change in fair value of derivative instruments, net
6 (25) 32 (49)
Unrealized (gains) losses on change in fair value of derivative instruments, net
(9) 23 (16) 19
Total (gain) loss recognized in other expenses (income), net
$ (35) $ 15 $ (5) $ (21)
_________________________
(1)Amount includes forward market premium/discount excluded from hedging relationship and releases to income from accumulated other comprehensive loss on balance sheet remeasurement contracts.
23
Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
The following tables summarize the impact on accumulated other comprehensive loss and earnings of derivative instruments designated as cash flow hedges. Within the next 12 months, we expect to reclassify $93 million of losses from accumulated other comprehensive loss to earnings, before taxes.
Amount of Gain (Loss) Recognized in Other comprehensive income (loss) (Effective Portion)
Three Months Ended
September 30,
Six Months Ended
September 30,
in millions 2024 2023 2024 2023
Cash flow hedging derivatives
Metal contracts $ (8) $ (154) $ (128) $ 72
Currency exchange contracts 35 (26) (1) (18)
Energy contracts (3) - (3) (1)
Interest rate swap contracts (8) 1 (6) 1
Total cash flow hedging derivatives $ 16 $ (179) $ (138) $ 54
Net investment derivatives
Currency exchange contracts (10) - (7) -
Total $ 6 $ (179) $ (145) $ 54
Gain (Loss) Reclassification
Amount of Gain (Loss) Reclassified from Accumulated other comprehensive loss into Income/(Expense) (Effective Portion)
Three Months Ended
September 30,
Six Months Ended
September 30,
Location of Gain (Loss) Reclassified
from Accumulated other comprehensive loss into Earnings
in millions 2024 2023 2024 2023
Cash flow hedging derivatives
Energy contracts(1)
$ (4) $ (2) $ (6) $ (3)
Cost of goods sold (exclusive of depreciation and amortization)
Metal contracts - 1 - 2
Cost of goods sold (exclusive of depreciation and amortization)
Metal contracts 37 74 (79) 143 Net sales
Currency exchange contracts (2) 4 (2) 7
Cost of goods sold (exclusive of depreciation and amortization)
Currency exchange contracts - 1 - 1 Selling, general and administrative expenses
Currency exchange contracts (2) (4) (6) (9) Net sales
Currency exchange contracts (1) (1) (2) (2) Depreciation and amortization
Interest rate swap contracts 1 - 2 - Interest expense and amortization of debt issuance costs
Total $ 29 $ 73 $ (93) $ 139 Income before income tax provision
(8) (18) 24 (37)
Income tax (benefit) provision
$ 21 $ 55 $ (69) $ 102
Net income from continuing operations
_________________________
(1)Includes amounts related to natural gas and diesel swaps.
The entire change in the fair value of the hedging instrument included in the assessment of hedge effectiveness is included in other comprehensive (loss) income and reclassified to earnings in the period in which earnings are impacted by the hedged items or in the period that the transaction becomes probable of not occurring. There was no amount excluded from the assessment of effectiveness recognized in earnings for the periods ended September 30, 2024, and 2023.
24
Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
11. ACCUMULATED OTHER COMPREHENSIVE LOSS
The following tables summarize the change in the components of accumulated other comprehensive loss,excluding noncontrolling interests, for the periods presented.
in millions Currency Translation
Cash Flow Hedges(1)
Postretirement Benefit Plans(2)
Total
Balance as of June 30, 2024
$ (362) $ (85) $ 19 $ (428)
Other comprehensive income (loss) before reclassifications
138 9 (3) 144
Amounts reclassified from accumulated other comprehensive loss, net
- (21) - (21)
Net current-period other comprehensive income (loss)
138 (12) (3) 123
Balance as of September 30, 2024
$ (224) $ (97) $ 16 $ (305)
Currency Translation
Cash Flow Hedges(1)
Postretirement Benefit Plans(2)
Total
Balance as of June 30, 2023
$ (309) $ 119 $ 57 $ (133)
Other comprehensive (loss) income before reclassifications
(63) (129) 1 (191)
Amounts reclassified from accumulated other comprehensive loss, net
- (55) (3) (58)
Net current-period other comprehensive loss
(63) (184) (2) (249)
Balance as of September 30, 2023
$ (372) $ (65) $ 55 $ (382)
Currency Translation
Cash Flow Hedges(1)
Postretirement Benefit Plans(2)
Total
Balance as of March 31, 2024
$ (340) $ (62) $ 21 $ (381)
Other comprehensive income (loss) before reclassifications
116 (104) (3) 9
Amounts reclassified from accumulated other comprehensive loss, net
- 69 (2) 67
Net current-period other comprehensive income (loss)
116 (35) (5) 76
Balance as of September 30, 2024
$ (224) $ (97) $ 16 $ (305)
Currency Translation
Cash Flow Hedges(1)
Postretirement Benefit Plans(2)
Total
Balance as of March 31, 2023
$ (293) $ (5) $ 60 $ (238)
Other comprehensive (loss) income before reclassifications
(79) 42 (1) (38)
Amounts reclassified from accumulated other comprehensive loss, net
- (102) (4) (106)
Net current-period other comprehensive loss
(79) (60) (5) (144)
Balance as of September 30, 2023
$ (372) $ (65) $ 55 $ (382)
_________________________
(1)For additional information on our cash flow hedges, see Note 10 - Financial Instruments and Commodity Contracts.
(2)For additional information on our postretirement benefit plans, see Note 8 - Postretirement Benefit Plans.
25
Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
12. FAIR VALUE MEASUREMENTS
We record certain assets and liabilities, primarily derivative instruments, on our condensed consolidated balance sheets at fair value. We also disclose the fair values of certain financial instruments, including debt and loans receivable, which are not recorded at fair value. Our objective in measuring fair value is to estimate an exit price in an orderly transaction between market participants on the measurement date. We consider factors such as liquidity, bid/offer spreads, and nonperformance risk, including our own nonperformance risk, in measuring fair value. We use observable market inputs wherever possible. To the extent observable market inputs are not available, our fair value measurements will reflect the assumptions used. We grade the level of the inputs and assumptions used according to a three-tier hierarchy:
Level 1 - Unadjusted quoted prices in active markets for identical, unrestricted assets or liabilities we have the ability to access at the measurement date.
Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
Level 3 - Unobservable inputs for which there is little or no market data, which require us to develop our own assumptions based on the best information available as to what market participants would use in pricing the asset or liability.
The following section describes the valuation methodologies we used to measure our various financial instruments at fair value, including an indication of the level in the fair value hierarchy in which each instrument is generally classified.
Derivative Contracts
For certain derivative contracts with fair values based upon trades in liquid markets, such as aluminum, zinc, copper, foreign exchange, natural gas, and diesel fuel forward contracts and options, valuation model inputs can generally be verified and valuation techniques do not involve significant judgment. The fair values of such financial instruments are generally classified within Level 2 of the fair value hierarchy.
The majority of our derivative contracts are valued using industry-standard models with observable market inputs as their basis, such as time value, forward interest rates, volatility factors, and current (spot) and forward market prices. We generally classify these instruments within Level 2 of the valuation hierarchy. Such derivatives include interest rate swaps, cross-currency swaps, foreign currency contracts, aluminum, copper, and zinc forward contracts, and natural gas and diesel fuel forward contracts.
For Level 2 and 3 of the fair value hierarchy, where appropriate, valuations are adjusted for various factors such as liquidity, bid/offer spreads, and credit considerations (nonperformance risk). We regularly monitor these factors along with significant market inputs and assumptions used in our fair value measurements and evaluate the level of the valuation input according to the fair value hierarchy. This may result in a transfer between levels in the hierarchy from period to period. As of September 30, 2024, and March 31, 2024, we did not have any Level 1 or Level 3 derivative contracts. No amounts were transferred between levels in the fair value hierarchy.
All of the Company's derivative instruments are carried at fair value in the statements of financial position prior to considering master netting agreements. The fair values of all derivative instruments are recognized as assets or liabilities at the balance sheet date and are reported gross.
The following table presents our derivative assets and liabilities which were measured and recognized at fair value on a recurring basis classified under the appropriate level of the fair value hierarchy as of September 30, 2024, and March 31, 2024. The table below also discloses the net fair value of the derivative instruments after considering the impact of master netting agreements.
September 30, 2024 March 31, 2024
in millions Assets Liabilities Assets Liabilities
Level 2 instruments:
Metal contracts $ 78 $ (196) $ 33 $ (112)
Currency exchange contracts 49 (25) 11 (30)
Energy contracts 2 (4) 2 (5)
Interest rate swap contracts - (10) - (2)
Total level 2 instruments $ 129 $ (235) $ 46 $ (149)
Netting adjustment(1)
(72) 72 (32) 32
Total net $ 57 $ (163) $ 14 $ (117)
_________________________
(1)Amounts represent the impact of legally enforceable master netting agreements that allow the Company to settle positive and negative positions with the same counterparties.
26
Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Financial Instruments Not Recorded at Fair Value
The table below presents the estimated fair value of certain financial instruments not recorded at fair value on a recurring basis. The table excludes finance leases and short-term financial assets and liabilities for which we believe carrying value approximates fair value. We value long-term receivables and long-term debt using Level 2 inputs. Valuations are based on either market and/or broker ask prices when available or on a standard credit adjusted discounted cash flow model using market observable inputs.
September 30, 2024 March 31, 2024
in millions Carrying Value Fair Value Carrying Value Fair Value
Long-term receivables from related parties $ 5 $ 5 $ 3 $ 3
Total debt - third parties (excluding finance leases and short-term borrowings) 4,902 4,815 4,876 4,649
Additionally, our condensed consolidated balance sheet as of September 30, 2024, includes a note receivable in the amount of $44 million. The note receivable is not carried at fair value, but we assess its collectability on a quarterly basis. The fair value of the note receivable is determined using Level 2 inputs and is materially consistent with the carrying value.
27
Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
13. OTHER EXPENSES (INCOME), NET
Other expenses (income), net consists of the following.
Three Months Ended
September 30,
Six Months Ended
September 30,
in millions 2024 2023 2024 2023
Sierre flood
Fixed asset charges $ - $ - $ 30 $ -
Inventory charges 2 - 12 -
Idle fixed costs(1)
16 - 16 -
Repairs and clean-up costs 17 - 17 -
Excess costs to fulfill customer contracts(2)
23 - 23 -
Other 3 - 3 -
Total Sierre flood 61 - 101 -
Currency losses, net(3)
2 1 3 5
Unrealized (gains) losses on change in fair value of derivative instruments, net(4)
(9) 23 (16) 19
Realized losses (gains) on change in fair value of derivative instruments, net(4)
6 (25) 32 (49)
Loss on sale or disposal of assets, net
1 - 2 -
Interest income
(5) (4) (13) (11)
Non-operating net periodic benefit cost(5)
- (2) (1) (3)
Other, net 9 5 17 10
Other expenses (income), net
$ 65 $ (2) $ 125 $ (29)
_________________________
(1)Idle fixed costs consist primarily of employment costs incurred during the period in which operations at the Sierre plant were halted.
(2)Excess costs to fulfill customer contracts consist of freight costs incurred to reroute material to fulfill customer contracts.
(3)Includes losses recognized on balance sheet remeasurement currency exchange contracts, net. See Note 9 - Currency Losses (Gains)for further details.
(4)See Note 10 - Financial Instruments and Commodity Contractsfor further details.
(5)Represents net periodic benefit cost, exclusive of service cost for the Company's pension and other post-retirement plans. For further details, refer to Note 8 - Postretirement Benefit Plans.
On June 30, 2024, our plant located in Sierre, Switzerland was impacted by exceptional flooding caused by unprecedented heavy rainfall. There were no injuries, as all employees were safely evacuated; however, water entered the plant premises and plant operations were halted. As a result of this event, the Company recognized fixed asset charges of $30 million and inventory charges of $12 million during the six months ended September 30, 2024, with $2 million of inventory charges recorded during three months ended September 30, 2024. Additionally, in the three and six months ended September 30, 2024, the Company incurred costs resulting from the shut down of the facility and efforts to restore operations, including idle fixed costs of $16 million, repairs and clean-up costs of $17 million, excess costs to fulfill customer contracts of $23 million, and other costs of $3 million. As we continue to assess the physical condition of the plant's assets and continue the efforts to restore operations, we may incur additional losses in future periods. The plant is insured for property damage and business interruption losses related to such events, subject to deductibles and policy limits. We will record an insurance receivable based on the anticipated insurance proceeds when the potential insurance proceeds can be reliably estimated.
28
Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
14. INCOME TAXES
For the three months ended September 30, 2024, our effective tax rate differs from the Canadian statutory rate primarily due to the full-year forecasted effective tax rate taking into account income taxed at rates that differ from the 25% Canadian rate, including withholding taxes, and changes to the Brazilian real foreign exchange rate, offset by the availability of tax credits and changes in uncertain tax positions. For the six months ended September 30, 2024, our effective tax rate differs from the Canadian statutory rate primarily due to the full-year forecasted effective tax rate that takes into account income taxed at rates that differ from the 25% Canadian rate, including withholding taxes, offset by the availability of tax credits and changes in uncertain tax positions. For the three months ended September 30, 2023, our effective tax rate differs from the Canadian statutory rate primarily due to the full-year forecasted effective tax rate that takes into account income taxed at rates that differ from the 25% Canadian rate, including withholding taxes, offset by the availability of tax credits and income not subject to tax. For the six months ended September 30, 2023, our effective tax rate differs from the Canadian statutory rate primarily due to the full-year forecasted effective tax rate taking into account income taxed at rates that differ from the 25% Canadian rate, including withholding taxes, offset by the availability of tax credits and income not subject to tax.
As of September 30, 2024, we had a net deferred tax liability of $103 million. This amount included gross deferred tax assets of approximately $1.3 billion and a valuation allowance of $689 million. It is reasonably possible that our estimates of future taxable income may change within the next twelve months resulting in a change to the valuation allowance in one or more jurisdictions.
Tax Uncertainties
Certain tax filings for fiscal 2007 through fiscal 2022 are subject to tax examinations and judicial and administrative proceedings. As a result of further settlement of audits, judicial decisions, the filing of amended tax returns, or the expiration of statutes of limitations, our reserves for unrecognized tax benefits, as well as reserves for interest and penalties, may change in the next 12 months. With few exceptions, tax returns for all jurisdictions for all tax years before fiscal 2007 are no longer subject to examination by taxing authorities or subject to any judicial or administrative proceedings. In August 2024, we received a final tax assessment for the fiscal 2013 through fiscal 2016 tax audit in Germany. Upon receipt of the final tax assessments, we filed an appeal and began the process to request a mutual agreement procedure in those jurisdictions for which there would be an offsetting benefit for the amounts paid to Germany. During the three months ended September 30, 2024, certain other estimates and assumptions associated with uncertain tax positions also changed. No changes to uncertain tax positions during the three months ended September 30, 2024, including as a result of the final Germany tax assessments, had a material impact on our financial statements for any periods presented.
29
Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
15. COMMITMENTS AND CONTINGENCIES
We are party to and may in the future be involved in or subject to disputes, claims, and proceedings arising in the ordinary course of our business, including some we assert against others, such as environmental, health and safety, product liability, employee, tax, personal injury, and other matters. For certain matters in which the Company is involved in for which a loss is reasonably possible, we are unable to estimate a loss. For certain other matters for which a loss is reasonably possible and the loss is estimable, we have estimated the aggregated range of loss as $0 to $73 million. This estimated aggregate range of reasonably possible losses is based upon currently available information. The Company's estimates involve significant judgment. Therefore, the estimate will change from time to time and actual losses may differ from the current estimate. We review the status of, and estimated liability related to, pending claims and civil actions on a quarterly basis. The evaluation model includes all asserted and unasserted claims that can be reasonably identified, including claims relating to our responsibility for compliance with environmental, health and safety laws and regulations in the jurisdictions in which we operate or formerly operated. The estimated costs in respect of such reported liabilities are not offset by amounts related to insurance or indemnification arrangements unless otherwise noted.
Environmental Matters
We have established liabilities based on our estimates for currently anticipated costs associated with environmental matters. We estimate that the costs related to our environmental liabilities as of September 30, 2024, and March 31, 2024, were $36 million and $38 million, respectively. Of the total $36 million as of September 30, 2024, $15 million is associated with an environmental reserve, $18 million is associated with undiscounted environmental clean-up costs, and $3 million is associated with restructuring actions. As of September 30, 2024, $19 million is included in accrued expenses and other current liabilities and the remainder is within other long-term liabilities in our accompanying condensed consolidated balance sheets.
Brazilian Tax Litigation
Under a federal tax dispute settlement program established by the Brazilian government, we have settled several disputes with Brazil's tax authorities regarding various forms of manufacturing taxes and social security contributions. In most cases, we are paying the settlement amounts over a period of 180 months, however, in some cases we pay the settlement amounts over a shorter period. Total settlement liabilities as of September 30, 2024, and March 31, 2024, were $1 million and $4 million, respectively. As of September 30, 2024, the $1 million is included within accrued expenses and other current liabilities in our accompanying condensed consolidated balance sheets.
In addition to the disputes we have settled under the federal tax dispute settlement program, we are involved in several other unresolved tax and other legal claims in Brazil. Total liabilities for other disputes and claims were $37 million as of September 30, 2024, and $40 million as of March 31, 2024. As of September 30, 2024, the $37 million is included within other long-term liabilities in our accompanying condensed consolidated balance sheets. Additionally, we have included in the range of reasonably possible losses disclosed above any unresolved tax disputes or other contingencies for which a loss is reasonably possible and estimable. The interest cost recorded on these settlement liabilities offset by interest earned on the cash deposits is reported in other expenses (income), net on the condensed consolidated statement of operations.
During prior fiscal years, we received multiple favorable rulings from the Brazilian court that recognized the right to exclude certain taxes from the tax base used to calculate contributions to the social integration program and social security contributions on gross revenues, also known as PIS and COFINS. As a result of these cases, we had the right to apply for tax credits for the amounts overpaid during specified tax years. These credits and corresponding interest could be used to offset various Brazilian federal taxes in future years.
The credit amounts, interest calculation, and supporting documentation are subject to further validation and scrutiny by tax authorities for five years after the credits are utilized. Thus, credits recognized may differ from these amounts.
In order to qualify for these credits, the Company is required to compile and present verifiable support validating the credits. During fiscal 2022, Novelis applied for and received official authorization from The Special Department of Federal Revenue of Brazil ("Receita Federal") to use the PIS and COFINS credits related to certain periods. Novelis was able to utilize a majority of these credits to offset taxes paid in fiscal 2022 and utilized the remaining credits in the first quarter of fiscal 2023.
Novelis received a tax notification on July 11, 2024 requesting information for the calculated credits of COFINS in the amount of $43 million, related to the period from 2008 to 2014, and PIS and COFINS in the amount of $28 million, related to the period from 2015 to 2017. If the credits are not sufficiently validated per the request, a portion of the COFINS and PIS and COFINS credits may be disallowed. The Company believes it has sufficient documentation to support the use of the credits.
30
Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
16. SEGMENT, GEOGRAPHICAL AREA, MAJOR CUSTOMER AND MAJOR SUPPLIER INFORMATION
Segment Information
Due in part to the regional nature of the supply and demand of aluminum rolled products and to best serve our customers, we manage our activities based on geographical areas and are organized under four operating segments: North America, Europe, Asia, and South America. All of our segments manufacture aluminum sheet and light gauge products. We also manufacture aluminum plate products in Europe and Asia.
The following is a description of our operating segments.
North America. Headquartered in Atlanta, Georgia, this segment operates 15 plants, including six with recycling operations, in two countries.
Europe. Headquartered in Küsnacht, Switzerland, this segment operates 10 plants, including five with recycling operations, in four countries.
Asia. Headquartered in Seoul, South Korea, this segment operates four plants, including two with recycling operations, in two countries.
South America. Headquartered in São Paulo, Brazil, this segment operates two plants, including one with recycling operations, in one country.
Net sales and expenses are measured in accordance with the policies and procedures described in Note 1 - Business and Summary of Significant Accounting Policies within our 2024 Form 10-K.
We measure the profitability and financial performance of our operating segments based on Adjusted EBITDA. Adjusted EBITDA provides a measure of our underlying segment results that is in line with our approach to risk management. We define Adjusted EBITDA as earnings before (a) depreciation and amortization; (b) interest expense and amortization of debt issuance costs; (c) interest income; (d) unrealized gains (losses) on change in fair value of derivative instruments, net, except for foreign currency remeasurement hedging activities, which are included in Adjusted EBITDA; (e) impairment of goodwill; (f) (gain) loss on extinguishment of debt, net; (g) noncontrolling interests' share; (h) adjustments to reconcile our proportional share of Adjusted EBITDA from non-consolidated affiliates to income as determined on the equity method of accounting; (i) restructuring and impairment expenses (reversals), net; (j) gains or losses on disposals of property, plant and equipment and businesses, net; (k) other costs, net; (l) litigation settlement, net of insurance recoveries; (m) sale transaction fees; (n) income tax provision (benefit); (o) cumulative effect of accounting change, net of tax; (p) metal price lag; (q) business acquisition and other related costs; (r) purchase price accounting adjustments; (s) income (loss) from discontinued operations, net of tax; and (t) loss on sale of discontinued operations, net of tax.
The tables that follow show selected segment financial information. "Eliminations and Other" includes eliminations and functions that are managed directly from our corporate office that have not been allocated to our operating segments as well as the adjustments for proportional consolidation and eliminations of intersegment net sales. The financial information for our segments includes the results of our affiliates on a proportionately consolidated basis, which is consistent with the way we manage our business segments. In order to reconcile the financial information for the segments shown in the tables below to the relevant U.S. GAAP based measures, we must adjust proportional consolidation of each line item. The "Eliminations and Other" in net sales - third party includes the net sales attributable to our joint venture party, Tri-Arrows, for our Logan affiliate because we consolidate 100% of the Logan joint venture for U.S. GAAP, but we manage our Logan affiliate on a proportionately consolidated basis. See Note 4 - Consolidationand Note 5 - Investment in and Advances to Non-Consolidated Affiliates and Related Party Transactionsfor further information about these affiliates. Additionally, we eliminate intersegment sales and intersegment income for reporting on a consolidated basis.
31
Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Selected Segment Financial Information
in millions
September 30, 2024 North America Europe Asia South America Eliminations and Other Total
Investment in and advances to non-consolidated affiliates
$ - $ 557 $ 395 $ - $ - $ 952
Total assets 5,910 4,116 2,299 2,163 1,072 15,560
in millions
March 31, 2024 North America Europe Asia South America Eliminations and Other Total
Investment in and advances to non-consolidated affiliates
$ - $ 536 $ 369 $ - $ - $ 905
Total assets 5,411 4,049 2,206 2,050 912 14,628
in millions
Selected Operating Results
Three Months Ended September 30, 2024
North America Europe Asia South America Eliminations and Other Total
Net sales - third party $ 1,779 $ 1,106 $ 648 $ 655 $ 107 $ 4,295
Net sales - intersegment 3 9 141 17 (170) -
Net sales $ 1,782 $ 1,115 $ 789 $ 672 $ (63) $ 4,295
Depreciation and amortization $ 56 $ 43 $ 24 $ 22 $ (4) $ 141
Income tax (benefit) provision 2 (16) 9 31 25 51
Capital expenditures 314 28 26 11 (10) 369
in millions
Selected Operating Results
Three Months Ended September 30, 2023
North America Europe Asia South America Eliminations and Other Total
Net sales - third party $ 1,722 $ 1,131 $ 580 $ 564 $ 110 $ 4,107
Net sales - intersegment - 20 60 29 (109) -
Net sales $ 1,722 $ 1,151 $ 640 $ 593 $ 1 $ 4,107
Depreciation and amortization $ 55 $ 40 $ 23 $ 20 $ (2) $ 136
Income tax (benefit) provision 6 13 10 11 11 51
Capital expenditures 218 34 17 19 (3) 285
in millions
Selected Operating Results
Six Months Ended September 30, 2024
North America Europe Asia South America Eliminations and Other Total
Net sales - third party $ 3,509 $ 2,274 $ 1,247 $ 1,235 $ 217 $ 8,482
Net sales - intersegment 3 18 258 50 (329) -
Net sales $ 3,512 $ 2,292 $ 1,505 $ 1,285 $ (112) $ 8,482
Depreciation and amortization $ 114 $ 84 $ 47 $ 44 $ (8) $ 281
Income tax (benefit) provision 8 (8) 28 56 27 111
Capital expenditures 617 58 37 25 (20) 717
in millions
Selected Operating Results
Six Months Ended September 30, 2023
North America Europe Asia South America Eliminations and Other Total
Net sales - third party $ 3,454 $ 2,290 $ 1,177 $ 1,064 $ 213 $ 8,198
Net sales - intersegment - 42 132 58 (232) -
Net sales $ 3,454 $ 2,332 $ 1,309 $ 1,122 $ (19) $ 8,198
Depreciation and amortization $ 108 $ 81 $ 45 $ 40 $ (7) $ 267
Income tax (benefit) provision (7) 26 18 27 41 105
Capital expenditures 493 61 39 34 (9) 618
32
Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
The table below displays the reconciliation from net income attributable to our common shareholder to Adjusted EBITDA.
Three Months Ended
September 30,
Six Months Ended
September 30,
in millions 2024 2023 2024 2023
Net income attributable to our common shareholder
$ 128 $ 157 $ 279 $ 313
Net income attributable to noncontrolling interests
1 - - -
Income tax provision
51 51 111 105
Income before income tax provision 180 208 390 418
Depreciation and amortization 141 136 281 267
Interest expense and amortization of debt issuance costs 72 78 144 155
Adjustment to reconcile proportional consolidation(1)
12 11 25 25
Unrealized (gains) losses on change in fair value of derivative instruments, net
(9) 23 (16) 19
Realized losses (gains) on derivative instruments not included in Adjusted EBITDA(2)
3 (1) 5 (4)
Loss on extinguishment of debt, net
- 5 - 5
Restructuring and impairment expenses, net(3)
21 4 40 7
Loss on sale or disposal of assets, net
1 - 2 -
Metal price lag (21) 22 (14) 17
Sierre flood charges(4)
61 - 101 -
Other, net 1 (2) 4 (4)
Adjusted EBITDA $ 462 $ 484 $ 962 $ 905
_________________________
(1)Adjustment to reconcile proportional consolidation relates to depreciation, amortization, and income taxes of our equity method investments. Income taxes related to our equity method investments are reflected in the carrying value of the investment and not in our consolidated income tax provision.
(2)Realized losses (gains) on derivative instruments not included in Adjusted EBITDA represents foreign currency derivatives unrelated to operations.
(3)Restructuring and impairment expenses, net for the three months ended September 30, 2024 includes $17 million related to the write-off of previously capitalized costs. In addition, restructuring and impairment, net for the six months ended September 30, 2024 includes $19 million related to the closure of the Buckhannon, West Virginia plant.
(4)Sierre flood charges relate to non-recurring non-operating charges from exceptional flooding at our Sierre, Switzerland plant caused by unprecedented heavy rainfall. See Note 13 - Other Expenses (Income), Netfor additional information about this event.
The following table displays Adjusted EBITDA by reportable segment.
Three Months Ended
September 30,
Six Months Ended
September 30,
in millions 2024 2023 2024 2023
North America $ 185 $ 208 $ 368 $ 374
Europe 63 100 153 188
Asia 91 82 183 169
South America 122 93 254 177
Eliminations and Other 1 1 4 (3)
Adjusted EBITDA $ 462 $ 484 $ 962 $ 905
33
Novelis Inc.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Information about Product Sales, Major Customers, and Primary Supplier
Product Sales
The following table displays net sales by product end market.
Three Months Ended
September 30,
Six Months Ended
September 30,
in millions 2024 2023 2024 2023
Beverage packaging $ 2,282 $ 1,943 $ 4,315 $ 3,727
Automotive 842 971 1,822 1,989
Aerospace and industrial plate 186 179 346 355
Specialty 985 1,014 1,999 2,127
Net sales $ 4,295 $ 4,107 $ 8,482 $ 8,198
Major Customers
The following table displays customers representing 10% or more of our net sales for any of the periods presented and their respective percentage of net sales.
Three Months Ended
September 30,
Six Months Ended
September 30,
2024 2023 2024 2023
Ball 16 % 14 % 16 % 13 %
Primary Supplier
Rio Tinto is our primary supplier of metal inputs, including prime and sheet ingot. The table below shows our purchases from Rio Tinto as a percentage of our total combined metal purchases.
Three Months Ended
September 30,
Six Months Ended
September 30,
2024 2023 2024 2023
Purchases from Rio Tinto as a percentage of total combined metal purchases 9 % 9 % 9 % 10 %
34
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
FORWARD-LOOKING STATEMENTS
The following information should be read together with our unaudited condensed consolidated financial statements and accompanying notes included elsewhere in this Form 10-Q for a more complete understanding of our financial condition and results of operations. The following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those discussed below, particularly in SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND MARKET DATA.
OVERVIEW AND REFERENCES
In this Form 10-Q, unless otherwise specified, the terms "we," "our," "us," the "Company," and "Novelis" refer to Novelis Inc., a company incorporated in Canada under the Canadian Business Corporations Act, and its subsidiaries. References herein to "Hindalco" refer to Hindalco Industries Limited, which acquired Novelis in May 2007.
Novelis is driven by its purpose of shaping a sustainable world together. We consider ourselves a global leader in the production of innovative, sustainable aluminum solutions and the world's largest recycler of aluminum. Specifically, we believe we are the leading provider of low-carbon aluminum solutions, helping to drive a circular economy by partnering with our suppliers and customers in beverage packaging, automotive, aerospace and specialties (a diverse market including building & construction, signage, foil & packaging, commercial transportation, and commercial & consumer products, among others) markets globally. Throughout North America, Europe, Asia, and South America, we have an integrated network of 31 world-class, technologically advanced facilities, including 14 recycling centers and 11 innovation centers. Novelis is a subsidiary of Hindalco, an industry leader in aluminum and copper and the metals flagship company of the Aditya Birla Group, a multinational conglomerate based in Mumbai, India.
As used in this Form 10-Q, consolidated "aluminum rolled product shipments," "flat-rolled product shipments," or "shipments" refer to aluminum rolled product shipments to third parties. Regional "aluminum rolled product shipments," "flat-rolled product shipments," or "shipments" refer to aluminum rolled product shipments to third parties and intersegment shipments to other Novelis regions. Shipment amounts also include tolling shipments. References to "total shipments" include aluminum rolled product shipments as well as certain other non-rolled product shipments, primarily scrap, UBCs, ingots, billets, and primary remelt. The term "aluminum rolled products" is synonymous with the terms "flat-rolled products" and "FRP," which are commonly used by manufacturers and third-party analysts in our industry. All tonnages are stated in metric tonnes. One metric tonne is equivalent to 2,204.6 pounds. One kt is 1,000 metric tonnes.
BUSINESS AND INDUSTRY CLIMATE
For over a decade, Novelis has been pursuing a strategy to transform and improve the profitability of our business through significant investment in new capacity and capabilities. These investments enabled us to increase the amount of recycled content in our products; capitalize on favorable long-term market trends driving increased consumer demand for lightweight, sustainable aluminum products; and diversify and optimize our product portfolio. As a global leader in the aluminum flat-rolled products industry, we leveraged our new capacity, global footprint, scale, and solid customer relationships to drive volumes and capture favorable supply and demand market dynamics across all our end-use markets. With growth in volumes combined with improved pricing, significant increase in scrap inputs, operational efficiencies, and high-capacity utilization rates, we significantly improved the profitability of our beverage packaging and specialties products and maintained high margins for automotive and aerospace products since launching this strategy.
However, fiscal 2023 and 2024 were challenged by high inflation, geopolitical instability in Europe, and rising interest rates. These factors led to increased global operating costs, including for energy, freight, labor, coatings, and alloys; increased interest expense on our variable interest rate loans; and softer demand in some specialty end markets, such as building and construction, which is more sensitive to inflation and interest rates. We also saw reduced can sheet demand beginning in the second half of fiscal 2023 attributed to the beverage packaging industry reducing excess inventory as supply chains improved and markets adjusted to a more moderated level of beverage packaging demand following the COVID-19 pandemic. In recent quarters, competition for scrap metal has been increasing due to strong consumer demand for aluminum rolled products made from high amounts of recycled content (or scrap), a growing focus on carbon emission reduction, and the favorable economics that may be achieved by efficiently consuming scrap inputs compared to prime metal inputs. Intensifying competition for scrap aluminum and liberalization of scrap importation policies in China create significant pressure on scrap pricing and reduce the financial benefit from utilizing scrap in our production process.
35
Many of the operating costs pressures seen in fiscal 2023 and 2024 have lessened in recent quarters, and we have been able to pass through a portion of those higher costs to customers through price increases. We also believe inventory levels across the beverage packaging supply chain have now largely normalized and demand for beverage packaging sheet is strong. With respect to the scrap supply and demand imbalances, we are working on solutions to increase the amount and different types of scrap metal our systems are able to process, including sorting technologies and supply chain improvements. However, until these improvements can be scaled, we believe the lower availability and higher prices of scrap will increase our production costs in the near-term.
We believe that global long-term demand for aluminum rolled products remains strong, driven by anticipated economic growth, material substitution, and sustainability considerations, including increased environmental awareness around PET plastics.
Increasing customer preference for sustainable packaging options, and package mix shift toward infinitely recyclable aluminum are driving higher demand for aluminum beverage packaging worldwide. To support growing demand for aluminum beverage packaging sheet in North America, we broke ground on a 600 kt capacity greenfield rolling and recycling plant in Bay Minette, Alabama, in October 2022. We plan to initially allocate approximately two-thirds of this plant's capacity to the production of beverage packaging sheet, with the remaining capacity targeted primarily for the automotive market. We continue to evaluate opportunities for additional capacity expansion across regions where local can sheet supply is insufficient to meet long-term demand growth and assess our capital expenditure plans in light of developments impacting our business. In September 2024, we determined not to pursue previously announced plans for a $375 million investment to expand operations in Zhenjiang, China.
We believe that long-term demand for aluminum automotive sheet will continue to grow, primarily driven by the benefits that result from using lightweight aluminum in vehicle structures and components, as automakers respond to stricter government regulations regarding emissions and fuel economy, while maintaining or improving vehicle safety and performance. We are also seeing increased demand for aluminum for electric vehicles, as aluminum's lighter weight can result in extended battery range.
We expect long-term demand for building and construction and other specialty products to grow due to increased customer preference for lightweight, sustainable materials.
Demand for aerospace aluminum plate and sheet has strengthened as air-travel demand has recovered above pre-COVID levels. In the longer-term, we believe significant aircraft industry order backlogs for key OEMs, including Airbus and Boeing, will translate into growth in the future and that our multi-year supply agreements have positioned us to benefit from future expected demand.
We believe the long-term demand trends for flat-rolled aluminum products remain strong, and we have approximately $5 billion of debottlenecking, recycling, and new capacity capital investments under way, focused on increasing capacity and capabilities to meet growing customer demand. This estimated capital investment spend includes the aforementioned Bay Minette plant and a new $90 million recycling expansion in Latchford, UK, announced in July 2024. The estimated capital investment spend also includes $365 million for a highly advanced automotive recycling center in Guthrie, Kentucky, which began commissioning in the first quarter of fiscal 2025.
Our management administers an ERM program, which is a comprehensive risk assessment and mitigation process that identifies and addresses all known current and potential material risks to Novelis' global operations, including legal and regulatory risks. The ERM team is led by an executive officer who delivers an ERM report to the Audit Committee of our Board at least quarterly. On an annual basis, the ERM team meets with or interviews about 160 individuals, some of which are interviewed quarterly, to stay abreast of the latest risks we face.
Throughout the Russia-Ukraine conflict, our ERM team has monitored developments and gathered information about Novelis relationships with Russian businesses. Novelis' direct exposure to the conflict has been limited, as we have no operations, assets, or employees in either Russia or Ukraine, and we have only immaterial customer relationships in these countries. Sanctions, tariffs, a ban or similar actions impacting the supply of Russian aluminum could disrupt global aluminum supply. While one of our suppliers of metal is UC Rusal PLC ("Rusal"), a Russian aluminum company, we purchase metal from a diverse global portfolio of metal suppliers and are not dependent on Rusal for a significant portion of our metal supply. The ERM team also monitors other potential impacts of the Russia-Ukraine conflict, including impacts on the reliability of energy supplies to our European manufacturing sites and supply chain disruptions. This information is presented to, and discussed with, the Audit Committee of our Board at least quarterly, with interim updates from our executive leadership as our Board may require. In addition, we manage sanctions compliance through a global sanctions screening program, and our Information Security team monitors cybersecurity matters and makes periodic reports at meetings of our Board.
36
On June 30, 2024, our plant located in Sierre, Switzerland was impacted by exceptional flooding caused by unprecedented heavy rainfall. All employees were safely evacuated; however, water entered the plant premises and plant operations were halted. During the six months ended September 30, 2024, the Company recognized charges of $101 million resulting from this event, including fixed asset and inventory charges, idle fixed costs, repairs and clean-up costs, and excess costs to fulfill customer contracts. The plant is insured for property damage and business interruption losses related to such events, subject to deductibles and policy limits. We will record an insurance receivable based on the anticipated insurance proceeds when the potential insurance proceeds can be reliably estimated. Production at the facility has been partially restored at the end of the second quarter of fiscal 2025 and is expected to return to normal production capability in the third quarter of fiscal 2025. We estimate the total net cash impact from this event, after insurance, to be $80 million. The net impact on Adjusted EBITDA from this event is estimated to be $30 million, the majority of which occurred in the second quarter of fiscal 2025. See Note 13 - Other Expenses (Income), Netto our accompanying unaudited condensed consolidated financial statements for additional information about this event.
Environmental, Social & Governance
We maintain our aim to become a carbon neutral company by 2050 or sooner. Our recently announced 2030 goals aim to have less than 3 tonnes of carbon dioxide equivalents (CO2e) per tonne of rolled product shipments; and aim to push the boundaries on recycled content in our products by increasing average recycled content to 75%, from today's 63%, both by the end of calendar year 2030. Carbon goals are inclusive of Scope 1 and 2, as well as Scope 3 emissions in categories 1 and 4 of the Greenhouse Gas Protocol. In addition, we have targets to reduce waste intensity to landfills by 20%, energy intensity by 10%, and water intensity by 10%, each by fiscal 2026, from our baseline of fiscal 2020.
To increase the use of recycled content in our products, we engage with customers, suppliers, and industry peers across the value chain as we aim to drive innovation that improves aluminum's overall sustainability profile.
In support of our commitments, we voluntarily pursued the Aluminum Stewardship Initiatives' ("ASI") certification program at 22 plants globally, and 14 scrap collection centers across Brazil, with both the Performance Standard Certification and the Chain of Custody Certification. ASI works together with producers, users, and stakeholders in the aluminum value chain to collaboratively foster responsible production, sourcing, and stewardship of aluminum. In addition, to support our initiatives, in March 2021 we issued €500 million in aggregate principal amount of senior notes. We have allocated an amount equal to the net proceeds of $588 million of these notes to eligible "green" projects, such as investments in renewable energy and pollution prevention and control projects.
Our path to a more sustainable and circular future goes beyond our environmental commitments. Across the four continents on which Novelis operates there are diverse cultures and many unique perspectives. By building a culture in which employees are encouraged to be their authentic selves, supported by an environment of respect and appreciation, and given opportunities to learn, grow and thrive, we believe we are creating fertile ground for innovation and self-development.
We are also committed to supporting the communities in which our employees live and work. With firmly established community engagement programs, the Company is committed to advancing its corporate social responsibility efforts by further investing in the Novelis Neighbor program, which gives back to communities through financial contributions and employee volunteerism. The programs emphasize STEM education, recycling education, and addressing local community needs.
Liquidity Position
We believe we have adequate liquidity to manage the business with dynamic metal prices. Our cash and cash equivalents and availability under committed credit facilities aggregated to $2.1 billion of liquidity as of September 30, 2024.
We maintain a disciplined approach to capital spending, prioritizing maintenance capital for our operations, and organic strategic capacity expansion projects. We are taking a prudent approach to phasing the timing of transformational organic investment spend, and we expect capital expenditures for fiscal 2025 expected to be on the lower end of the range of $1.8 to $2.1 billion, as spending for a number of announced strategic capital projects is now ramping up. This includes approximately $300 million for expected maintenance spend.
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Market Trends
Beverage Packaging.Can stock shipments represent the largest percentage of our total rolled product shipments. According to CRU, demand for can stock will increase at a global (excluding China) compound annual growth rate of approximately 4% from calendar year 2023 to 2031, mainly driven by sustainability trends; growth in beverage markets that increasingly use aluminum packaging; and substitution from plastic, glass, and steel. However, we saw reduced can sheet demand between the middle of fiscal 2023 through early fiscal 2024 attributed to the beverage packaging industry reducing excess inventory previously stocked in response to unreliable supply chains and unprecedented high levels of beverage packaging demand during the COVID-19 pandemic, as well as low promotional activity at retailers. We believe that inventory levels in the supply chain and demand for beverage packaging has now largely normalized. Increased demand for sustainable, aluminum beverage packaging sheet has also increased the demand for, and price of, scrap metal inputs, particularly UBC scrap. Furthermore, UBC scrap availability in the US is affected by low recycling rates and an increase in its exports, including to China.
We are working on solutions to increase the amount and different types of scrap our systems are able to process, including sorting technologies and supply chain improvements. However, until these improvements can be scaled, we believe the lower availability and higher prices of scrap will increase our production costs in the near-term.
Automotive.We believe aluminum is positioned for long-term growth driven by increased adoption of aluminum in vehicle structures and components of both traditional internal combustible engine (ICE) vehicles and electric vehicles, which utilize higher amounts of aluminum. Based on management estimates, we believe that global automotive aluminum sheet demand is set to grow at a compound annual growth rate of 6% from fiscal year 2025 to fiscal year 2030.
Aerospace. The International Air Transport Association (IATA) reported 2024 global air traffic surpassed 2019 levels, reaching a full recovery post-pandemic. We expect demand for aerospace aluminum plate and sheet to continue to grow driven by increased air traffic and a need for fleet modernization.
Specialties.Specialties includes diverse markets, including building and construction, commercial transportation, foil and packaging, and commercial and consumer products. These industries continue to increase aluminum adoption due to its many desirable characteristics. We believe these trends will keep demand high in the long-term, despite the near-term economic headwinds impacting demand for building and construction and some industrial products.
BUSINESS MODEL AND KEY CONCEPTS
Conversion Business Model
A significant amount of our business is conducted under a conversion model, which allows us to pass through increases or decreases in the price of aluminum to our customers. Nearly all of our flat-rolled products have a price structure with three components: (i) a base aluminum price quoted off the LME; (ii) an LMP; and (iii) a "conversion premium" to produce the rolled product that reflects, among other factors, the competitive market conditions for that product. Base aluminum prices are typically driven by macroeconomic factors and global supply and demand for aluminum. LMP tends to vary based on the supply and demand for metal in a particular region and the associated transportation costs.
LME Base Aluminum Prices and Local Market Premiums
The average (based on the simple average of the monthly averages) and closing prices for aluminum set on the LME are as follows.
Three Months Ended
September 30,
Percent Change
Six Months Ended
September 30,
Percent Change
2024 2023 2024 2023
Aluminum (per metric tonne, and presented in U.S. dollars):
Closing cash price as of beginning of period $ 2,486 $ 2,097 19 % $ 2,270 $ 2,337 (3) %
Average cash price during period
2,383 2,155 11 2,451 2,209 11
Closing cash price as of end of period 2,611 2,308 13 2,611 2,308 13
The weighted average LMPs are as follows.
Three Months Ended
September 30,
Percent Change
Six Months Ended
September 30,
Percent Change
2024 2023 2024 2023
Weighted average LMP (per metric tonne and presented in U.S. dollars) $ 317 $ 310 2 % $ 318 $ 340 (6) %
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Metal Price Lag and Related Hedging Activities
Increases or decreases in the price of aluminum based on the average LME base aluminum prices and LMPs directly impact net sales, cost of goods sold (exclusive of depreciation and amortization), and working capital. The timing of these impacts varies based on contractual arrangements with customers and metal suppliers in each region. These timing impacts are referred to as metal price lag. Metal price lag exists due to: (i) the period of time between the pricing of our purchase of metal, holding and processing the metal, and the pricing of the sale of finished inventory to our customers and (ii) certain customer contracts containing fixed forward price commitments, which result in exposure to changes in metal prices for the period of time between when our sales price fixes and the sale actually occurs.
We use LME aluminum forward contracts to preserve our conversion margins and manage the timing differences associated with the LME base metal component of net sales and cost of goods sold (exclusive of depreciation and amortization). These derivatives directly hedge the economic risk of future LME base metal price fluctuations to better match the purchase price of metal with the sales price of metal. We have exposure to multiple regional LMPs, however the derivative markets for local market premiums is not robust or efficient enough for us to offset the impacts of LMP price movements beyond a small volume. From time to time, we take advantage of short-term market conditions to hedge a small percentage of our exposure. As a consequence, volatility in local market premiums can have a significant impact on our results of operations and cash flows.
We elect to apply hedge accounting to better match the recognition of gains or losses on certain derivative instruments with the recognition of the underlying exposure being hedged in the statement of operations. For undesignated metal derivatives, there are timing differences between the recognition of unrealized gains or losses on the derivatives and the recognition of the underlying exposure in the statement of operations. The recognition of unrealized gains and losses on undesignated metal derivative positions typically precedes inventory cost recognition, customer delivery, and revenue recognition. The timing difference between the recognition of unrealized gains and losses on undesignated metal derivatives and cost or revenue recognition impacts income before income tax provision and net income.
Foreign Currency and Related Hedging Activities
We operate a global business and conduct business in various currencies around the world. We have exposure to foreign currency risk as fluctuations in foreign exchange rates impact our operating results as we translate the operating results from various functional currencies into our U.S. dollar reporting currency at current average rates. We also record foreign exchange remeasurement gains and losses when business transactions are denominated in currencies other than the functional currency of that operation. Global economic uncertainty is contributing to higher levels of volatility among the currency pairs in which we conduct business. The following table presents the exchange rates as of the end of each period and the average of the month-end exchange rates.
Exchange Rate as of
Average Exchange Rate
Three Months Ended
September 30,
Average Exchange Rate
Six Months Ended
September 30,
September 30,
2024 		March 31,
2024 		2024 2023 2024 2023
Euro per U.S. dollar 0.896 0.926 0.908 0.924 0.919 0.922
Brazilian real per U.S. dollar 5.448 4.996 5.589 4.890 5.456 4.931
South Korean won per U.S. dollar 1,320 1,347 1,347 1,315 1,364 1,320
Canadian dollar per U.S. dollar 1.351 1.355 1.360 1.340 1.364 1.343
Swiss franc per euro 0.942 0.974 0.944 0.961 0.959 0.969
Exchange rate movements have an impact on our operating results. In Europe, where we have predominantly local currency selling prices and operating costs, we benefit as the euro strengthens but are adversely affected as the euro weakens. For our Swiss operations, where operating costs are incurred primarily in the Swiss franc and a large portion of revenues are denominated in the euro, we benefit as the Swiss franc weakens but are adversely affected as the franc strengthens. In South Korea, where we have local currency operating costs and U.S. dollar denominated selling prices for exports, we benefit as the South Korean won weakens but are adversely affected as the won strengthens. In Brazil, where we have predominately U.S. dollar selling prices and local currency manufacturing costs, we benefit as the Brazilian real weakens but are adversely affected as the real strengthens. We use foreign exchange forward contracts and cross-currency swaps to manage our exposure arising from recorded assets and liabilities, firm commitments, and forecasted cash flows denominated in currencies other than the functional currency of certain operations, which include capital expenditures and net investment in foreign subsidiaries.
See Segment Reviewbelow for the impact of foreign currency on each of our segments.
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RESULTS OF OPERATIONS
For the three months ended September 30, 2024, we reported net income attributable to our common shareholder of $128 million, a decrease of 18% compared to $157 million in the comparable prior year period, and total Adjusted EBITDA of $462 million, a decrease of 5% compared to $484 million in the comparable prior year period. The decrease in operational performance compared to the comparable prior year period was primarily driven by a relatively rapid increase in scrap prices creating a less favorable metal benefit compared to the prior year and unfavorable product mix from lower automotive shipments globally, including impacts associated with production interruptions at our Sierre, Switzerland plant. These headwinds were partially offset by higher beverage packaging shipments. Net income attributable to our common shareholder was further negatively impacted by charges associated with the impact of flooding at our Sierre, Switzerland plant.
For the six months ended September 30, 2024, we reported net income attributable to our common shareholder of $279 million, a decrease of 11% compared to $313 million in the comparable prior year period, and total Adjusted EBITDA of $962 million, an increase of 6% compared to $905 million in the comparable prior year period. The increase in operational performance was primarily driven by higher beverage packaging shipments and higher pricing, partially offset by unfavorable product mix including the impact of lower automotive shipments, less favorable metal benefit from higher scrap pricing, and higher operating cost. Net income attributable to our common shareholder was further negatively impacted by charges associated with the impact of flooding at our Sierre, Switzerland plant.
Key Sales and Shipment Trends
Three Months Ended Fiscal Year Ended Three Months Ended
in millions, except percentages and shipments, which are in kt June 30,
2023 		September 30,
2023 		December 31,
2023 		March 31,
2024 		March 31,
2024 		June 30,
2024 		September 30,
2024
Net sales $ 4,091 $ 4,107 $ 3,935 $ 4,077 $ 16,210 $ 4,187 $ 4,295
Percentage (decrease) increase in net sales versus comparable prior year period (20) % (14) % (6) % (7) % (12) % 2 % 5 %
Rolled product shipments:
North America 370 390 362 391 1,513 388 396
Europe 250 256 230 246 982 263 233
Asia 176 175 176 183 710 194 198
South America 119 144 176 164 603 154 162
Eliminations (36) (32) (34) (33) (135) (48) (44)
Total 879 933 910 951 3,673 951 945
The following summarizes the percentage (decrease) increase in rolled product shipments versus the comparable prior year period:
North America (4) % 1 % (5) % 8 % - % 5 % 2 %
Europe (8) (4) (5) (1) (5) 5 (9) %
Asia (5) (16) 25 (2) (2) 10 13 %
South America (20) (11) 9 14 (2) 29 13 %
Total (9) % (5) % - % 2 % (3) % 8 % 1 %
Three Months Ended September 30, 2024, Compared to the Three Months Ended September 30, 2023
Net sales was $4.3 billion for the three months ended September 30, 2024, an increase of 5% from $4.1 billion in the comparable prior year period, primarily due to an 1% increase in rolled product shipments and higher average aluminum prices driven by an 11% increase in average LME prices. The main drivers for the movement in shipments are discussed below under Segment Review.
Income before income tax provision was $180 million for the three months ended September 30, 2024, a decrease of 13% from $208 million in the comparable prior year period. In addition to the factors noted above, the following items affected income before income tax provision.
Cost of Goods Sold (Exclusive of Depreciation and Amortization)
Cost of goods sold (exclusive of depreciation and amortization) was $3.6 billion for the three months ended September 30, 2024, an increase of 4% from $3.5 billion in the comparable prior year period, primarily due to the increase in shipments and higher average aluminum prices. Total metal input costs included in cost of goods sold (exclusive of depreciation and amortization) increased $105 million over the comparable prior year period.
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Selling, General and Administrative Expenses
SG&A was $183 million for the three months ended September 30, 2024, which was largely consistent with the comparable prior year period.
Depreciation and Amortization
Depreciation and amortization was $141 million in the three months ended September 30, 2024, an increase of 4% from $136 million in the comparable prior year period.
Interest Expense and Amortization of Debt Issuance Costs
Interest expense and amortization of debt issuance costs was $72 million for the three months ended September 30, 2024, a decrease of 8% from $78 million in the comparable prior year period.
Loss on Extinguishment of Debt, Net
We recorded a $5 million loss on extinguishment of debt, net for the three months ended September 30, 2023. This loss was related to the write-off of unamortized debt issuance costs and discount for the partial extinguishment of the 2020 Term Loan. There were no losses on extinguishments of debt for the three months ended September 30, 2024.
Restructuring and Impairment Expenses (Reversals), Net
Restructuring and impairment expenses, net was a net expense of $21 million and $4 million for the three months ended September 30, 2024, and 2023, respectively. The change primarily relates to a charge of $17 million to write off previously capitalized costs.
Other Expense (Income), Net
Other expenses (income), net was an expense of $65 million and income of $2 million for the three months ended September 30, 2024, and 2023, respectively. The change relates primarily to charges of $61 million related to the Sierre flood.
Taxes
We recognized $51 million of income tax provision for the three months ended September 30, 2024 and 2023. In the current period, our effective tax rate was primarily driven by the full-year forecasted effective tax rate that takes into account income taxed at rates that differ from the 25% Canadian rate, including withholding taxes, and changes to the Brazilian real foreign exchange rate, offset by the availability of tax credits and changes in uncertain tax positions.
Due in part to the regional nature of supply and demand of aluminum rolled products and in order to best serve our customers, we manage our activities on the basis of geographical regions and are organized under four operating segments: North America, Europe, Asia, and South America.
The tables below illustrate selected segment financial information (in millions, except shipments, which are in kt). For additional financial information related to our operating segments including the reconciliation of net income attributable to our common shareholder to Adjusted EBITDA, see Note 16 - Segment, Geographical Area, Major Customer and Major Supplier Information. In order to reconcile the financial information for the segments shown in the tables below to the relevant U.S. GAAP-based measures, "Eliminations and other" must adjust for proportional consolidation of each line item for our Logan affiliate because we consolidate 100% of the Logan joint venture for U.S. GAAP purposes. However, we manage our Logan affiliate on a proportionately consolidated basis and eliminate intersegment shipments.
Selected Operating Results
Three Months Ended September 30, 2024
North America Europe Asia South America Eliminations and Other Total
Net sales $ 1,782 $ 1,115 $ 789 $ 672 $ (63) $ 4,295
Shipments (in kt):
Rolled products - third party 395 233 159 158 - 945
Rolled products - intersegment 1 - 39 4 (44) -
Total rolled products 396 233 198 162 (44) 945
Non-rolled products 3 29 3 24 (4) 55
Total shipments 399 262 201 186 (48) 1,000
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Selected Operating Results
Three Months Ended September 30, 2023
North America Europe Asia South America Eliminations and Other Total
Net sales $ 1,722 $ 1,151 $ 640 $ 593 $ 1 $ 4,107
Shipments (in kt):
Rolled products - third party 390 252 155 136 - 933
Rolled products - intersegment - 4 20 8 (32) -
Total rolled products 390 256 175 144 (32) 933
Non-rolled products 4 26 6 27 - 63
Total shipments 394 282 181 171 (32) 996
The following table reconciles changes in Adjusted EBITDA for the three months ended September 30, 2023, to the three months ended September 30, 2024.
in millions North America Europe Asia South America
Eliminations and Other(1)
Total
Adjusted EBITDA - Three Months Ended September 30, 2023
$ 208 $ 100 $ 82 $ 93 $ 1 $ 484
Volume 6 (32) 24 20 (4) 14
Conversion premium and product mix (15) (9) 15 11 (9) (7)
Conversion costs (18) (1) (31) 1 11 (38)
Foreign exchange 1 2 4 (4) 2 5
Selling, general & administrative and research & development costs(2)
(5) (1) (3) 4 (2) (7)
Other changes 8 4 - (3) 2 11
Adjusted EBITDA - Three Months Ended September 30, 2024
$ 185 $ 63 $ 91 $ 122 $ 1 $ 462
_________________________
(1)The recognition of Adjusted EBITDA by a region on an intersegment shipment could occur in a period prior to the recognition of Adjusted EBITDA on a consolidated basis, depending on the timing of when the inventory is sold to a third-party customer. The "Eliminations and other" column adjusts regional Adjusted EBITDA for intersegment shipments that occur in a period prior to recognition of Adjusted EBITDA on a consolidated basis. The "Eliminations and other" column also reflects adjustments for changes in regional volume, conversion premium and product mix, and conversion costs related to intersegment shipments for consolidation. "Eliminations and other" must adjust for proportional consolidation of each line item for our Logan affiliate because we consolidate 100% of the Logan joint venture for U.S. GAAP, but we manage our Logan affiliate on a proportionately consolidated basis.
(2)Selling, general & administrative and research & development costs include costs incurred directly by each segment and all corporate related costs.
North America
Net sales increased $60 million, or 3%, primarily driven by higher average LME aluminum prices and a 2% increase in rolled product shipments, driven by higher beverage packaging shipments. Higher beverage packaging shipments were partially offset by lower specialty and automotive shipments. Adjusted EBITDA was $185 million, a decrease of 11%, primarily driven by less favorable product mix and lower metal benefit from higher scrap pricing, as well as higher labor cost, partially offset by higher volume and product pricing.
Europe
Net sales decreased $36 million, or 3%, primarily driven by lower automotive shipments due to production interruptions at the Sierre, Switzerland plant due to flooding, partially offset by higher average LME aluminum prices. Adjusted EBITDA was $63 million, a decrease of 37%, primarily driven by production interruptions at the Sierre, Switzerland plant and less favorable metal benefits from higher scrap pricing.
Asia
Net sales increased $149 million, or 23%, primarily driven by a 13% increase in rolled product shipments and higher average LME aluminum prices. The increase in shipments was driven mainly by higher beverage packaging shipments to support demand in North America, as well as higher automotive shipments and aerospace shipments, partially offset by lower specialty shipments. Adjusted EBITDA was $91 million, an increase of 11%, primarily driven by higher volume, partially offset by less favorable metal benefits from higher scrap pricing, and higher energy and labor costs. Additionally, we incurred higher freight costs compared to the prior year period, which in turn resulted in a higher freight cost pass-through in price to customers.
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South America
Net sales increased $79 million, or 13%, primarily driven by a 13% increase in rolled product shipments driven by higher beverage packaging shipments and higher average LME aluminum prices. Adjusted EBITDA was $122 million, an increase of 31%, primarily driven by higher volume, higher product pricing, and favorable product mix.
Six Months Ended September 30, 2024, Compared to the Six Months Ended September 30, 2023
Net sales were $8.5 billion for the six months ended September 30, 2024, an increase of 3% from $8.2 billion in the comparable prior year period, primarily due to a 5% increase in rolled product shipments and higher average aluminum prices driven by an 11% increase in average LME prices, partially offset by metal price hedging activities with an unfavorable period-on-period impact of $222 million. The main drivers for the increase in shipments are discussed below under Segment Review.
Income before income tax provision was $390 million for the six months ended September 30, 2024, compared to $418 million in the comparable prior year period. In addition to the factors noted above, the following items affected income before income tax provision.
Cost of Goods Sold (Exclusive of Depreciation and Amortization)
Cost of goods sold (exclusive of depreciation and amortization) was $7.1 billion for the six months ended September 30, 2024, an increase of 2% from $7.0 billion in the comparable prior year period, driven primarily by higher average aluminum prices and higher production. Total metal input costs included in cost of goods sold (exclusive of depreciation and amortization) increased $49 million over the comparable prior year period.
Selling, General and Administrative Expenses
SG&A was $364 million for the six months ended September 30, 2024, an increase of 2% from $356 million in the comparable prior year period. The increase is mainly due to higher employment expense resulting from higher employment and variable compensation costs.
Depreciation and Amortization
Depreciation and amortization was $281 million for the six months ended September 30, 2024, an increase of 5% from $267 million in the comparable prior year period.
Interest Expense and Amortization of Debt Issuance Costs
Interest expense and amortization of debt issuance costs was $144 million for the six months ended September 30, 2024, a decrease of 7% from $155 million in the comparable prior year period. This decrease is primarily due to lower average interest rates on variable interest rate borrowings and higher capitalized interest.
Loss on Extinguishment of Debt, Net
We recorded a $5 million loss on extinguishment of debt, net for the six months ended September 30, 2023. This relates to the write-off of unamortized debt issuance costs and discount for the partial extinguishment of the 2020 Term Loan. There were no losses on extinguishments of debt for the six months ended September 30, 2024.
Restructuring and Impairment Expenses, Net
Restructuring and impairment expenses, net was a net expense of $40 million and $7 million for the six months ended September 30, 2024, and 2023, respectively. The change primarily relates to the Company's closure of the Buckhannon, West Virginia plant in June 2024, which resulted in charges for restructuring activities of $19 million in the current period, as well as a charge of $17 million to write off previously capitalized costs.
Other (Income) Expenses, Net
Other expenses (income), net was an expense of $125 million and income of $29 million for the six months ended September 30, 2024, and 2023, respectively. The change relates primarily to charges of $101 million related to the Sierre flood and the Company incurring realized losses on the change in fair value of derivative instruments, net, of $32 million in the current period compared to gains of $49 million in the prior year period and unrealized gains on the change in fair value of derivative instruments, net, of $16 million in the current period compared to losses of $19 million in the prior year period.
Taxes
We recognized $111 million of income tax provision for the six months ended September 30, 2024. Our effective tax rate was primarily driven by the full-year forecasted effective tax rate that takes into account income taxed at rates that differ from the 25% Canadian rate, including withholding taxes, offset with the availability of tax credits and changes in uncertain tax positions. We recognized $105 million of income tax provision in the prior comparable period.
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Segment Review
Selected Operating Results
Six Months Ended September 30, 2024
North America Europe Asia South America Eliminations and Other Total
Net sales $ 3,512 $ 2,292 $ 1,505 $ 1,285 $ (112) $ 8,482
Shipments
Rolled products - third party 783 494 318 301 - 1,896
Rolled products - intersegment 1 2 74 15 (92) -
Total rolled products 784 496 392 316 (92) 1,896
Non-rolled products 6 54 5 48 (3) 110
Total shipments 790 550 397 364 (95) 2,006
Selected Operating Results
Six Months Ended September 30, 2023
North America Europe Asia South America Eliminations and Other Total
Net sales $ 3,454 $ 2,332 $ 1,309 $ 1,122 $ (19) $ 8,198
Shipments
Rolled products - third party 760 497 308 247 - 1,812
Rolled products - intersegment - 9 43 16 (68) -
Total rolled products 760 506 351 263 (68) 1,812
Non-rolled products 8 53 15 56 1 133
Total shipments 768 559 366 319 (67) 1,945
The following table reconciles changes in Adjusted EBITDA for the six months ended September 30, 2023, to the six months ended September 30, 2024.
in millions North America Europe Asia South America
Eliminations and Other(1)
Total
Adjusted EBITDA - Six Months Ended September 30, 2023
$ 374 $ 188 $ 169 $ 177 $ (3) $ 905
Volume 31 (13) 43 54 (10) 105
Conversion premium and product mix (18) (25) 13 11 (4) (23)
Conversion costs (27) (4) (47) 15 16 (47)
Foreign exchange 1 - 9 (4) 2 8
Selling, general & administrative and research & development costs(2)
(6) (5) (5) 2 (3) (17)
Other changes 13 12 1 (1) 6 31
Adjusted EBITDA - Six Months Ended September 30, 2024
$ 368 $ 153 $ 183 $ 254 $ 4 $ 962
_________________________
(1)The recognition of Adjusted EBITDA by a region on an intersegment shipment could occur in a period prior to the recognition of Adjusted EBITDA on a consolidated basis, depending on the timing of when the inventory is sold to the third-party customer. The "Eliminations and Other" column adjusts regional Adjusted EBITDA for intersegment shipments that occur in a period prior to recognition of Adjusted EBITDA on a consolidated basis. The "Eliminations and Other" column also reflects adjustments for changes in regional volume, conversion premium and product mix, and conversion costs related to intersegment shipments for consolidation. "Eliminations and Other" must adjust for proportional consolidation of each line item for our Logan affiliate because we consolidate 100% of the Logan joint venture for U.S. GAAP, but we manage our Logan affiliate on a proportionately consolidated basis.
(2)Selling, general & administrative and research & development costs include costs incurred directly by each segment and all corporate related costs.
North America
Net sales increased $58 million, or 2%, driven primarily by higher average LME aluminum prices and a 3% increase in rolled product shipments. Higher beverage packaging shipments were partially offset by lower specialty and automotive shipments. Adjusted EBITDA was $368 million, a decrease of 2%, primarily driven by less favorable product mix, lower metal benefit from higher scrap pricing, and higher labor and other operating costs, partially offset by higher volume and product pricing.
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Europe
Net sales decreased $40 million, or 2%, driven by a 2% decrease in rolled product shipments. Lower automotive shipments due to production interruptions at the Sierre, Switzerland plant as a result of flooding were partially offset by higher beverage packaging shipments and higher average LME aluminum prices. Adjusted EBITDA was $153 million, a decrease of 19%, primarily driven by production interruptions at the Sierre, Switzerland plant, less favorable metal benefit from higher scrap pricing, higher operating cost, and lower specialties pricing.
Asia
Net sales increased $196 million, or 15%, driven primarily by a 12% increase in rolled product shipments due largely to higher beverage packaging shipments, higher average LME aluminum prices, as well as higher automotive shipments, partially offset by lower specialty shipments. Adjusted EBITDA was $183 million, an increase of 8%, primarily due to higher volume and favorable foreign exchange, partially offset by less favorable metal benefits from higher scrap pricing, unfavorable product mix, as well as higher higher labor and energy costs. Additionally, we incurred higher freight costs compared to the prior year period, which in turn resulted in a higher freight cost pass-through in price to customers.
South America
Net sales increased $163 million, or 15%, driven by a 20% increase in rolled product shipments, primarily in the beverage packaging market and higher average LME aluminum prices. Adjusted EBITDA was $254 million, an increase of 44%, primarily due to higher volume, higher product pricing, favorable product mix, and favorable metal benefit.
LIQUIDITY AND CAPITAL RESOURCES
We believe we maintain adequate liquidity levels through a combination of cash and availability under committed credit facilities. Our cash and cash equivalents and availability under committed credit facilities aggregated to $2.1 billion of liquidity as of September 30, 2024. Our primary liquidity sources are cash flows from operations, working capital management, cash, and liquidity under our debt agreements. Our recent business investments are being funded through cash flows generated by our operations and a combination of local financing and our senior secured credit facilities. We expect to be able to fund both our short-term and long-term liquidity needs, such as our continued expansions, servicing our debt obligations, and providing sufficient liquidity to operate our business, through one or more of the following: the generation of operating cash flows, working capital management, our existing debt facilities (including refinancing), and new debt issuances, as necessary.
Available Liquidity
Our available liquidity as of September 30, 2024, and March 31, 2024, is as follows.
in millions September 30,
2024 		March 31,
2024
Cash and cash equivalents $ 1,071 $ 1,309
Availability under committed credit facilities 988 1,008
Total available liquidity $ 2,059 $ 2,317
The decrease in total available liquidity relates to the decrease in cash and cash equivalents, primarily resulting from investing activities during the period. See Note 6 - Debtfor more details about our availability under committed credit facilities.
Cash and cash equivalents includes cash held in foreign countries in which we operate. As of September 30, 2024, we held $27 million of cash and cash equivalents in Canada, in which we are incorporated, with the rest held in other countries in which we operate. As of September 30, 2024, we held $406 million of cash in jurisdictions for which we have asserted that earnings are permanently reinvested, and we plan to continue to fund operations and local expansions with cash held in those jurisdictions. Cash held outside of Canada is free from significant restrictions that would prevent the cash from being accessed to meet the Company's liquidity needs, including, if necessary, to fund operations and service debt obligations in Canada. Upon the repatriation of any earnings to Canada, in the form of dividends or otherwise, we could be subject to Canadian income taxes (subject to adjustment for foreign taxes paid and the utilization of the large cumulative net operating losses we have in Canada) and withholding taxes payable to the various foreign jurisdictions. As of September 30, 2024, we do not believe adverse tax consequences exist that restrict our use of cash and cash equivalents in a material manner.
We use derivative contracts to manage risk as well as liquidity. Under our terms of credit with counterparties to our derivative contracts, we do not have any material margin call exposure. No material amounts have been posted by Novelis nor do we hold any material amounts of margin posted by our counterparties. We settle derivative contracts in advance of billing on the underlying physical inventory and collecting payment from our customers, which temporarily impacts our liquidity position. The lag between derivative settlement and customer collection typically ranges from 30 to 90 days.
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Obligations
Our material cash requirements include future contractual and other obligations arising in the normal course of business. These obligations primarily include debt and related interest payments, finance and operating lease obligations, postretirement benefit plan obligations, and purchase obligations. See Note 6 - Debtto our accompanying unaudited condensed consolidated financial statements and "Liquidity and Capital Resources" within Part II. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in our 2024 Form 10-K for more details.
There are no additional material off-balance sheet arrangements.
Cash Flow Summary
Six Months Ended September 30,
in millions 2024 2023 Change
Net cash provided by operating activities
$ 374 $ 290 $ 84
Net cash used in investing activities (719) (590) (129)
Net cash provided by (used in) financing activities
102 (26) 128
Operating Activities
The increase in net cash provided by operating activities primarily relates to more favorable changes in working capital.
Net Cash Provided by Operating Activities - Continuing Operations and Adjusted Free Cash Flow
Refer to Non-GAAP Financial Measuresfor our definition of adjusted free cash flow.
The following table displays the adjusted free cash flow, the change between periods, as well as the ending balances of cash and cash equivalents.
Six Months Ended September 30,
in millions 2024 2023 Change
Net cash provided by operating activities - continuing operations(1)
$ 374 $ 290 $ 84
Net cash used in investing activities - continuing operations(1)
(719) (590) (129)
Adjusted free cash flow
$ (345) $ (300) $ (45)
Ending cash and cash equivalents $ 1,071 $ 1,158 $ (87)
_________________________
(1)For the six months ended September 30, 2024 and 2023, the Company did not have any cash flows from discontinued operations in operating activities or investing activities.
Investing Activities
Net cash used in investing activities was primarily attributable to capital expenditures of $717 million during the six months ended September 30, 2024. Similarly, net cash used in investing activities was primarily attributable to capital expenditures of $618 million during the six months ended September 30, 2023.
Financing Activities
The following represents proceeds from the issuance of long-term and short-term borrowings during the six months ended September 30, 2024 and 2023.
Six Months Ended
in millions September 30, 2024
Short-term borrowings in Brazil $ 50
China Loan, due September 2027 14
Proceeds from issuance of long-term and short-term borrowings $ 64
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Six Months Ended
in millions September 30, 2023
Floating rate Term Loans, due September 2026 $ 482
Short-term borrowings in Brazil 50
Proceeds from issuance of long-term and short-term borrowings $ 532
The following represents principal payments of long-term and short-term borrowings during the six months ended September 30, 2024, and 2023.
Six Months Ended
in millions September 30, 2024
Short-term borrowings in Brazil $ (50)
Floating rate Term Loans, due September 2026 (4)
Floating rate Term Loans, due March 2028 (2)
China Bank Loans, due August 2027 (6)
Finance leases and other repayments (6)
Principal payments of long-term and short-term borrowings $ (68)
Six Months Ended
in millions September 30, 2023
Brazil Loan, due June 2023 $ (30)
Floating rate Term Loans, due January 2025 (484)
Floating rate Term Loans, due March 2028 (3)
China Bank Loans, due August 2027 (3)
Finance leases and other repayments (11)
Principal payments of long-term and short-term borrowings $ (531)
The following represents inflows (outflows) from revolving credit facilities and other, net during the six months ended September 30, 2024, and 2023.
Six Months Ended
in millions September 30, 2024
ABL Revolver $ 108
Korea credit facility (2)
Revolving credit facilities and other, net $ 106
Six Months Ended
in millions September 30, 2023
ABL Revolver $ 32
China credit facility
(57)
Korea credit facility 1
Revolving credit facilities and other, net $ (24)
In September 2023, Novelis amended the Term Loan Facility and the amendment was accounted for as a partial extinguishment of the 2020 Term Loans, whereby $482 million of the $750 million outstanding at the time of the transaction was deemed an extinguishment and the remaining $268 million was deemed a modification of debt.
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Non-Guarantor Information
As of September 30, 2024, the Company's subsidiaries that are not guarantors represented the following approximate percentages of (a) net sales (including intercompany sales), (b) Adjusted EBITDA, and (c) total assets of the Company, on a consolidated basis (including intercompany balances). Refer toNon-GAAP Financial Measuresfor our definition of Adjusted EBITDA.
Item Description Ratio
Net sales represented by non-guarantor subsidiaries (for the six months ended September 30, 2024)
20 %
Adjusted EBITDA represented by non-guarantor subsidiaries (for the six months ended September 30, 2024)
20 %
Assets owned by non-guarantor subsidiaries (as of September 30, 2024)
15 %
In addition, for the six months ended September 30, 2024, and 2023, the Company's subsidiaries that are not guarantors had net sales (including intercompany sales) of $2.0 billion and $1.8 billion, respectively, and as of September 30, 2024, those subsidiaries had assets of $3.1 billion and debt and other liabilities of $1.6 billion (including intercompany balances).
CAPITAL ALLOCATION FRAMEWORK
Novelis has in place a capital allocation framework that lays out the general guidelines for use of post-maintenance capital expenditure adjusted free cash flow for the next five years. We expect annual maintenance capital expenditures to be between $300 million to $350 million. We believe the long-term demand trends for flat-rolled aluminum products remain strong, and we have approximately $5 billion of debottlenecking, recycling, and new capacity capital investments under way, with a focus on increasing capacity and capabilities to meet growing customer demand. We intend to keep our net leverage ratio at or around approximately 3.5x during our strategic capital investment cycle underway, and guide approximately 8%-10% of post-maintenance capital expenditure adjusted free cash flow to be returned to our common shareholder. Payments to our common shareholder have been $100 million in each of the last three fiscal years, but such payments are made at the discretion of our Board of Directors. Any such payments depend on, among other things, our financial resources, cash flows generated by our business, our cash requirements, restrictions under the instruments governing our indebtedness, being in compliance with the appropriate indentures and covenants under the instruments that govern our indebtedness, and other relevant factors. Past payments of return of capital should not be construed as a guarantee of future returns of capital in the same amounts or at all.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
There were no significant changes to our critical accounting policies and estimates as reported in our 2024 Form 10-K. See Note 1 - Business and Summary of Significant Accounting Policiesfor our principal areas of uses of estimates and assumptions.
RECENTLY ISSUED ACCOUNTING STANDARDS
See Note 1 - Business and Summary of Significant Accounting Policiesto our accompanying unaudited condensed consolidated financial statements for a full description of recent accounting pronouncements, if applicable, including the respective expected dates of adoption and expected effects on results of operations and financial condition.
NON-GAAP FINANCIAL MEASURES
Adjusted EBITDA
Total Adjusted EBITDA presents the sum of the results of our four operating segments on a consolidated basis. We believe that total Adjusted EBITDA is an operating performance measure that measures operating results unaffected by differences in capital structures, capital investment cycles and ages of related assets among otherwise comparable companies. In reviewing our corporate operating results, we also believe it is important to review the aggregate consolidated performance of all of our segments on the same basis we review the performance of each of our regions and to draw comparisons between periods based on the same measure of consolidated performance.
Management believes investors' understanding of our performance is enhanced by including this non-GAAP financial measure as a reasonable basis for comparing our ongoing results of operations. Many investors are interested in understanding the performance of our business by comparing our results from ongoing operations from one period to the next and would ordinarily add back items that are not part of normal day-to-day operations of our business. By providing total Adjusted EBITDA, together with reconciliations, we believe we are enhancing investors' understanding of our business and our results of operations, as well as assisting investors in evaluating how well we are executing strategic initiatives.
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However, total Adjusted EBITDA is not a measurement of financial performance under U.S. GAAP, and our total Adjusted EBITDA may not be comparable to similarly titled measures of other companies. Total Adjusted EBITDA has important limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of our results as reported under U.S. GAAP. For example, total Adjusted EBITDA:
•does not reflect the Company's cash expenditures or requirements for capital expenditures or capital commitments;
•does not reflect changes in, or cash requirements for, the Company's working capital needs; and
•does not reflect any costs related to the current or future replacement of assets being depreciated and amortized.
We also use total Adjusted EBITDA:
•as a measure of operating performance to assist us in comparing our operating performance on a consistent basis because it removes the impact of items not directly resulting from our core operations;
•for planning purposes, including the preparation of our internal annual operating budgets and financial projections;
•to evaluate the performance and effectiveness of our operational strategies; and
•as a basis to calculate incentive compensation payments for our key employees.
Please see Note 16 - Segment, Geographical Area, Major Customer and Major Supplier Informationfor our definition of Adjusted EBITDA. Under ASC 280, Adjusted EBITDA is our measure of segment profitability and financial performance of our operating segments, and when used in this context, the term Adjusted EBITDA is a financial measure prepared in accordance with U.S. GAAP. Adjusted EBITDA reported for the Company on a consolidated basis is a non-U.S. GAAP financial measure. Both terms have the same definition and there is no difference in the composition or calculation of Adjusted EBITDA for the periods presented and Segment Income previously reported.
Adjusted Free Cash Flow
Adjusted free cash flow consists of (a) net cash provided by (used in) operating activities - continuing operations, (b) plus net cash provided by (used in) investing activities - continuing operations, (c) plus net cash provided by (used in) operating activities - discontinued operations, (d) plus net cash provided by (used in) investing activities - discontinued operations, (e) plus cash used in the acquisition of assets under a finance lease, (f) plus cash used in the acquisition of business and other investments, net of cash acquired, (g) plus accrued merger consideration, (h) less proceeds from sales of assets and business, net of transaction fees, cash income taxes and hedging, and (i) less proceeds from sales of assets and business, net of transaction fees, cash income taxes and hedging - discontinued operations. Management believes adjusted free cash flow is relevant to investors, as it provides a measure of the cash generated internally that is available for debt service and other value creation opportunities. In addition, this measure is a key consideration in determining the amounts to be paid as returns to our common shareholder. However, adjusted free cash flow does not necessarily represent cash available for discretionary activities as certain debt service obligations must be funded out of adjusted free cash flow. Our method of calculating Adjusted Free Cash Flow may not be consistent with that of other companies.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND MARKET DATA
This Quarterly Report on Form 10-Q contains forward-looking statements that are based on current expectations, estimates, forecasts and projections about the industry in which we operate, and beliefs and assumptions made by our management. Such statements include, in particular, statements about our plans, strategies, and prospects under the heading "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations," under the Notes to the Condensed Consolidated Financial Statements, and elsewhere in this Quarterly Report. Words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates," "projects," "forecasts," and variations of such words and similar expressions are intended to identify such forward-looking statements. Examples of forward-looking statements in this Quarterly Report on Form 10-Q include, but are not limited to, our belief that, the expected timing and results from investments in certain operating facilities, including our greenfield, fully-integrated rolling and recycling mill currently being built in Bay Minette, Alabama; our projections regarding financial performance, liquidity, capital expenditures, and investments; our expectations regarding trends in demand for aluminum flat-rolled products, including statements about our belief that long-term demand for aluminum automotive sheet will continue to grow; our expectations regarding volatility and uncertainty in general economic conditions; our expectations regarding the impact of lower availabilities and higher corresponding prices of scrap metal inputs on our business; the possible future impacts of geopolitical instability due in part to the Russia-Ukraine conflict; statements about our expectations regarding inventory supply levels in the beverage packaging market; statements about our expectation that automotive demand will grow as a result of increased adoption of aluminum in vehicle structures and components of both traditional internal combustion engine (ICE) vehicles and electric vehicles; statements about our expectation that aerospace demand and shipments will continue to grow driven by increased air traffic and a need for fleet modernization; statements about our belief that significant aircraft industry order backlogs for key OEMS, including Airbus and Boeing, will translate into growth in the future and that our multi-year supply agreements have positioned us to benefit from future expected demand and statements about our expectation that long-term demand for building and construction and other specialty products will grow. These statements are based on beliefs and assumptions of Novelis' management, which in turn are based on currently available information. These statements are not guarantees of future performance and involve assumptions and risks and uncertainties that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed, implied, or forecasted in such forward-looking statements. We do not intend, and we disclaim any obligation, to update any forward-looking statements, whether as a result of new information, future events, or otherwise.
Factors that could cause actual results or outcomes to differ from the results expressed or implied by forward-looking statements include, among other things:
•disruptions or changes in the business or financial condition of our significant customers or the loss of their business or reduction in their requirements;
•price and other forms of competition from other aluminum rolled products producers and potential new market entrants;
•the competitiveness of our end-markets, and the willingness of our customer to accept substitutes for our products, including steel, plastics, composite materials and glass;
•our failure to realize the anticipated benefits of strategic investments;
•increases in the cost or volatility in the availability of primary aluminum, scrap aluminum, sheet ingot, or other raw materials used in the production of our products;
•risks related to the energy-intensive nature of our operations, including increases to energy costs or disruptions to our energy supplies;
•downturns in the automotive and ground transportation industries or changes in consumer demand;
•public health crises, such as the COVID-19 pandemic;
•union disputes and other employee relations issues;
•the impact of labor disputes and strikes on our customers;
•loss of our key management and other personnel, or an inability to attract and retain such management and other personnel;
•unplanned disruptions at our operating facilities, including as a result of adverse weather phenomena;
•economic uncertainty, capital markets disruption and supply chain interruptions, including as a result of geopolitical instability due to the ongoing military conflict between Russia and Ukraine, attacks on shipping vessels in the Red Sea, and the ongoing conflicts in the Gaza Strip and the surrounding region;
•risks relating to certain joint ventures, subsidiaries and assets that we do not entirely control;
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•cybersecurity attacks against, disruptions, failures or security breaches and other disruptions to our information technology networks and systems;
•risks related to rising inflation and prolonged periods of elevated interest rates;
•risks related to timing differences between the prices we pay under purchase contracts and metal prices we charge our customers;
•a deterioration of our financial condition, a downgrade of our ratings by a credit rating agency or other factors which could limit our ability to enter into, or increase our costs of, financing and hedging transactions;
•adverse changes in currency exchange rates;
•our inability to transact in derivative instruments, or our inability to adequately hedge our exposure to price fluctuations under derivative instruments, or a failure of counterparties to our derivative instruments to honor their agreement;
•an adverse decline in the liability discount rate, lower-than-expected investment return on pension assets;
•impairments to our goodwill, other intangible assets, and other long-lived assets;
•tax expense, tax liabilities or tax compliance costs;
•risks related to the operating and financial restrictions imposed on us by the covenants in our credit facilities and the indentures governing our Senior Notes;
•our inability to protect our intellectual property, the confidentiality of our know-how, trade secrets, technology, and other proprietary information;
•risks related to our global operations, including the impact of complex and stringent laws and government regulations;
•risks related to global climate change, including legal, regulatory or market responses to such change; and
•conflicts of interest and disputes arising between Hindalco and the Company that could be resolved in a manner unfavorable to the Company.
The above list of factors is not exhaustive.
This document also contains information concerning our markets and products generally, which is forward-looking in nature and is based on a variety of assumptions regarding the ways in which these markets and product categories will develop. These assumptions have been derived from information currently available to us and to the third-party industry analysts quoted herein. This information includes, but is not limited to, product shipments and share of production. Actual market results may differ from those predicted. We do not know what impact any of these differences may have on our business, our results of operations, financial condition, and cash flow. For a discussion of some of the specific factors that may cause Novelis' actual results or outcomes to differ materially from those projected in any forward-looking statements, refer to the factors discussed in Part I. Item 1A. Risk Factors and Part II. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations of our 2024 Form 10-K, as the same may be updated from time to time in our quarterly reports on Form 10-Q or in other reports which we periodically file with the SEC.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk.
We are exposed to certain market risks as part of our ongoing business operations, including risks from changes in metal prices (primarily aluminum, copper, zinc, and LMPs), energy prices (electricity, natural gas, and diesel fuel), foreign currency exchange rates, and interest rates that could impact our results of operations and financial condition. We partially manage our exposure to energy prices by entering into fixed forward purchase contracts with energy providers, predominantly in Europe. We generally apply the normal purchase and normal sale scope exception to these contracts and do not record the contracts at fair value. These energy supply contracts are not derivatives but function as a risk management tool for fluctuating energy prices. We manage our exposure to other market risks through regular operating and financing activities and derivative financial instruments. We use derivative financial instruments as risk management tools only and not for speculative purposes.
Commodity Price Risks
Metal
The following table presents the estimated potential negative effect on the fair values of these derivative instruments as of September 30, 2024, given a 10% change in prices. Direction of the change in price corresponds with the direction that would cause a negative impact on the fair value of these derivative instruments.
in millions Change in Price Change in Fair Value
Aluminum 10 % $ (232)
Copper (10) (1)
Zinc (10) -
Local market premiums 10 % (6)
Energy
The following table presents the estimated potential negative effect on the fair values of these derivative instruments as of September 30, 2024, given a 10% decline in prices for energy contracts.
in millions Change in Price Change in Fair Value
Natural gas (10) % $ (3)
Diesel fuel (10) (2)
Foreign Currency Exchange Risks
The following table presents the estimated potential negative effect on the fair values of these derivative instruments as of September 30, 2024, given a 10% change in rates. Direction of the change in exchange rate corresponds with the direction that would cause the change in exchange rate to negatively impact the fair value of these derivative instruments.
$ in millions Change in Exchange Rate Change in Fair Value
Currency measured against the U.S. dollar
Brazilian real (10) % $ (22)
Euro (10) (73)
Korean won (10) (65)
Canadian dollar (10) (3)
British pound (10) (23)
Swiss franc (10) (9)
Chinese yuan 10 (4)
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Interest Rate Risks
We are subject to interest rate risk related to our floating rate debt. For every 100 basis point increase in the interest rates on our outstanding variable rate debt as of September 30, 2024, which includes term loan debt, net of interest rate swaps, our annual pre-tax income would be reduced by approximately $8 million. See Note 6 - Debtto our accompanying unaudited condensed consolidated financial statements for further information.
From time to time, we use interest rate swaps to manage our debt cost. As of September 30, 2024, our portfolio includes interest rate swap positions to fix the interest rate on various floating rate debt. See Note 10 - Financial Instruments and Commodity Contractsto our accompanying unaudited condensed consolidated financial statements for further information. A decrease of 10% in the SOFR interest rate as of September 30, 2024, would have an estimated potential negative effect on the contracts' fair value of approximately $3 million.
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Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, include controls and procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including the Principal Executive Officer and the Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Any system of controls, however well-designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system are met.
We have carried out an evaluation, with the participation of our Principal Executive Officer and Principal Financial Officer, of the effectiveness of the Company's disclosure controls and procedures pursuant to Rule 13a-15 of the Exchange Act. Based upon such evaluation, management has concluded that the Company's disclosure controls and procedures were effective as of September 30, 2024.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II-OTHER INFORMATION
Item 1. Legal Proceedings.
We are a party to litigation incidental to our business from time to time. While the outcomes of these matters are uncertain, management does not expect that the ultimate costs to resolve these matters will have a material adverse effect on our consolidated financial position, results of operations, or cash flows. For additional information regarding litigation to which we are a party, see Note 15 - Commitments and Contingenciesto our accompanying unaudited condensed consolidated financial statements.
Item 1A. Risk Factors.
See Part I. Item 1A. Risk Factors in our 2024 Form 10-K and Part II. Item 1A. Risk Factors in our Form 10-Q for the first quarter of fiscal 2025. Except as set forth below, there have been no material changes from the risk factors described in our 2024 Form 10-K and our Form 10-Q for the first quarter of fiscal 2025.
Our business has been, and may in the future be, adversely affected by increases in the cost or volatility in the availability of primary aluminum, scrap aluminum, sheet ingot, or other raw materials used in the production of our products.
The supply risks relating to our metal inputs vary by input type. For example, we produce some of our sheet ingot requirements internally and source the remainder from multiple third parties in various jurisdictions, usually under contracts having a duration of at least one year. If our suppliers are unable to deliver sufficient quantities of aluminum and other raw materials to the necessary locations on a timely basis, including as a result of global supply chain issues, our production could be disrupted and our net sales, profitability, and cash flows could be adversely affected.
As a result of macroeconomic headwinds we have faced over the past several years, such as prolonged inflationary cost pressures, supply chain disruptions, and the impact of public health crises and geopolitical conflicts, we have been adversely affected, and may continue to be adversely affected in the future, by changes in the cost of these or other raw materials as well as labor costs, energy costs and freight costs associated with transportation of raw materials. Prices of certain raw materials may fluctuate due to a number of factors, including general economic conditions, commodity price fluctuations (particularly aluminum on the London Metal Exchange), the demand by other industries for the same raw materials, the availability of complementary and substitute materials, inflationary pressures, and supply shortages and disruptions caused by a public health crisis or geopolitical factors relating to Russia's ongoing military conflict with Ukraine, attacks on shipping vessels in the Red Sea, and the ongoing conflict in the Gaza Strip and the surrounding region. The availability and costs of certain raw materials necessary for the production of our products may also be influenced by private or governmental entities, and may be impacted by mergers and acquisitions, changes in world politics or regulatory requirements (such as human rights regulations or environmental, health and safety laws and regulations or production curtailments), regulations, labor relations between the producers and their work forces, labor shortages, unstable governments in exporting nations, export quotas, sanctions, new or increased import duties, countervailing or anti-dumping duties, infrastructure and transportation issues, market forces of supply and demand, and inflation. We may be unable to offset fully the effects of material shortages or higher costs through customer price increases, productivity improvements or cost reduction programs. In addition, the failures of financial institutions and any related liquidity crises, and any resultant impact on depositor's access to their cash deposits, could negatively impact the ability of our customers to pay amounts owed to us on a timely basis or at all, cause reductions in the liquidity of our suppliers impacting raw material product availability, and cause fluctuations in the costs of raw materials, which could in turn have a material adverse effect on our business or financial condition.
Further, our operational performance is driven in part by our use of recycled aluminum in our aluminum products. The metal benefit from scrap aluminum is driven by consumer and manufacturer demand for scrap aluminum, and its related impact on the supply of scrap aluminum. Any pressure on scrap prices and availability which may result from changing scrap aluminum supply and demand may increase our production costs, which may ultimately adversely impact our results of operations.
We employ a number of strategies to manage raw material pricing volatility such as pass through contracts with customers and hedging of metal prices, but there is no assurance that these activities will be sufficient in fully mitigating raw material cost volatility. Our hedging strategies may be insufficient and our results could be materially impacted if costs of materials increase. Delayed timing in recovering the pass-through of increasing raw material costs may also impact our short-term profitability and certain costs due to price increases or supply chain inefficiencies may be unrecoverable, which would also impact our profitability.
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Item 6. Exhibits.
Exhibit
No. 		Description
2.1
3.1
3.2
31.1
Section 302 Certification of Principal Executive Officer
31.2
Section 302 Certification of Principal Financial Officer
32.1
Section 906 Certification of Principal Executive Officer
32.2
Section 906 Certification of Principal Financial Officer
101.INS XBRL Instance Document
101.SCH Inline XBRL Taxonomy Extension Schema Document
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase
101.LAB Inline XBRL Taxonomy Extension Label Linkbase
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase
104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
NOVELIS INC.
By: /s/ Devinder Ahuja
Devinder Ahuja
Chief Financial Officer
(Principal Financial Officer and Authorized Officer)
By: /s/ Stephanie Rauls
Stephanie Rauls
Senior Vice President, Deputy Chief Financial Officer, and Chief Accounting Officer
(Principal Accounting Officer)
Date: November 6, 2024
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