Novelis hopes investment will overcome tough Q3

By Joe Whitworth

- Last updated on GMT

Bales of crushed aluminum cans at a Novelis recycling plant. Photo courtesy of Novelis
Bales of crushed aluminum cans at a Novelis recycling plant. Photo courtesy of Novelis

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Novelis has said it is undergoing a “heavy investment period” but added that the focus on key end markets will enable continued growth.

Phil Martens, Novelis president and chief executive officer, said he was “disappointed​” with the results for the three months ending 31 December, but disruption related to production investments was largely finished.  

Novelis reported net income of $3m for the third quarter (Q3) of fiscal year 2013. Excluding tax-effected restructuring in both periods, net the firm reported et income of $8m, compared to a net loss of $11m for the same period last year. 

Net sales were $2.3bn, a 6% decrease compared to the $2.5bn reported in the same period a year ago, which included sales from the company's three foil plants in Europe that were divested. 

Sales were also impacted by lower conversion premiums and lower average aluminum prices when compared to last year.

Adjusted pretax profit was $185m, compared to $213m for the same period in the previous year. 

Plan for the future

This company said the decline was due to problems with an Enterprise Resource Planning (ERP) system. This had resulted in lost shipments, reduced productivity and stabilization costs, and had negatively impacted Q3 2013 by $39m. 

Novelis said it was implementing ERP in North America ahead of the auto heat treatment expansion.

The company experienced unfavorable pricing dynamics in several regions, higher metal input costs in North America, and incremental project start-up costs associated with expansions.

In Europe, there was solid demand for cans with improved volumes and operating performance, partially offset by pricing pressure in specialities.

Asia saw strong demand across all segments but unfavourable pricing and South America hit record quarterly shipments and unfavourable price and mix were offset by cost control.

Challenging quarter

Phil Martens, Novelis president and chief executive officer, said: "The third quarter was challenging as we experienced more production disruptions than expected related to our ERP implementation in North America.” 

He added that the implementation issues were largely finished and production has returned to near normal levels.

"This is a heavy investment period for us that is necessary to maintain and grow our leadership position in the industry and allow us to capitalize on the significant growth we see ahead in our key end-markets," said Martens. 

"While we were disappointed with our results in the third quarter, we are pleased with the strong execution of our strategy. In fact, Brazil is a good example of this, with record shipments and the successful commissioning of our rolling expansion in the region."

Shipments of aluminium rolled products totalled 647 kilotonnes for Q3 2013 compared to shipments of 648 kilotonnes for the same period last year.   

The firm also said it was “progressing well​” on its goal for 80% of recycled content in products by 2020.

Quarter achievements

The commissioning process began in October at the firm’s 265 kilotonne recycling facility in Korea, Asia's largest beverage can recycling centre.  

In November, it broke ground on the world's largest 400 kilotonne aluminum recycling and casting facility in Germany. 

In December, it started the process at its Pinda mill in Brazil, which will add an incremental 220 kilotonnes of capacity once fully operational over the next two to three years, bringing total rolling capacity in South America to 600 kilotonnes, said Novelis.

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