After a year of high inflation and geopolitical turmoil, Novelis boosted its use of recycled material as part of its strategy to control costs. In addition, Arconic was acquired by a private equity group.
A mixed forecast
Aluminum manufacturer Novelis expects inflationary cost pressures, global supply chain disruptions and geopolitical instability stemming from the Russia-Ukraine conflict to continue for the foreseeable future, according to its annual SEC filing for the fiscal year ending in March 2023.
“Beginning in the fourth quarter of fiscal 2022, we have been impacted by higher energy prices globally, and especially in Europe, where the Russia-Ukraine conflict’s negative impact on energy prices and raw materials has also caused reduced manufacturing and industrial demand,” the filing noted. “We expect such elevated costs and reduced demand until energy prices and economic conditions stabilize.”
The company was able to partially mitigate the inflationary cost impacts with a combination of hedging, charging higher costs to customers and increasing its use of recycled materials, the filing added.
The percentage of recycled content in its aluminum rolled product shipments increased from 57% to 61% year over year, the filing noted. In fiscal year 2022, Novelis purchased or tolled about 1.5 million metric tons of primary aluminum and 2.3 million metric tons of recycled aluminum.
The company recycled over 82 billion used beverage cans, the filing added.
Novelis also expects global long-term demand for aluminum to remain strong, “driven by anticipated economic growth, material substitution and sustainability considerations, including increased environmental awareness” around plastics, the filing stated, despite consumers buying fewer canned items and weakening demand in the building and construction end market.
“We believe the long-term demand trends for flat-rolled aluminum products remain strong, and we have identified more than $4.5 billion of potential organic capital investment opportunities to grow Novelis’ business through debottlenecking, recycling and new capacity investments, focused on increasing capacity and capabilities that meet growing customer demand and align with our sustainability commitments,” the filing stated.
Those investments would be funded by internally generated cash flows, including the approximately $3.3 billion in projects that are already underway, such as a $2.5 billion rolling and recycling plant in Bay Minette, Ala. and a $365 million automotive recycling center in Guthrie, Ky.
Total capital expenditures increased 76% year over year, to $786 million, the press release noted.
In the press release, Dev Ahuja, executive vice president and chief financial officer, said Novelis is “well positioned to navigate current market headwinds and will continue to maintain a disciplined approach to managing cash efficiently as we embark on our next phase of transformational growth.”
Financial details
Novelis reported its full-year financial results, reporting a year-over-year decline in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) and shipments, despite an increase in net sales.
The company’s adjusted EBITDA was $1.8 billion, down 11% from the $2.0 billion it reported in fiscal year 2022. A press release attributed the decline to high inflation, high energy and metal costs, and reduced shipments.
Shipments were down 2% year over year, with about 3.8 million metric tons of product shipped. However, net sales increased 8% to $18.5 billion in fiscal year 2023, the press release noted, driven by higher average aluminum prices and higher product pricing.
“The decrease in shipments is mainly due to lower beverage can shipments driven by customer inventory reductions in the second half of the fiscal year as the broader beverage supply chain normalized post-pandemic, as well as softer demand for specialties products,” the press release stated.
Arconic acquired by equity firm
Alcoa recently sold aluminum recycling giant Arconic Corporation to Apollo Group, an investment firm. It was an all-cash transaction that valued the Pittsburgh-headquartered Arconic at $5.2 billion. Arconic manufactures aluminum sheet, plate and extrusions, including from UBCs, at facilities around the world. In the U.S., its Tennessee rolled aluminum plant is one of the largest consumers of UBCs in North America.
Apollo Group also recently infused several billion dollars into various recycling operations. PCR producer Circulus received a $300 million loan from Apollo for further development of its recycling infrastructure, and Apollo became the majority owner of plastic bag manufacturer Novolex in a deal Bloomberg reported is worth $6 billion.
