Novelis Second Quarter 2012 Earnings Conference Call Philip Martens President and Chief Executive Officer Steve Fisher Senior Vice President and Chief Financial Officer Brighter Ideas with Aluminum November 9, 2011 Exhibit 99.2 |
2 Safe Harbor Statement Forward-Looking Statements Statements made in this presentation which describe Novelis' intentions, expectations, beliefs or predictions may be forward-looking statements within the meaning of securities laws. Forward-looking statements include statements preceded by, followed by, or including the words "believes," "expects," "anticipates," "plans," "estimates," "projects," "forecasts," or similar expressions. Examples of such statements in this presentation are our stated view regarding our ability to generate free cash flow this fiscal year, our target Adjusted EBITDA for fiscal 2012 our projections for aluminum demand, our projected liquidity levels, expected cost savings from plant closures and anticipated increases to our production capacity from our debottlenecking initiatives. Novelis cautions that, by their nature, forward-looking statements involve risk and uncertainty and that Novelis' actual results could differ materially from those expressed or implied in such 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: changes in the prices and availability of aluminum (or premiums associated with such prices) or other materials and raw materials we use; the capacity and effectiveness of our metal hedging activities, including our internal used beverage cans (UBCs) and smelter hedges; relationships with, and financial and operating conditions of, our customers, suppliers and other stakeholders; fluctuations in the supply of, and prices for, energy in the areas in which we maintain production facilities; our ability to access financing for future capital requirements; changes in the relative values of various currencies and the effectiveness of our currency hedging activities; factors affecting our operations, such as litigation, environmental remediation and clean-up costs, labor relations and negotiations, breakdown of equipment and other events; the impact of restructuring efforts in the future; economic, regulatory and political factors within the countries in which we operate or sell our products, including changes in duties or tariffs; competition from other aluminum rolled products producers as well as from substitute materials such as steel, glass, plastic and composite materials; changes in general economic conditions including deterioration in the global economy, particularly sectors in which our customers operate; changes in the fair value of derivative instruments; cyclical demand and pricing within the principal markets for our products as well as seasonality in certain of our customers’ industries; changes in government regulations, particularly those affecting taxes, environmental, health or safety compliance; changes in interest rates that have the effect of increasing the amounts we pay under our principal credit agreement and other financing agreements; the effect of taxes and changes in tax rates; and our indebtedness and our ability to generate cash. The above list of factors is not exhaustive. Other important risk factors included under the caption "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended March 31, 2011 and our Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2011 are specifically incorporated by reference into this presentation. Non-GAAP Financial Measures This presentation contains non-GAAP financial measures as defined by SEC rules. We think that these measures are helpful to investors in measuring our financial performance and liquidity and comparing our performance to our peers. However, our non-GAAP financial measures may not be comparable to similarly titled non-GAAP financial measures used by other companies. These non-GAAP financial measures have limitations as an analytical tool and should not be considered in isolation or as a substitute for GAAP financial measures. We have included reconciliations of each of these measures to the most directly comparable GAAP measure. In addition, a more detailed description of these non-GAAP financial measures used in this presentation, together with a discussion of the usefulness and purpose of such measures, is included as Exhibit 99.2 to our Current Report on Form 8-K furnished to the SEC with our earnings press release. |
DETAILED FINANCIAL PERFORMANCE NOVELIS STRATEGY QUESTIONS AND ANSWERS FINANCIAL HIGHLIGHTS & OUTLOOK 3 Agenda |
4 4 |
5 (Q2FY12 vs. Q2FY11) Continued Strong Performance Shipments Down 2% to 720 Kilotonnes Net Sales Up 14% to $2.9 Billion Strong Adjusted EBITDA Up 3% to $301 Million Free Cash Flow Before CapEx of $237 Million Liquidity of $993 Million Net Income of $120 Million Second Quarter Financial Highlights |
6 FY12 Targets Adjusted EBITDA $1.10 - $1.15B Free Cash Flow before CapEx of $600 - $700M CapEx of $550 - $600M Primarily for Strategic Investments On Track to Achieve Record FY12 Results |
7 Strong & Predictable Results Competitive Advantages in this Market Recession Resistant Growth in Emerging Markets Increasing Substitution Low Exposure to True Commodity Type Product and |
8 |
9 Shipments & Sales Shipments by Region Total Company Sales (Billions) • Shipments (Kt) Solid Global Demand $1.0 $1.5 $2.0 $2.5 $3.0 $3.5 Shipments Sales Q2FY12 Q2FY11 2.5 2.9 200 350 500 650 800 Q2FY11 Q2FY12 0 50 100 150 200 250 300 South America Asia Europe North America (2%) 0% (4%) (3%) |
10 Adjusted EBITDA/Shipments Adjusted Pre-Tax Income* EBITDA, Shipments and Pre-Tax Income Strong EBITDA – Up 3% on Shipment Decrease of 2% EBITDA & Pre-Tax Income (Millions) • Shipments (Kt) Shipments Adjusted EBITDA * Adjusted Pre-Tax Income excludes restructuring charges, unrealized gains/losses on derivatives, gain/loss on sale of assets, gain on litigation. $0 $40 $80 $120 $160 Q2FY11 Q2FY12 $200 $225 $250 $275 $300 $325 $350 Q2FY11 Q2FY12 291 301 137 128 0 150 300 450 600 750 900 |
11 (Millions) Adjusted EBITDA Trend Driving Consistent & Predictable Results |
12 Less Controllable Business Variables Adjusted EBITDA Q2FY11 vs. Q2FY12 (Millions) |
13 (Millions) Free Cash Flow Before CapEx Expect to Generate ~$600-700 Million for FY12 |
(Millions) Capital Expenditures Focused on Strategic Investments CapEx Plan: CapEx plan Back-end Weighted Strategic Investments of ~$410-$460M Maintenance Investments of ~$140M FY11 FY12 ~550-600 $0 $100 $200 $300 $400 $500 $600 $700 234 107 48 67 23 Q1 Q2 FY 14 |
15 |
16 Source: Novelis Estimates and March 2011 CRU Long-Term Global Trends in Aluminum Demand Electronics & High-End Specialties Beverage Can Automotive ~25% ~25% ~6% ~6% ~4-5% ~4-5% Strong Long-Term Outlook Long-term (CY11-16) 16 |
17 Committed to Capitalizing on Strong Market Growth and Solidifying Market Leadership Through Expansion Novelis Long-Term Strategy Long-Term Strategic Investments Long-Term Strategic Investments Brazil Mill Expansion Asia Mill Expansion North America Mill Expansion 17 |
18 Brazil Mill Expansion – Status Update Expansion Project Additional Capacity Product Segment Annual Beverage Can Growth of 7% for S.A. over the next 5 years ~$300M Halfway Through Expansion – On Track & On Budget On Track for Incremental Capacity of ~220kt by End of CY 2012 Investment & Status |
19 Brazil Mill Expansion Cold Mill 3 Foundation Pre-assembling Cold Mill stands Line-D Casting Center Foundation 19 |
20 Brazil – Additional Investment New Recycling Line Adds Recycling Capacity of ~190 kts of UBC and scrap, brings total recycling capacity to ~390 kts ~$30M Late CY2013 Additional Capacity Investment & Status Benefits • Drives Towards 80% Recycled Content Goal • Ensures Metal Supply • Reduces Costs 20 |
21 Korea Mill Expansion – Status Update Expansion Project Investment & Status Additional Capacity Product Segment Annual FRP Growth of 8% for Asia over the next 5 years ~$400M Broke Ground in Q2 On Track for Incremental Capacity of ~350kt by End of CY 2013 21 |
22 North America Mill Expansion – Status Update 22 Expansion Project Investment & Status Additional Capacity Product Segment Strong Double Digit Annual Auto Sheet Growth in N.A. over the next 5 years On Track for Incremental Capacity of ~200kt by Mid CY 2013 ~$200M Broke Ground in Q2 |
23 Source: Ducker Worldwide and The Aluminum Association, Oct. 2011 Government Regulation Driving Aluminum Demand 0 100 200 300 400 500 600 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 Driven by Castings 23 Driven by Sheet Aluminum Content in Pounds per Light Vehicle - History and Forecast - Aluminum Content Growth to be Driven by Sheet Starting 2015 |
24 Summary Performance Remains Solid Across Four Operating Regions Planning to Achieve Record FY12 Adjusted EBITDA of $1.10 - $1.15B Making Headway on Global Investments: • Three Large Mill Expansions on Track & Budget • Global Recycling Initiatives on Track & Budget 24 |
25 |
26 |
27 Income Statement Reconciliation to Adjusted EBITDA (in $ m) Q1 FY10 Q2 FY10 Q3 FY10 Q4 FY10 FY 10 Q1 FY11 Q2 FY11 Q3 FY11 Q4 FY11 FY11 Q1 FY12 Q2 FY12 Net Income (loss) Attributable to Our Common Shareholder 143 195 68 (1) 405 50 62 (46) 50 116 62 120 - Interest, net (40) (41) (42) (41) (164) (36) (37) (42) (79) (194) (73) (73) - Income tax (provision) benefit (112) (87) (48) (15) (262) (15) (56) (33) 21 (83) (59) 7 - Depreciation and amortization (100) (92) (93) (99) (384) (103) (104) (100) (97) (404) (89) (81) - Noncontrolling interests (18) (19) (13) (10) (60) (9) (11) (11) (13) (44) (15) (10) EBITDA 413 434 264 164 1,275 213 270 140 218 841 298 277 - Unrealized gain (loss) on derivatives 299 254 62 (37) 578 (47) 1 9 (27) (64) 26 (1) - Realized gain on derivative instruments not included in segment income - - - - - - - 4 1 5 2 - - Loss on early extinguishment of debt - - - - - - - (74) (10) (84) - - - Proportional consolidation (16) (17) 2 (21) (52) (10) (11) (10) (14) (45) (13) (12) - Restructuring charges, net (3) (3) (1) (7) (14) (6) (9) (20) 1 (34) (19) (11) - Others costs, net 9 1 1 (3) 8 13 (2) (7) (13) (9) (4) - Adjusted EBITDA 124 199 200 232 755 263 291 238 280 1,072 306 301 Other Income (expense) Included in Adjusted EBITDA - Metal price lag (30) (10) 3 2 (35) 9 19 - (3) 25 5 15 - Foreign currency remeasurement 5 13 (6) 4 16 (22) 20 1 9 8 (8) - - Purchase accounting 52 49 42 (2) 141 (3) (4) (3) (3) (13) (3) (3) - Can price ceiling, net (54) (54) (20) - (128) - - - - - - - |
28 Free Cash Flow (in $m) FY10 FY11 FY12 Q1 Q2 Q3 Q4 Full Year Q1 Q2 Q3 Q4 Full Year Q1 Q2 Cash Provided by (used in) Operating Activities 256 195 179 214 844 22 102 94 236 454 (115) 171 Cash Provided by (used in) Investing Activities) (233) (196) (55) 0 (484) 27 (2) (39) (99) (113) (79) (40) Less: Proceeds from Sales of Fixed Assets (3) (1) 0 (1) (5) (15) (3) (10) (3) (31) 0 1 Free Cash Flow 20 (2) 124 213 355 34 97 45 134 310 (194) 130 |
29 Explanation of Other Income (Expenses) Included in our Adjusted EBITDA 1) Metal Price Lag Net of Related Hedges: On certain sales contracts we experience timing differences on the pass through of changing aluminum prices from our suppliers to our customers. Additional timing differences occur in the flow of metal costs through moving average inventory cost values and cost of goods sold. This timing difference is referred to as Metal Price Lag. We have a risk management program in place to minimize impact of this “lag”. 2) Foreign Currency Remeasurement Net of Related Hedges: All non-functional currency denominated Working Capital and Debt gets remeasured every period by the period end exchange rates. This impacts our profitability. Like Metal Price Lag, we have a risk management program in place to minimize impact of such Remeasurement. 3) Purchase Accounting: Following our acquisition, the consideration and transaction costs paid by Hindalco in connection with the transaction were “pushed down” to us and were allocated to the assets acquired and the liabilities assumed. These allocations are amortized over periods, impacting our profitability. A significant portion of such amortizations pertain to ceiling contracts. 4) Can Price Ceilings: Some sales contracts contained a ceiling over which metal prices could not be contractually passed through to certain customers. This negatively impacted our margins and cash flows when the price we paid for metal was above the ceiling price contained in these contracts. These contracts expired December 31, 2009. |