NOVELIS INVESTOR PRESENTATION - May 2017 Megan Cochard Director, Investor Relations 404-760-4170
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NOVELIS INVESTOR PRESENTATION May 2017 Megan Cochard Director, Investor Relations 404-760-4170 Megan.cochard@novelis.adityabirla.com © 2017 Novelis
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 forward-looking statements in this presentation including statements concerning our plan to complete a joint venture transaction with Kobe Steel. 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 hedging activities; 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; 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 credit facilities and other financing agreements; the effect of taxes and changes in tax rates; and our level of 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 upcoming Annual Report on Form 10-K for the fiscal year ended March 31, 2017 are specifically incorporated by reference into this presentation. © 2017 Novelis 2
AGENDA 1 Business Profile & Strategy 2 Auto & Can Market Outlook 3 Financial Performance 4 Appendix © 2017 Novelis 3
BUSINESS PROFILE &
STRATEGY
© 2017 Novelis
NOVELIS IS A GLOBAL INDUSTRY LEADER
Novelis is the #1 aluminum rolled products supplier worldwide
Global footprint with 24 operations spanning 10 countries with
~11,000 employees
For the fiscal 2017 year ended 3/31/2017, achieved:
3,067kt shipments
$9.6 billion revenue
$1,085 million of adjusted EBITDA excluding metal price lag*
$361 million in free cash flow
© 2017 Novelis 5
*Adjusted EBITDA excluding metal price lag
OUR GLOBAL FOOTPRINT
Norf, Germany
Ohle/Luedenscheid, Germany
Nachterstedt, Germany
Kingston, Canada Latchford, UK
Göttingen, Germany
Warren, Ohio Oswego, New York
Yeongju, S.Korea
Berea, Kentucky Pieve/Bresso, Italy Ulsan, S. Korea
Fairmont, W. Virginia
Terre Haute, Indiana Crick, UK
Logan, Kentucky Changzhou, China
Sierre, Switzerland
Greensboro, Georgia
Binh Duong, Vietnam
Pinda/Santo Andre, Brazil
Automotive Beverage Can Specialty & Other
© 2017 Novelis 6
CONSISTENT STRATEGY
Optimize our global rolling
Utilize our global capacity
capacity
Grow shipments of premium
Strengthen our flat rolled products
product portfolio
Improve operational
Drive operational efficiency, safety, customer
excellence service, product quality, and
metal mix to manage costs
Building financial flexibility
Strengthen our while evaluating strategic
balance sheet opportunities
© 2017 Novelis 7
AUTO & CAN MARKET
OUTLOOK
© 2017 Novelis
GLOBAL AUTOMOTIVE PRODUCTION
Overall global production is expected to stay flat over the next 3 years for Europe and N. America
China will continue to be the largest automotive market with growth exceeding all other regions
Aluminum intensive vehicles, such as trucks, SUVs, and electric vehicles, will continue to grow at a
faster rate than the overall market in North America, Europe, and China
Global Production (million units)1 Production Changes by Segment (million units)1
North America Europe China
-0.2 2012 - 2016
29.3 N America Car
27.9 27.9 -0.4 2016 - 2019
27.4
2.6
N America LT
22.2 22.4 0.5
21.5 22.0
-0.1
17.8 17.6 17.8 18.0 Europe Car
-0.4
2.3
Europe LT
1.3
1.4
China Car
-0.5
7.4
China LT
2.4
CY16 CY17 CY18 CY19
© 2017 Novelis 9
1Source: IHS Markit
ALUMINUM PENETRATION
Flat rolled aluminum demand will continue to grow as OEMs lightweight vehicles to comply with strict
emission standards and meet customer performance demands
Ducker Worldwide projects increased penetration of aluminum sheet leading to significantly higher
demand over the next 8 years
Higher penetration rates expected in hang-ons due to higher value and lower complexity
European Average AL Body Sheet Per Vehicle1 (kg) European AL Sheet Penetration1
Low Scenario High Scenario 45 33%
41 Hoods 37%
50%
11%
31 Doors 15%
29 29%
20%
22 Fenders 23%
35%
21%
Boots 25%
37%
6%
Roofs 8%
9%
2016 2020 2025
2016 2020 2025
© 2017 Novelis 10
1Source: Ducker Worldwide- Aluminum Content in Cars PresentationGLOBAL REGULATORY LANDSCAPE
Europe
The European Commission adopted a long-
United Sates term strategy in 2017 to drive emission China
reduction through research, innovation,
Although CAFE standards are being legislation, and EV infrastructure China has announced the development of
reviewed we expect little impact on the • Stable emission reduction legislation is the EV industry is a strategic target and will
strategy of OEMs to lightweight supported at the federal and municipal be supported through policies promoting
• A final CAFE determination will take level charging infrastructure, batteries, and
years to develop • Following the diesel scandals European adoption
• The global market requires domestic OEMs are seeking new ways to reduce • Introduced strict emission standards for
OEMs to continue to produce vehicles emissions 2020 and 2025
that are competitive and comply globally • EVs receive subsidies, immediate
• The United States is not a “technology access to vehicle plates, and no driving
island” limitations
© 2017 Novelis 11DEMAND IN CHINA FOR ELECTRIC VEHICLES TO GROW
AND LEAD THE WAY
KEY ATTRIBUTES
Government policies
supporting emission
regulation and infrastructure
driven by decrease in
dependence on imported oil
EVs do not have driving Beijing Before and After Banning 2.5M Cars for 2 Weeks
restrictions
Most OEMs regard EVs
as a key strategic focus
Source: CNN
© 2017 Novelis 12LIGHTWEIGHTING IS A MULTI- MATERIAL OPPORTUNITY
Aluminum sheet has a small share of the Body-in-White market
Lighter materials have significant opportunity to increase market share compared to mild steel
Novelis is continuing to produce innovative alloys that provide OEMs with lighter and stronger
material options
Global Steel and Aluminum Market Share1 N. America Body and Closure as a % of Weight2
85.5 Mt Steel for automotive, 2016
2015 2025
4.0% 2.0%
1.0%
16.0%
20.0%
41.0%
76.0% 40.0%
2.2 Mt Aluminum sheet for automotive, 2020
1.4 Mt Aluminum sheet for automotive, 2017 Mild & HSLA AL Sheet AL VD Castings
AHSS/UHSS AL Extrusions
© 2017 Novelis 1Source: 13
OICA, World Steel, Novelis Internal
2Source: Ducker Worldwide- 2015 N America Light Vehicle Aluminum Content StudyCAN MARKET DYNAMICS
Customer consolidation creating
pricing pressure, but Novelis is
offsetting through operational
improvements
Continued overcapacity,
particularly in China
Multi-year economic downturn in
Brazil, expect some recovery by
year-end
Relatively balanced North
American market
© 2017 Novelis 14FINANCIAL HIGHLIGHTS © 2017 Novelis
FISCAL 2017 FULL YEAR HIGHLIGHTS
Record Adjusted EBITDA* $1,085 million, up 13% YoY
Adjusted EBITDA* per ton $354
Generated record free cash flow $361 million
Reduced net debt leverage ratio below 4x
Full year Adjusted EBITDA* ($ millions) Full year free cash flow ($ millions)
$600
$1,100 361
$400
160
$200 71
$1,000
$0
(16)
($200)
$900
($400)
$800 ($600) (565)
FY13 FY14 FY15 FY16 FY17 FY13 FY14 FY15 FY16 FY17
Strategic product shift and operational efficiencies drive record results
© 2017 Novelis 16
*Adjusted EBITDA excludes metal price lag in all periodsAUTOMOTIVE GROWTH
Record automotive shipments up 17% FY17 versus FY16
Driven by seamless ramp up of all new finishing assets
Strong customer demand for aluminum sheet
Automotive increased to 18% of FY17 FRP shipments
Q4FY17 exit rate at 20% of shipments
Quarterly global Automotive shipments (kt) Product mix % of total FRP shipments
175
FY16 FY17
150
21% 64% 22% 60%
125
100
15%
75 18%
50
Can Auto Specialties
© 2017 Novelis 17MEANINGFUL OPERATIONAL IMPROVEMENTS
Operational excellence
Safety rates at industry-leading low levels of
recordables
Improved end-to-end recovery leading to
increased asset utilization and uptime
Increased use of recycled materials from 53% to
55% of inputs
Customer focused
Driving quality through 26% reduction in parts
per million defects
Increased satisfaction scores 22 percentage
points
Focus on business fundamentals drives better service, quality and value
© 2017 Novelis 18FULL YEAR ADJUSTED EBITDA* BRIDGE
$ Millions
Higher mix of Auto
Partially offset by some lower
Excluding Alcom, shipments
prices and unfavorable mix
down 45kt YoY
within Can and Specialty
Auto up 80kt
Can down ~150kt
$1,100 28 1,085
112
$1,050
$1,000
963
18
$950
$900 (36)
Operating cost efficiencies
$850
Better metal mix
Partially offset by cost inflation
$800
FY16 Volume Price/Mix Operating Cost SG&A, FX & Other FY17
© 2017 Novelis 19
*EBITDA excluding metal price lag in both periods
Bridge components adjusted to remove net impact of divested ALCOM business, reflected in SG&A, FX & Other as ($3M).FREE CASH FLOW
$ Millions
FY17 FY16
Adjusted EBITDA 1,054 791
Capital expenditures (224) (370)
Interest paid (279) (313)
Taxes paid (128) (126)
Working capital & other (62) 179
Free cash flow 361 160
Free cash flow increase year over year driven by:
Higher Adjusted EBITDA
Completion of prior strategic capital expenditure program
Refinancing driven interest savings
Partly offset by higher working capital due to rising aluminum prices
Generating sustainable free cash flow
© 2017 Novelis 20NET DEBT LEVERAGE RATIO
Net debt/Adjusted EBITDA, excluding metal price lag
7.0
6.5
6.0
5.5
5.0
4.5
4.0
3.5
3.0
Below 4x target one year earlier than anticipated
© 2017 Novelis 21KEY TRANSACTIONS © 2017 Novelis
REFINANCING OF CAPITAL STRUCTURE IN FY17
Total of $4.3 billion in debt refinanced in FY17
Refinanced $2.5 billion of Senior Notes in Q2
Reduced coupon and annual cash interest by ~$55 million
Significantly improved maturity profile
Refinanced $1.8 billion Term Loan in Q4
Lender base moved from US to Asian market
Reduces annual cash interest by ~$24 million
In total, ~$80 million in annual cash interest savings
© 2017 Novelis 23ENTERING A PRODUCTION JOINT VENTURE IN ASIA
Novelis will sell 50% of its ownership interest in its Ulsan, South
Korea facility to Kobe Steel for US $315 million
This venture, named Ulsan Aluminum Ltd., will allow Novelis to:
More efficiently utilize our rolling assets in Korea
Deepen the plant’s focus on the growing automotive aluminum sheet market
Drive operational efficiencies and process enhancements through a
partnership with a high-quality manufacturing company
Provide cash proceeds to enhance our strategic flexibility and reduce net
debt
Leverage our deep experience in successful JVs to more efficiently serve
our customers
Key Facts
■ Year Built: 1969; major upgrade in 2013
■ Employment: 600
■ Plant size: 396,660 square feet (36,850 square
meters)
■ Capabilities: Remelt/recycle, hot & cold rolling,
finishing
© 2017 Novelis 24SUMMARY © 2017 Novelis
SUMMARY
FY17 demonstrated sustainable step-up in
Adjusted EBITDA and free cash flow
Headwinds from Can market overcapacity and
customer consolidation
Mix continues to improve as Automotive
shipments increase
Focus on operational efficiencies and metal
management to manage costs
Strengthening the balance sheet to provide
strategic flexibility ahead of next stage of
growth
Strong sustainable operating performance
© 2017 Novelis 26THANK YOU AND QUESTIONS
THANK YOU
QUESTIONS?
© 2017 NovelisAPPENDIX © 2017 Novelis
INCOME STATEMENT RECONCILIATION TO ADJUSTED
EBITDA
(in $ m) Q1 Q2 Q3 Q4 FY16 Q1 Q2 Q3 Q4 FY17
Net (loss) income attributable to our common shareholder (60) (13) 6 29 (38) 24 (89) 63 47 45
- Noncontrolling interests - - - - - - - 1 - 1
- Interest, net (78) (80) (77) (79) (314) (80) (79) (65) (59) (283)
- Income tax (provision) benefit (15) 3 (16) (18) (46) (36) (27) (47) (41) (151)
- Depreciation and amortization (87) (89) (88) (89) (353) (89) (90) (88) (93) (360)
EBITDA 120 153 187 215 675 229 107 264 240 840
- Unrealized gain (loss) on derivatives 35 (15) (2) (22) (4) (7) 4 21 (13) 5
- Realized gain (loss) on derivative instruments not included in
1 (3) 1 - (1) 1 - 1 3 5
segment income
- Proportional consolidation (7) (8) (7) (9) (30) (8) (8) (4) (8) (28)
- Loss on extinguishment of debt (13) - - - (13) - (112) - (22) (134)
- Restructuring and impairment, net (15) (4) (10) (19) (48) (2) (1) (1) (6) (10)
- Loss on sale of business - - - - - - (27) - - (27)
- (Loss) gain on sale of fixed assets (1) - (1) (2) (4) (4) (2) 2 (2) (6)
- Gain on assets held for sale, net - - - - - 1 1 - - 2
- Others (costs) income, net (7) 1 (6) (3) (16) (7) (4) (6) (4) (21)
Adjusted EBITDA 127 182 212 270 791 255 256 251 292 1,054
Other income (expense) included in adjusted EBITDA
- Metal price lag (85) (54) (26) (7) (172) (13) (14) (4) - (31)
- Foreign currency remeasurement 4 (3) 4 (3) 2 (3) 2 2 3 4
Explanation of other income (expense) Included in 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.
2) Foreign currency remeasurement net of related hedges: All balance sheet accounts not denominated in the functional currency are remeasured every period to the period end exchange
rates. This impacts our profitability. Like metal price lag, we have a risk management program in place to minimize the impact of such remeasurement.
© 2017 Novelis 29FREE CASH FLOW AND LIQUIDITY
(in $ m) Q1 Q2 Q3 Q4 FY16 Q1 Q2 Q3 Q4 FY17
Cash (used in) provided by operating activities (288) 225 64 540 541 (107) 80 178 424 575
Cash used in investing activities (137) (84) (75) (82) (378) (39) (48) (35) (90) (212)
Less: (proceeds) outflows from sales of assets - (1) (1) (1) (3) - 12 (12) (2) (2)
Free cash flow (425) 140 (12) 457 160 (146) 44 131 332 361
Capital expenditures 129 75 78 88 370 44 46 48 86 224
(in $ m) Q1 Q2 Q3 Q4 FY16 Q1 Q2 Q3 Q4 FY17
Cash and cash equivalents 456 462 457 556 556 457 473 505 594 594
Availability under committed credit facilities 708 506 489 640 640 633 573 534 701 701
Liquidity 1,164 968 946 1,196 1,196 1,090 1,046 1,039 1,295 1,295
© 2017 Novelis 30NET INCOME EXCLUDING SPECIAL ITEMS
(in $ m) Q1 Q2 Q3 Q4 FY16 Q1 Q2 Q3 Q4 FY17
Net (loss) income attributable to our
(60) (13) 6 29 (38) 24 (89) 63 47 45
common shareholder
Special items:
Gain on assets held for sale - - - - - (1) (1) - - (2)
Loss on sale of business - - - - - - 27 - - 27
Loss on extinguishment of debt 13 - - - 13 - 112 - 22 134
Restructuring and impairment, net 15 4 10 19 48 2 1 1 6 10
Metal price lag 85 54 26 7 172 13 14 4 - 31
Tax effect on special items (29) (20) (10) (5) (64) (5) (4) (1) (2) (12)
Net Income, excluding special items 24 25 32 50 131 33 60 67 73 233
© 2017 Novelis 31METAL PRICE LAG EFFECT MINIMIZED
Local market premiums reverted back towards historical norms
Reduced premium volatility minimizing metal price lag
$700
Regional Premiums in $/mt
$650
MWP ECDP MJP Brazil
$600
$550
$500
$450
$400
$350
$300
$250
$200
$150
$100
$50
$0
(in $ m) Q1 Q2 Q3 Q4 FY14 Q1 Q2 Q3 Q4 FY15 Q1 Q2 Q3 Q4 FY16 Q1 Q2 Q3 Q4 FY17
Metal price lag (2) 2 (7) 24 17 2 9 8 (13) 6 (85) (54) (26) (7) (172) (13) (14) (4) - (31)
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