The increase in net income, excluding special items, is mainly due to a 12 percent increase in Adjusted EBITDA to a record high $302 million for the second quarter of fiscal 2018. According to Novelis the year-over-year improvement in Adjusted EBITDA is primarily a result of higher shipments, favorable metal costs and operational efficiencies, partially offset by lower beverage can pricing. Adjusted EBITDA reached $377 per ton in the quarter.
Net sales increased 18 percent over the prior year to $2.8 billion for the second quarter of fiscal 2018, driven by higher average aluminum prices and higher total shipments. Shipments of flat rolled products increased four percent to an all-time quarterly record 802 kilotonnes. All regions reported higher total shipments year-over-year. Automotive sheet shipments increased 12 percent, as production has continued to successfully ramp to meet strong customer demand in this growing market – as Novelis quotes.
“As an industry, we are seeing increasing demand for lightweight, high-strength aluminum from global automotive customers based on aluminum’s ability to provide equal or better quality, strength and safety compared to other materials,” said Steve Fisher, President and Chief Executive Officer for Novelis. “At Novelis, our strategy to grow alongside our customers who are adopting innovative aluminum solutions to meet their design, performance and sustainability needs has resulted in a strong balance sheet and the ability to raise our full year guidance. With this increased strategic flexibility we are now actively seeking organic investment opportunities to further expand our leadership position in the growing automotive aluminum sector.”
The company reported free cash flow of $101 million for the second quarter of fiscal 2018, despite a significant rise in aluminum prices during the quarter. The $57 million improvement in free cash flow over the prior year is primarily a result of higher Adjusted EBITDA and lower cash interest payments due to refinancing savings and timing. Capital expenditures in the second quarter of fiscal 2018 were $43 million, $3 million less than the prior year.
“Our continued strong financial performance and proceeds from the Ulsan joint venture transaction further improved our net leverage position in the quarter, and we remain on track to generate record free cash flow this fiscal year,” said Devinder Ahuja, Senior Vice President and Chief Financial Officer for Novelis. As of September 30, 2017, the company reported a strong liquidity position of $1.6 billion.
Full Year Fiscal 2018 Guidance
With strong first half performance and positive momentum going into the second half of the fiscal year, the company raises its fiscal 2018 Adjusted EBITDA guidance to be between $1,150-$1,200 million for the full year. The guidance for fiscal 2018 free cash flow to be between $400-450 million is unchanged, as the company balances working capital headwinds due to higher average aluminum prices with a stronger Adjusted EBITDA outlook.