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Hindalco Industries Ltd. Call Transcript 2019

May 8, 2019

59187_rns_2019-05-08_8137fa46-5881-483c-97ed-cd1e080cf79d.pdf

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BSE Limited National Stock Exchange of India
Phiroze Jeejeebhoy Towers Limited
Dalal Street Exchange Plaza, 5th Floor
Mumbai: 400 001 Plot No. C/1, G Block
Bandra Kurla Complex
Bandra (East)
Mumbai - 400 051
Mr. Daniel Schammo
Banque Internationale A Luxembourg
Societe Anonyme
69, Route d'Esch
L-2953 LUXEMBOURG
Fax No. 00 352 4590 2010
TEL. NO. 00 352 4590-1

NOVELIS Q4 AND FISCAL 2019 EARNINGS CONFERENCE CALL

May 8, 2019

Steve FisherPresident and Chief Executive OfficerDev Ahuja Senior Vice President and Chief Financial Officer

Forward-looking statements

Statements made in this presentation which describe Novelis' intentions, expectations, beliefs or predictions may be forwardlooking 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 news release are statements about our expectation that the pending Aleris acquisition will close in the third quarter of this year. Novelis cautions that, by their nature, forward-looking statements involve risk and uncertainty and 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 forwardlooking 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 including in connection with potential acquisitions and investments; risks relating to, and our ability to consummate, pending and future acquisitions, investments or divestitures, including the pending acquisition of Aleris Corporation; 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; 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; changes in government regulations, particularly those affecting taxes, derivative instruments, 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; 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, 2019 are specifically incorporated by reference into this news release.

FISCAL 2019 HIGHLIGHTS

  • Strengthening customer partnerships and delivering:
  • Record financial performance
  • Operational improvements
  • Innovative, sustainable products and processes to growing end markets
  • Opportunities to grow our capacity and capabilities through organic and inorganic investment

Shaping a sustainable world together

© 2019 Novelis

DRIVING OPERATIONAL EXCELLENCE

  • Safety mindset leading to rates at industry-leading low levels
  • Improved production recovery rates leading to incremental capacity
  • Increasing quality & customer service
  • Improved on-time-in-full (OTIF) delivery rates
  • Enhancing sustainability initiatives
  • Increased the percentage of recycled content in our FRP shipments to 61%
  • Reduced CO2 emissions by 5% YoY

Improving product quality, managing costs and unlocking capacity

PROVIDING INNOVATIVE PRODUCTS & PROCESSES

  • Established automotive closed loop recycling system with Volvo Car Group in Europe
  • Enhanced product and process solutions to customers
  • Established Customer Solution Centers in the US, Europe and China
  • Created first aluminum sheet battery enclosure solution
  • Developing innovative, high-strength alloys

NOVELIS PRODUCT END MARKET COMMENTARY

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INVESTMENTS ON TRACK

  • Organic expansions progressing on time and on budget
  • Construction is well underway with all three significant projects
    • 200kt greenfield automotive finishing lines in the U.S. to begin customer qualification late FY20
    • 100kt automotive finishing expansion in China commissioning in FY21
    • Rolling, casting and recycling expansion in Brazil commissioning in FY21
  • Regulatory process related to the proposed acquisition of Aleris continues to progress in line with expectations
  • Transaction close expected in Q3 calendar year 2019, subject to customary closing conditions and regulatory approvals

Greenfield finishing line in Guthrie, Kentucky

CASH line pit foundation in Changzhou, China

New dross house in Pinda, Brazil

FINANCIAL HIGHLIGHTS

Q4 FISCAL 2019 FINANCIAL HIGHLIGHTS

Q4FY19 vs Q4FY18

  • Net income of \$103 million
  • Excluding tax-effected special items*, net income \$130 million compared to \$101 million PY
  • Metal price lag negative \$25 million versus positive \$9 million PY
  • Adjusted EBITDA up 12% from \$319 million to \$357 million
  • Sales up 1% to \$3.1 billion
  • Total FRP Shipments up 8% to 870 kilotonnes
  • Net leverage ratio 2.5x

© 2019 Novelis

*Tax-effected special items may include restructuring & impairment, metal price lag, gain/loss on assets held for sale, loss on extinguishment of debt, loss on sale of business, business acquisition and other integration costs.

Q4 ADJUSTED EBITDA BRIDGE

\$ Millions

8% increase in total shipments driving record quarterly Adjusted EBITDA

FY19 vs FY18

  • Net income attributable to our common shareholder \$434 million
  • FY18 non-recurring items included
    • \$318 million pre-tax gain for sale of ~50% share of UAL
    • \$33 million non-cash income tax benefit related to US tax reform
  • Net income excluding tax-effected special items* increased 12% to \$468 million from \$420 million PY
  • Adjusted EBITDA up 13% from \$1,215 million to \$1,368 million
  • Total FRP Shipments up 3% to 3,274 kilotonnes
  • Net sales up 8% to \$12.3 billion
  • Very strong liquidity of \$1.8 billion

FULL YEAR ADJUSTED EBITDA BRIDGE

FREE CASH FLOW

\$ Millions

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* Free cash flow excludes the gain from Ulsan Aluminum JV transaction and Sierre transaction; see definition of Free Cash Flow in Appendix

  • Free cash flow before capital expenditures increased \$127 million
  • Higher adjusted EBITDA
  • FY20 Guidance
  • Capital expenditures ~\$700 million in FY20 to support strategic investment
  • Robust growth in free cash flow before capex, at current metal prices
  • Free cash flow lower than FY19, but remain significantly positive

SUMMARY

SUMMARY

  • Strong operating performance and favorable market conditions driving financial growth
  • Positive market conditions near and long term in key end markets
  • Making disciplined strategic investments to diversify our product portfolio and strengthen our business
  • Pending Aleris acquisition continues to progress

THANK YOUQUESTIONS?

APPENDIX

NET INCOME RECONCILIATION TO ADJUSTED EBITDA

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(A) Effective in the second quarter of fiscal 2019, management removed the impact of business acquisition and other integration costs from Adjusted EBITDA in order to enhance the visibility of the underlying operating performance of the Company. The impact of "Business acquisition and other integration costs", which are costs, primarily legal and professional fees, presented above associated with our pending acquisition of Aleris, is now reported as a separate line item in this reconciliation and on our condensed consolidated statement of operations. This change in presentation does not impact our condensed consolidated financial statements.

FREE CASH FLOW AND LIQUIDITY

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