Q. Novelis has achieved a dramatic turnaround over the last two years. How did the company achieve this, and is it sustainable?
A. Yes, the improvements we've made to the business are sustainable. The largest drivers were structural changes that we made to improve the business: in pricing, product mix, reduced operating costs, and improved efficiencies. While we should continue to improve EBITDA as we optimize our portfolio and footprint and focus on efficiency gains in our plants, it will not be at the same pace you’ve seen over the past two years but at a more moderate pace.
Q. Why did Novelis just do a major recapitalization?
A. In December 2010, Novelis completed a $4.8 billion capital refinancing. The proceeds were used to refinance approximately $2.5 billion of existing indebtedness, return $1.7 billion of capital to our parent company, Hindalco Industries Limited, and pay fees, expenses and other costs associated with the transaction. The new capital structure provides Novelis with several key benefits, including providing more flexibility to achieve future growth objectives, improving our debt maturity profile, and allowing for return of capital to our parent company.
Q. What is Hindalco's long term ownership strategy?
A. Hindalco Industries Ltd. and the Aditya Birla Group view Novelis as a strategic and integral part of its current operations and future growth plans.
Q. What should we expect for long term shareholder remuneration?
A. Novelis has turned around its business over the last two years which has created a significant amount of value for Hindalco as evidenced by their stock price appreciation. Going forward, Novelis will first ensure it has the adequate amount of liquidity to run its operations and fund strategic objectives. The company expects that after reinvesting in its business, it will have sufficient funds to return capital to its shareholder.
Q. How do you manage your exposures to metal and currency risk?
A. We are a pass through business so we can pass on changes in metal prices and other commodities to our customers. In cases where we have exposure due to fluctuations with metal prices, currencies or energy, we enter into different hedging programs to significantly offset this risk.
Q. How should we think about the quarterly swings in unrealized gains/losses on derivatives?
A. We use derivatives primarily to hedge exposures to fluctuations in aluminum prices related to customer fixed-price contracts as well as fluctuations in other commodities and currencies. We do not receive hedge-accounting treatment for most of these derivative positions and therefore must mark them to market. Because these hedge positions extend out through the term of a given sales contract the month to month activities will cause fluctuations in our EBITDA line. While fluctuations occur on a quarterly basis, over time, most of the impact of unrealized derivatives will be offset by the realization of the physical underlying commodity hedged.
Q. What is the company's fiscal year end?
A. The company's fiscal year end is March 31. Our Fiscal Year 2012 thus began on April 1, 2011.
Q. How is the company's global structure set up?
A. Due to the regional nature of the supply and demand of aluminum rolled products, and to ensure we serve our customers with maximum speed and agility, we manage our activities on the basis of geographical area. Novelis is organized under four operating segments: Novelis North America, Novelis Europe, Novelis Asia and Novelis South America.