Q2 2026 Novelis Inc Earnings Call
Unfortunately.
Greetings and welcome to the novellas Q2 fiscal year 2026 earnings conference calling webcast.
At this time, participants are in listen-only mode.
A question and answer session will follow the formal presentation.
You may be placed in the question queue Anytime by pressing star 1 on your telephone keypad and we ask you, please ask 1 question 1, follow-up and return to the queue.
If anyone should require operator assistance, please press star zero. As a reminder. This conference is being recorded. It's not my pleasure to turn the call over to your host Megan kocher. Please go ahead, Megan.
Thank you, Kevin and good morning or evening, everyone. Welcome to novelas second quarter fiscal year 2026 earnings conference call.
posting our call today is Steve Fischer, our president and chief executive officer and Dev, ahuza our Chief Financial Officer
Following the presentation, the call will be open to analysts and investors for questions.
This conference call is being broadcast on the internet at Novelis.com in the investor section.
A replay of this call will also be available on our website.
Before I turn the call over to Steve, let me remind you that today's earnings release and presentation include forward-looking statements as to find in the private Securities and litigation Reform, Act of 1995.
These statements are subject to risks and uncertainties.
These risks and uncertainties include but are not limited to those factors identified in the release and in our filings with the Securities and Exchange Commission.
Reconciliation of these measurements is provided in the financial statements included with our earnings release, as well, as in the appendix of our presentation. Now, let me turn the call over to Steve.
Thanks Megan.
Good morning, or evening, everyone. And thanks for joining us today.
Our second quarter results demonstrate that the fundamental drivers of our business remain strong, contributing to solid quarterly results despite facing some pockets of market softness and tariff headwinds.
Adjusted EBITDA improved sequentially, as expected, reflecting solid execution in a continued dynamic environment.
Excluding the net tariff impact, adjusted ibida per ton would have exceeded 500 in the second quarter.
With the unexpected Ogo plant fire in mid September, we are intensely focused on the safe and quick recovery of operations.
We are first and foremost thankful. There were no injuries as a result of the event.
We're also.
We also grateful for the Swift response and collaboration between our teams customers and Industry peers.
And equipment suppliers who work tirelessly to restore the Hotmail and minimize customer disruption.
With expectations to restart the Hotmail next month. The impact from the outage is primarily a factor of timing with a headwind. This fiscal year to largely be recovered next year.
Turning back to the quarter Q2 shipments were in line with the prior year, mainly due to novelas production timing.
As demand for infinitely recyclable lightweight. Aluminum Products continues to grow globally.
We continue to see strong demand, particularly for aluminum, beverage, packaging sheet, which is our largest in Market.
While aluminum scrap prices are higher than prior year in some regions, they have continued to stabilize and have even turned favorable in North America as scrap Supply and aluminum local market premiums have increased.
As anticipated adjusted debe, was impacted by a net, negative tariff impact of 54 million in the second quarter.
However, we continue to expect our mitigation strategy to access more U.S. capacity. Customer Pastor is an advocate with the U.S. Administration on fair tariff relief, which will reduce the net tariff impact over the next couple of quarters.
Earlier this year we announced a 300 million 3 year cost efficiency program to defend and improve our margins.
We have already taken a number of actions around organization redesign and footprint rationalization visible in our Q2 results that accelerate our savings expectations this year.
We now anticipate exiting, fiscal 26 at a run rate. Savings level above 125 million.
Plant in the us to bring much-needed capacity to an undersupply domestic Market.
Our Greenfield rolling and recycling, plant in bayonet, Alabama is on track to hit some exciting milestones.
We will begin commissioning, the coal Mill at bayonet, next quarter and the rest of the plant to follow, as we track toward total project commissioning in the second half of 2026.
I'll cover our business and Market Outlook in more detail in a few minutes. But first, I'd like to turn the call over to Deb for more detailed review of our current quarter Financial results.
Thank you Steve and good morning or good evening.
Let's turn to slide 5 and our queue to financial highlights compared to the prior period.
As Steve just outlined, excluding some extraneous factors, our underlying business is performing well.
net sales increased 10% to 4.7 billion dollars primarily driven by higher average aluminum prices.
Total role product shipments were in line with the prior year at 9:41 kilotons, but could have been higher.
If not for capacity constraints at Logan as we ramp up Post Its deep bottlenecking expansion and a customer disruption in Europe.
Slightly lower, beverage packaging and specialty shipments were offset by higher automotive and aerospace. The 1% decrease in beverage packaging shipments was due to the Logan ramp-up and unusually cool and wet weather in Brazil in the quarter, which has since improved.
For the first 6 Months of the Year, beverage packaging shipments are up 3%.
Adjusted EBITDA was down 9% year-over-year to $422 million. In the second quarter, including a $54 million net negative tariff impact, adjusted EBITDA per ton was $448, but excluding the tariff, it was $506 per ton.
Net income attributable to our common shareholder. Increased 27% to 163 million primarily driven by favorable, metal price, lag, and Ciara, flood related charges in the prior year.
Partially offset by lower adjusted ibida and Oswego related charges amongst other items.
Net income, excluding special items, decreased 37% year-over-year in Q2 to $113 million.
Turning to the adjusted evida bridge for Q2 on slide 6.
The lower eida result versus the prior year is primarily due to tariffs
The year-over-year tariff impact on this bridge is higher than the current $54 million impact due to a timing-related, positive tariff reimbursement in the prior year.
Looking at the operational drivers, excluding tariffs, we see the benefit from higher product pricing and our cost efficiency actions, which are ramping up quickly.
In addition, we have seen stable to improving scrap prices in recent months. Particularly in North America, where scrap benefit and availability is now better than the prior year.
However, scrap benefit in other regions will be less favorable than the prior year, driven by a drop in local market premiums and by the primary driver of higher operating costs in the Eida Bridge.
Let's look at Q2 performance year over year by segment. Beginning on page 7.
North America shipments were down 7% year-over-year, despite broadly favorable market demand.
Operational limitations as we ramp up in Logan resulted in lower beverage and packaging shipments, while footprint rationalization and some weaker macro conditions led to lower specialty shipments. These shipment decreases were partially offset by higher automotive shipments due to strong demand.
The 28% decrease in adjusted EBITDA is driven by tariffs. While better scrap prices, a favorable product mix, and higher product pricing were partially offset by the lower volume.
Strong demand for beverage packaging, those shipments increased in each product and market, and would have been even stronger if not for production disruption at 1 of our Automotive customers.
The Improvement in ibida was primarily driven by volume and high product prices partially offset by elevated. Scrap prices.
Turning to the next slide. We had another strong shipment quarter in Asia. Growing 12% year-over-year driven by higher beverage packaging specialty and Aerospace shipments partially offset by lower shipments of Automotive Products.
Adjusted beta increased 9% as higher volume benefits were partially offset by less favorable product mix and higher scrap prices compared to the prior year.
In South America, beverage packaging shipments were down, 2% as Regional consumption, Trends were affected by adverse weather conditions that have since improved.
Adjusted EBA was down, 12% primarily as a result of higher scrap prices compared to the prior year.
Now let's turn to cash flow on slide. 9 year to date. Adjusted free cash flow is an outflow of 499 million compared to the prior year outflow of 345 million, mainly due to lower adjusted Ava and higher Capital expenditures for strategic growth Investments underway.
Partially offsetting this was significantly favorable metal price lag. As a result of the rise in the midwest, premium for fiscal 2026. We continue to expect total Capital expenditures to be in the range of 1.9 to 2.2 billion including approximately 300 million for maintenance capex.
We ended the second quarter with a net leverage of 3.5 times and liquidity of 2.9 billion.
We have completed a number of financing and refinancing activities over the last few quarters. That provided a staggered term debt maturity profile with no near-term maturities.
Our ongoing focus on balance sheet, discipline will support us as we navigate through the near-term. Pressure, resulting from the Ogo outage. We expect the impact on near-term. Iida could Elevate net, leverage into the vicinity of 4 times for a short period of time. Before returning quickly, towards a level around 3.5 times.
Cost efficiencies on the next slide. So novellis has been working on a number of strategic initiatives to defend and improve our margins thereby, building more resiliency in the business.
Earlier this year, we set a 3-year Target to permanently reduce our cost structure by 100 million through operational. Efficiency footprint, rationalization and sgna streamlining actions. We had also set an initial Target to exit fiscal year 2026 at a 75 million savings run rate which last quarter we raised 200 million.
With another quarter behind us. We are again, raising our near-term Target and now expect to exit this year at a savings run rate above 125 million. This is a result of further acceleration of all the cost efficiency initiatives underway.
We believe these actions will drive simplification better leverage technology and automation to gain efficiency and drive margin Improvement.
I'd now like to hand the call back to Steve for a market and business outlook.
Thanks Civ.
First, I want to take a moment to address the fire at our Oswego, New York plant on the evening of September 16th.
Again, we'll relieve it all. Employees were safely evacuated and there were no injuries among our people or First Responders.
We are deeply grateful for the partnership, their partnership and professionalism.
Since that night, our Focus has been on ensuring the safety of our people and the stabilization of the site and restoring operations and rerouting material from around the world to serve our customers.
The fire's impact was contained to the Hotmail and the building structure surrounding it.
all other areas of the plant, Recycling, and casting Cold Rolling Automotive, finishing and shipping were unaffected and production in these areas has continued
With the help of on-site Stadium lighting, work to repair the roof, and adjacent structural damage is able to continue 24/7.
We have installed new roof, trusses trusses procured. All the nearly 7,000 parts needed for repairs.
And large scale cleaning continues across the facility.
We have made considerable progress over the past month, which has allowed us to accelerate our timeline, and we currently expect a hot note to restart in December.
We regret the impact. This is having on our customers and we are continuing to take steps to minimize this disruption.
To do this cross-functional teams have been working diligently to identify and qualify other avenues of Supply from novellas plants around the world.
As well as industry peers to ensure consistent quality and delivery.
I want to recognize the hundreds of employees contractors and partners working around the clock safely efficiently. And with remarkable collaboration,
as a result of this event, we recognize 21 million dollars in charges in the second quarter.
The plant is insured for property damage and business Interruption losses related to such events.
But there will be some timing lag between the cash impact and our ability to recover the insurance claim.
We estimate that we will have a total negative free cash flow impact in the second half of fiscal 2026 from this event of approximately $550 million to $650 million.
Which includes an estimated adjusted? EBA impact of 100 to 150 million.
We currently estimate that approximately 70% to 80% of these impacts will be recovered through insurance in future periods.
While this event represents one of the toughest moments for novellas, it's also a defining one.
We're rebuilding stronger with tighter Global integration. In an unwavering commitment to our customers.
Now, let's take a look at our in-market outlook on. Slide 12.
We believe our diverse portfolio mix in Geographic footprint positions Nobel as well.
To capture the favorable long-term fundamental demand for Aluminum Products across Denmark, markets driven, mainly by sustainability and lightweighting preferences.
Long and near-term demand for aluminum, beverage packaging, remains strong across regions.
And continues to be driven largely by favorable package mix, shift towards aluminum.
In automotive, aluminum continues to win in the marketplace as it offers significant advantages over other materials.
For example.
Aluminum's, lower weight, improves agility, acceleration and braking performance resulting in safer vehicles.
Its strength-to-weight ratio enables higher payload and towing capacity.
Demand for SUVs and pickup trucks in North America—vehicles that use a higher share of aluminum—continues to grow.
However, the softer European macroeconomic environment.
And a recent European OEM disruption limits near-term demand in that region.
In China smaller, lower price, Chinese vehicles that use less aluminum content are winning, share of Automotive, Sales in Asia and Europe.
We estimate. This will soft.
We estimate, this will soften the longer term. Aluminum demand growth rate to arrange of 3 to 5%.
And is the Strategic rationale behind our decision earlier this year to idle 1 of 2 cache lines in China.
Turning the Aerospace.
Structural demand for new aircraft sustains the aluminum aerospace plate and sheet market, but OEM supply chain challenges continue to constrain near-term demand.
And lastly, the demand for specialties in the building and construction market has modestly improved but remains suppressed.
Meanwhile.
Economic and terrifying. Certainty are muting demand in some markets.
Including truck trailer and light gauge products.
And slower EV rollouts are constraining demand in the battery Market.
Burning the slide 14.
We continue to make good progress on the construction of our Greenfield rolling and recycling facility in Alabama.
Corner, Cornerstone of our operations.
And a bold step forward transforming the future of sustainable aluminum manufacturing.
We anticipate that approximately 2/3 of the production of this plant will be for the North America. Beverage packaging Market where demand currently outpaces local Supply.
The remaining capacity will primarily be targeted to the automotive market, with flexibility for specialties production.
We have secured long-term contracts for all the new beverage, packaging capacity at this point and continue to make good progress on the automotive Contracting side.
The team continues to advance steadily across all fronts.
Installation of both the Hot and Cold Mill is in progress, and hiring and workforce training are well underway.
We will reach an exciting moment next quarter, when commissioning of the Cold Mill is set to begin.
Commissioning assets and other areas of the plant will follow over the remainder of the year as we track towards full project commissioning.
With the project now at a very advanced state and in line of sight to commissioning, we now estimate the total project capital cost will be in the order of $5 billion.
This increased cost estimate is a result of a combination of factors including inflation.
Both traditional inflation as well as tariffs.
Higher costs, due to competition for contractors and labor, given the number of significant construction projects going on in the U.S.
We also have more clarity into the requirements of a very complex packages. As we have Advanced Construction at the site,
In importantly, we are laying a robust foundation on which we can expand and grow in the future.
The aluminum industry needs more domestic capacity to meet growing customer demand for automotive, beverage packaging and Specialty, Specialties Aluminum Products and we were building this now at bayonet.
We are in ongoing discussions with the US Administration on tariff relief, and they need to be ready to invest further considering the demand projections suggest additional capacity will be needed.
As such, we need to ensure the site is best designed now, so we can quickly begin future investment at bayonet when the time is right.
In summary, our underlying business is performing well in a dynamic environment.
The fundamental drivers of our business are solid supported by continued, strong demand, particularly in the beverage package and segments.
Our cost efficiency program has accelerated and is now expected to deliver run rate cost Savings in excess of 125 million this year.
In addition, overall scrap prices, continue to Trend in a positive direction.
We are dedicated to utilizing the full strength of our resources for Uso recovery, with a Hotmail restart expected next month.
In leveraging all available options to minimize customer impact.
we have tariff, mitigation actions underway primarily by accessing more us capacity to reduce the net tariff impact starting in Q3
We are advancing strategic Investments like bayonet that drive value as she sustainability goals and capture growing demand for sustainable, aluminum of ARP.
With that, we're happy to take. Uh your questions, I'll turn it back over to the operator.
Thank you. And I'll be conducting a question and answer session. If you'd like, to be placed into the question queue. Please press star 1 on your telephone keypad and as a reminder, we ask you, please ask 1 question and 1 follow up the return to the queue. If you'd like to move your question from the queue. Please press star 2 once again that star 1 and you'll hear a confirmation. Don't indicate your line is in the question queue. And please ask 1 question 1 follow-up to return to the queue.
Our first question is coming from Peter g. R from Shela, your line is now live.
Yeah. Hi good morning. Team 2 questions from my side first on Bay minute. We have seen another uh kex escalation. Now the cost being almost twice of the initial uh Kix out of 2.6 billion. When we initially announced, it was a high T project. Does that mean it's now a single digit title project for us?
Yeah. So um
You know we've made really good progress on this project. This is a project that's uh really a project that comes along every 4 decades and will be here for the domestic us supply for the next you know, 50 years.
This investment, the first phase. Um,
Has come at a higher price.
uh, but we do know that we can efficiently expand office as we've done at other facilities around the world, um, which makes this a a great, you know, overall investment, we're still very confident in the uh greater than a hundred dollars per ton Epicon
A thousand dollars. I'm sorry greater than a thousand dollars even without per ton. Um, and overall uh, we think the the returns will be very solid on this. Um but that you want to add uh in regards. So, first 1 quick correction, uh we never said hi teams. Ira it was mid team S. I mean, just for record.
Having said that uh we did tell you that we are still in double digits after the last cost escalation. Now, we are telling you that we will drop.
A slightly below double digits but we are going to be above the cost of capital that I'm telling you. And why
Because as we have been looking so intensely at our cost, efficiency activities, you saw what Steve what, what what I said earlier about about, how well, those activities are doing, we are also, therefore discovering, uh, you know, more opportunities to drive more efficiency in, in, in the operating cost of the project.
In the uncontracted business.
Uh uh you know which is about 1, third of the total of the total volumes uh in uh in Bay minute. Uh we see pricing opportunities.
Uh, most of the auto business is basic. Most of the uncontracted business is basically auto, and a lot of manufacturing is going to come into the U.S. automotive sector. Manufacturing is going to shift into the U.S. It's already starting to happen. So, we are seeing opportunities which are helping us to still have an IRR, which will justify the attractiveness of the project, i.e., we will still be above the cost of capital. So this is all the background for you.
Sure, thank you for the detailed explanation. My second question is on the cost savings. Congratulations on a higher savings run rate for fiscal 2026. Is there any change in the ultimate savings of $300 per ton run rate, or does that remain as is?
We are saying about $300.
$300 million million dollar sign? Yeah, $300 million.
3. We are saying a will achieve above 30 million dollars and uh,
So so basically as we are accelerating our actions, as we are getting good results, we will come back to you. I mean we are we are we are confident that we are on a very good track. Uh, so that's why for for now let's call it above 300 million. And in time, we will come back as we progress.
Thank you. Our next question is coming from the team at Damn Capital. Your line is now live.
Hi. Uh, thanks for the opportunity. Uh, so with the, uh, payment plan still, uh, one year away almost from commissioning, how confident are we of this $5 billion number? Can we expect a small escalation from here, or is this the final number as it stands, I think?
yeah, so we're you know we're well along now um,
You know, we're excited that we'll be commissioning the coal Mill. Next quarter, all the other pieces of equipment, we'll start right there after, uh, through the uh, uh second half of 2026. We're a full plan. Uh, we'll be commissioned. So we're near the end. So um, the 5 around uh, 5 billion is the right number. Can it be a couple percentage higher or lower? Yes. I mean it's all about execution now. But, but the 5 billion, uh, uh, a very, very good estimate at this point in time.
Understood, uh, and on the parish side, a few quarters back. I think, uh, we were quite confident of US and Canada, reaching a deal. Of course, this is something not in our hands, but, uh, are we now seeing it as a new reality? That this is something, which will continue in the medium to long term and and, and you know this this impact would largely be permanent. And hence, we are making plans to to, to go away from tariffs. Uh uh uh uh or any such measures that that is.
That we're thinking of taking over the next 2 quarters.
Believe will uh significantly M uh start to mitigate that in the second half of uh 20 fiscal 2026.
Um, as it specifically relates to US Canada and what might happen there, it's purely speculation. Um, and we'll have to wait and see, uh, once uh, a bilateral uh, is ultimately put in place. Uh, the sentiment that we get is that that would be an opportunity at least to relook at the 232 aluminum. Uh,
Thank you. Next question today, is coming from meat Morocco from axis Capital, your line is now live.
Uh yeah hi. Thank you for the opportunity, just on the osmo facility uh guidance of 550 to 600 million dollar. It took cash flows in Phi, 2600 to understand 1. Uh what does it do to your uh, Network guidance? Uh, which I think you were giving at 3.56 that
And secondly like how certain are you of those 728% recovery through the insurance uh, with your guided.
So, let me start with the, with the last Point. First, how confident are we? Well, I mean, uh, you know, not very long back. We have gone through the oso experience. Um, you know, where we saw the recovery, uh, in this range. We know our insurance policy and the terms of the insurance policy. So, we have reasonable. We have reasonable basis to talk about the 72 80% recovery. Now, your other question was about, you know, the size of the of the impact which is as you as you will, uh, understand his timing, the 550 to 650 million.
Uh you heard our liquidity number and so, you know, it's not like uh, you know, liquidity in itself is a concern.
uh, having said that, you know, I mean, in a, in a sooner than later time frame, uh,
The parent is going to support us by way of some Equity infusion. Uh the the intent of the equity infusion of like 750 million dollars is basically, uh, to make sure that we respect. You know, the the, the net leverage targets that we set, you know, given the context of the bay minute escalation, uh, both our parent and us, uh, you know, sort of want to make sure that we don't go too far from our commitment, uh, you know, of the 3.5 we as temporarily because of
Of the pressure on ibida from Oswego, you know, the, The Leverage may seem elevated not because of that, but because of of the short-term of the short-term impact on Aida before before before we get the insurance recovery. So add up all this in a, in a sooner than later time frame. We will have an equity infusion primarily. It will help us to take care of the rest of the way minute with the cost escalation. But it will also La, any possible questions around, you know, sort of, uh, meeting the needs of putting Ogo back in Action. So, I hope that that clarifies
Sure. Uh, so by when do you expect the $750 million?
I mean, in a sooner than later time frame, I don't want to put a month or a date on it, uh, but it's in a sooner than later time frame is what I would say.
It is March 26th. It should be afraid of function there.
Yes. I mean if you insist yes I mean but but I'm telling you it's in a, it's in a shorter than later time frame. But yeah I mean if you want to put that date I I think that's reasonable.
Thank you. Our next question, is coming from a landlord from Bank of America. It could be a landlord from Bank of America. Your line is now live.
Uh, good morning. Uh, thank you for that information. Um, especially around the equity infusion. I think like, previously we had talked about raising, um, kind of an additional 350 million of debt. I know you raised 100 million in a solid waste, disposal revenue bonds recently even 250 million, I guess, in light of like the algo fire, the increase in bayonet um capex.
And I think also what you just said the parent infusing Center of 50 million kind of what are your debt raising plans?
Um,
for the foreseeable future.
Uh, right. And, um, so thank you for the question and, um,
That.
Uh then we had planned earlier uh directionally. Uh you know, we have 250 million left. Remember we said between last and this fiscal year we'll be raising uh 1.5 billion. Uh we raised 750 in January uh through the muni bonds. We raised 400 plus 100, the most recent 100 that you referred. Uh, so we have raised 1250, another 250 to go.
Uh,
And uh, you know, also comes the equity infusion, uh, the long and short. What I want to tell you is that, um, we will basically, uh, go a little up. Maybe hover around 4 on the net leverage primarily because of the denominator impact of ebida, uh, ebida from oigo and not the numerator impact, but the denominator impact. So, we will hover around 4 for a short duration, uh, in the next calendar year and by the end of the next fiscal year, uh, we are pretty much going to be back at 3.5. And after that we will we will kind of get onto a journey of kind of positive free, cash, flows and and de-levering. Uh so this is a picture for you. So we are not going to raise to be clear. We are not going to raise any more than the debt that we had already planned. And that is the reason why why this, uh, parental support by way of equity?
Infusion is happening so that we are able to respect the commitments on debt.
Thank you. That's very clear. That may be my follow-up. Um,
Is there a way to describe or just kind of talk about the cadence of the EBITDA and cash flow?
The impact from the Oswego fire sounded like it’s going to hit you in the back half of fiscal 2026.
And then start to become more of a benefit in fiscal 2027 and then exactly kind of a tag on I, I guess. Is the, is the net impact.
Call it 110, which is 20% of 550 million to 195 million which is 30% of 650 million. Like is, is that how we're supposed to think about?
The net impact from a cash flow perspective, and maybe what's the net impact from an EBITDA perspective?
Thank you. I think you got it. Pretty, pretty right.
Uh, so, uh, the cash flow impact is going to come within fiscal year FY26, uh, and, uh, in FY22.
uh I wouldn't be too optimistic I would say, you know, the recovery in FY. 27 will be more back-ended uh towards the, towards the later, part of the fiscal year. So let's say, Steve said, 550 to 650. So let's take the midpoint of that. Um, which is 600. Uh, take about 150 million.
You know, plus minus, right? So so that's really how you should think about. So eventually, uh, the total net cash flow impact will be 450 million and, you know, plus minus, but I think that you're pretty much summarized it pretty well, I would say. And remember that in the beginning, uh, as I was alluding to earlier that there will be a short-term pressure on the Eva because until the time we have insurance confirmations, we cannot book The we cannot book the claim receivable. And so, you know, it will kind of show up in evida starting from
Uh, starting from the third fiscal quarter of the December quarter, uh, you know. So, something to be clear about that will be timing, but in the beginning, it will pressure the EBITDA, uh, to the extent of the volume impact, etc. But going back, I think you captured it pretty well when you were asking your question.
Thank you. Our next question is coming from Society. James from Ambit, your line is now live.
Hey, thank you. Um first we wanted to ask on the um on the comment on scrap. Um you seem to allude that there is some improvement in tightness in North America with the same time you're seeing tighter availability in South America, just wanted to understand. Um because when going into the year the expectation was you'll see greater tightness in scrap in North America. A given competition is also starting and give
Moment in profitability, just wanted to see what's what's going on. In terms of these crafts, paid scrap prices availability uh across markets.
Yeah, no. I mean, uh,
You should not read anything negative. That was not intended at all.
Uh,
Uh so so let me give you some some context and background. So first of all, uh the US conditions on on on scrap spread margins Etc is pretty positive. In fact so much that net net. It is creating a globally positive situation. Uh, as far as the other regions are concerned, uh, you know, I mean, the primary reason I mean availability is not a problem. The markets are very steady. Uh, so we we, we are not talking about anything from from the point of view of concerns. Uh, we did have a bit of, you know, sort of, uh, uh, uh, you know, pull back in availability. Uh, you know, in the quarter of in, in, in Brazil, local local scrap availability. There was a bit of a pullback, but we are now back and there is no. Uh, there is no long-term, uh, concern. So overall the scrap conditions are, I would say net, net, very positive, uh, subject to the only thing that premium
Premiums in the non-us regions are a bit depressed, and that is affecting some scrap margins. Uh, so so net, net. We feel good about scrap. The point that you made about, you know, sort of the depressed, uh, Brazilian uh, uh, the the the the depressed South American profitability. I mean, there is a bit of a timing, uh, there was a maintenance shutdown in this quarter and therefore, you know, you see some quarter on quarter, uh, quarter on quarter, you know, sort of impact, um, you know, a metal conditions, a bag, the market is looking good, it's picking up. So we really don't have any fundamental concerns overall either on scrap availability margins or on South America margins.
So when you put this all together, even you have the outage impacts on as we go. But you have some of the other direct mitigation measures and improvements. How would you look at this kind of get, um, a picture of how to cue to look at. Because you talking about the place it better and, and leverage just kind of understand how to look at it better for the second, I've given different moving parts.
Yeah, so the way to look at the second half is, uh, you know, the 1 out in the second half will be the impact on ebida from oigo. So, the impact on ebida on oigo between between Q3 and Q4, could be of the order of 100 to 150 million dollars. Uh, and so, so that's the, that's the outlier that you need to take into account the rest. I can tell you, I mean, you see the underlying performance uh, you know, of the business, net of tariffs. I mean, we are at, we are at 505 dollars per ton tariff. Mitigation actions will progressively happen. Overall scrap market market conditions are positive, can demand is is is is really good. Uh in in in in a sense, you know, North America is looking good overall. So if you if you add up all the factors, all that you need to think is that there will be a short-term pressure on ibida, uh, you know, because of the timing uh, of the Oswego impact.
Otherwise, you know, we are in pretty good conditions. Um, you know, in terms of the moment, the most importantly, keep in mind, the cost, the cost takeout actions. Uh, they are going very well and progressively, we will start seeing the impact of that. So overall, net, net, uh I would say, we we are in, we are in a pretty uh pretty good situation. Overall, keep in mind, the seasonality of Q3 that we that we always talk about. But overall we feel overall good.
And of the, uh, as Wego impact 100 to 150. Majority of that will be Q3 exactly. Um, we'll probably be in the ballpark of losing about 75 KT, uh, in Q3, there could be a little bit of spill over into Q4, but majority of the 100 to 150 would be Q3.
Thank you. Our next question is coming from S. Nevada from Kotak Securities. Your line is now live.
Uh, yeah, thank you for the chance. Uh, my first, uh, question is on the payment cost escalation. So I just want to understand better what are the reasons for this cost escalation? Is it the plant equipment, construction cost, or some other element?
And then generally, uh, what is the learning for future expansion. I mean, what can we do? Different to better estimate the capital costs before before taking up a project.
You know, as we said we've made very, very good progress, uh, at, uh, uh, bayonet, uh, excited about starting a commission equipment, next quarter. So very positive on, uh, the progress the teams made, um, on the ground. Um, as it relates to, some of the escalation, um, you know, approximately 50% of the escalation of the cost.
Is inflation, you know?
Normal inflation; tariffs competing for subcontractors in a very, very difficult market with all the projects in the U.S. going on.
The uh you know next large bucket is probably 30 to 40% of. It is just this is a mega complex project and as we got into it and and are getting narrowed to you know commissioning uh we realized that there was going to be more costs associated with some of the uh uh package complexities that we were putting in. And so um so that's you know, the other big bucket and then we also are making it future ready. We? We see the market continuing to grow. Uh, we want to make sure that we can
Uh, be in a position to accelerate investment, uh, to capture the market, uh, through the next, you know, into the decade. And so, uh, that's the third bucket, um, as far as learnings
I mean, the biggest learning is really getting much more advanced in the detailed engineering before getting out cost estimates.
Uh, publicly, um, before maybe starting the project, and I think that's the big, you know, learning. This is obviously a project that, uh, you know, was the first one for decades, um, either in the U.S. or, uh, Europe. So it's a mega project. And, uh, yeah, we've, you know, as we got into it, we did realize that there are additional costs there.
Understood understood just a follow-up. Uh, do we expect? I mean, what sort of commercial volume do? We expect in fiscal year 27 given that, uh, we will have the plan, uh, sometime, uh, maybe for more than a quarter. And uh, my second question is generally on Perris and, uh, scrap spreads, uh, now, assuming the tariffs continue and the spreads where it is today,
On a steady state basis. Uh, I mean, uh, do we benefit out of this? Uh,
Or what is the net impact? Uh, uh, because initially, we did quantify an impact. And then, the communication has been in the second half, we will mitigate. And as the scrap space kind of benefits us, we will kind of mitigate it. So, from a fee, 27 point of view—I mean, what is the net impact of tariffs? Uh, we are likely to witness.
On the first 1 out, I'll take the payment out question and uh, hand over to them for the tariffs. Uh, I would not project a lot of uh, third party sales uh, in FY 27. Uh, remember we got a commission and then we've got to qualify with our customers, what? We'll do everything we can. Um, and to the extent, we can get some that's great, but I think, uh, as an assumption, I would not Factor, uh, anything seeing as can't into fiscal 27. And then, as we get into 28, then I think that's when it will always start to see the volumes uh, for payment at come in. So yeah. Uh, so uh, s
I'll take it.
Two pieces. So one is, what is the volume expectation for fiscal year '26? Well, had it not been for what happened in Ogo, we would have seen a slight growth.
Uh, some growth over the full year, uh, uh, last year shipments of 3,757 KT. Uh, but because of the Ogo impact, we may see, uh, a little bit of a decline. So, uh, you know, subject to outlier, uh, from auo. We would have seen some nice growth and, uh, that's primarily because the beverage packaging Market is is doing extremely well. Now your question about what should 1 expect when it comes to tariff impact and and uh, for next year, I I I think that will be very speculative. Uh, you know, because we simply don't know what kind of trade deals will happen and so on and so forth. So we would rather we would rather not kind of speculate on that. We do what we control and what we are doing right now is really uh, you know, working to working to implement the mitigation actions where we should be pretty Advanced, uh, towards the end of this fiscal year based upon what we know for now,
Test is, is at a high level and is is of benefit. Uh, you know, uh but but but honestly, you know, I mean, these are these are all you know how they will pan out. What will happen are all very, very speculative. We are addressing the fundamentals of the business and our entire focus is on driving cost actions, efficiency actions. So that we have enough defensiveness in the system to be able to take care of any ups and downs. And then on tariff, we are doing whatever we can do within our control, we will see how it all goes.
Thank you. Next question is coming from Tesla from InvestTech. Your line is now live.
Yeah, hi. Thanks for the opportunity. A couple of questions. Uh, first is for Dave. Uh, on the slide, we have indicated negatively cash flow impact of 550 to 650 million. Uh, including adjusted a bit of 100 to 150 million. Uh, this is with respect to fire at housego. I just wanted to understand the bridge and uh, why are we stating adjusted a bit over here? Uh, given this is for Phi 26.
Uh,
So when you say Bridge you are you are saying what I mean the bridge between, you know, sort of when the cost will be incurred when the cash flow impact will happen and when it will come back, is that what you mean by Bridge? Uh, uh, uh, no, no not from a Time extend Point, uh, if 1 had to look at or 1, if I had to dissect 550 to 650 million dollars, uh, among the different components.
Uh, how should 1 disc this negative FCF number? Okay, okay. Got it. All right. So so basically the way to dissect it is that
Um, you know, there will be there will be an ibida impact of 100 to 150. The rest of it is going to be largely, uh, repairs. Um, you know, some capex, uh,
A good part of it will be cost to serve, uh, which means to say that we are trying to buy every possible material from our own facilities or from from other, uh, you know, across the industry and that will come at at a higher cost. Because in many cases we will we even of of force to Air Freight the material. So, so a majority of the cost or the cash flow impact out of this will be related to really helping helping our customers in the best possible way uh, to be able to procure materials. Uh, there will be there will be some capex for reconstruction. So all that I can All That I Can Say in summary is that if you take 600 million dollars, and take a 100 to 150 out of that, a majority of the rest, uh, is is going to be towards servicing customers, uh, you know, with with with with with, with, with more expensive material in
These circumstances and and you know, repairs and repairs and capex cost for restoration. So, uh, so at this point in time, it is still work in progress. Uh, as we advance as we close third quarter, we will give you some finer breakdowns.
Uh sure, just to get comfort on this number, should 1 priest that this is the outer limit of the impact: $650 million. The number won't be higher than this, and it won't spill into the next fiscal.
Yes, it won't spill into next fiscal that I can tell you with a high level of confidence. I can also tell you with a high level of confidence that, uh, we have been very, very thoughtful, uh, in giving this range of 550 to 650. Uh, so we have we have a very strong level of confidence uh that uh, there will not be much surprise in this number.
Thank you. Next question. Today is coming from be Cash. Sing from ICICI security, your line is now live.
Thank you sir for the opportunity. So I just wanted to understand the Insight 13, you have written that the China, you are shutting down 2, Chinese Automotive lines, citing low aluminium reductions. So just didn't understand why you think that there would be a low adoption in China. And secondly, can you form a major confidence can say that. Now this is the last escalation in the bay minutes Phase 1 capex.
Yeah, so starting with the uh, Automotive uh sheet in China. We didn't say that there would be no aluminum. We had, uh, uh, previously saw growth uh, in aluminum electric vehicles of larger sizes. And what's happened is
To aluminum and from a cost standpoint. Uh, they they uh are trying to uh, protect their margins.
So the level of adoption of aluminum, uh, penetration has come down.
Uh, there's been more Fierce competition, uh, for aluminum sheet inside of China.
And that led us to make the decision earlier this year to um, take 1 of our cache lines out of service. Not both. So we still have, uh, a cache line there. That, uh, we believe
You know, has the capacity of 100 KT to continue to compete. Um, in what we're seeing in that market today.
So that's on uh China uh Auto uh growth um and the the adjustment that we're making.
Um as it relates to bayonet. Yes, we're a confident in the 5 billion and we don't see a significant move, uh, you know, really 1 way or the other off the 5 billion. So uh we do have a high degree of confidence and and assessment.
Making the next question is coming from touring our wall from. Oh, your line is now live.
Hey, am I the boo?
Hello.
Yeah. Hello. Can you can you come closer? Wonderful? Okay.
Okay.
Uh, is this good?
Okay, so I got two questions, one each on day and minute, and as we go. So firstly, on the EBITDA, when you suggested that now the IRS and the project have reduced to high single digits, my sense is this would be pertaining only to the first phase.
Correct.
Correct. And and with the second phase, typically, the second phase. Yeah. It's, it's going to be a lot more attractive with the second phase. So yes, you got it, right?
Okay, and our initial understanding here was that, uh, with the second phase, this this project can handle the capacity of about 1.2 million tons, is that the outer threshold or could that number be higher eventually?
So, that is the rated capacity of the Hot Mill. So, that's why we said we can add a second Cold Mill and get to approximately 1.2 million metric tons.
What we've seen with all of our facilities is that we continue to find ways to get additional capacities out of these assets. Over multiple years, after commissioning this, we do believe that there are still efficiencies that can be gained. But for now, for the next...
Ten years. The 1.2 million metric tons is a good number to be thinking about.
Thank you. Next question, today is coming from Rashi Chopra from City. Your line is now live.
Thank you very much.
Just, uh, on the Ole group, uh, you know, the impact of $130 to $150 million on Epic and the cash flow impacting price of $2 to $650. You mentioned that the cost to serve will be, you know, part of the balance after subtracting the EBITDA, but wouldn't cost to serve be, you know, kind of part of the impact? But that's really to do with just the volume as well as, you know, the general costs that are going up.
The cost to serve is not going to be EBITDA; it is going to be below EBIT.
The EBITDA impact of the $100 to $150 that we were talking about is basically all the volume that we have to.
That the net volume that we have to give up to be clear and and the cost of serve is extraordinary uh well above what normally would be to cost to serve. Um, our customers. So it's as Dev highlighted before air freighting uh coils from overseas tariff impacts that are coming in. Even, you know, uh, moving coils by boats. Um, so all of that is the uh, additional cost to serve. That would be extraordinary and we would not uh uh be recording it in any
Understood. And when you say that, you know, the insurance covers business, Interruption losses, with this cost of also the captured in that. I mean, I'm just trying to understand that because you're importing from overseas and you're getting impacted by Paris, does Insurance help you there or that's, I mean, that's really not part of it. Yes.
Submit cost.
Produce. Uh, the cost to serve all, this is part of the coverage. Uh, Rashi, so yes. The answer is yes.
Thank you. Next question today is coming from the Wild Doshi from Diamond. Asia, your line is now live.
Time to look at a question. I just wanted to check a couple of your peers in your call. I mentioned, I have called out the they're going to be benefiting, uh, from the unfortunate incident that has happened across Hugo, and because benefits are likely to go through from the next calendar year. Uh, do you expect these to be temporary or
Uh, these these could be a lasting impact as far as noises concerned.
And, uh, one more question following this is in terms of the working capital impact because of the tariffs and the scrap spreads. Do you expect the working capital to get further impacted going ahead?
Yeah, so on the, on the first 1, um, obviously, as we said in in our comments, uh, we looked for all options for our customers routes through, uh, other novellas Assets in our system globally, we reached out to all of our peers, uh, to see what uh, open capacity. They might have that we could qualify as well. So, uh, there's no doubt that, um, our peers and and I thank them have stepped, uh, stepped up and helped, uh, in this unfortunate.
That period of time for, for our, our Collective customers. You know, and ultimately, I think it's a, it's a show of strength from the aluminum resiliency, uh, as an industry to, to, to work together. Um, I would expect most of that to be, you know, temporary to your question of, uh, of long-term loss. Um, but but would be, uh, you know, over the next few quarters as we catch up our customer, uh, backlog that's needed now,
Yes. And on the working capital, when we gave you the number, we already took into account that there will be a temporary elevation in working capital needs, uh, over the next, um, uh, over the next couple of months, mostly this quarter and spill over into the next quarter. And then that working capital cash will come back. Uh, you know, as we get into the full cycle of as we go starting to produce so there will be an impact on the working capital. It will be short term and it will start coming back fairly soon.
Thank you. We have reached the end of our question-and-answer session. I'd like to turn the floor back over to Mr. Fischer for any further closing comments.
Yes. Uh uh, thank you, uh, Kevin, uh, and thanks to everyone for attending, uh, our call today. Um, again, the fundamental drivers of our business remain strong and while the unexpected fire seagull has been in difficult challenge, I have no doubt that uh, our Collective resilience and discipline.
I will guide us through recovery and position, uh, novellis and and aluminum industry for continued success in the years ahead. So again, thank you for your support and we look forward to providing another business and financial update, uh, on our, Q3 arrange, call in early February, thank you.
Thank you. That sounds conclude today's teleconference webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.