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Novelis growth strategy sees a key shift

Shubhashish / Mumbai 23 Mar 12 | 12:50 AM

Novelis, owned by the Aditya Birla Group flagship company, Hindalco Industries, has been selling its loss-making assets for a while, even if it means selling a smelter in a high-growth market like Brazil. Now, it has gone a step ahead and decided to sell a business that is doing well, but doesn’t fit into its growth strategy. It is selling three aluminium foil manufacturing plants in Europe to American Industrial Acquisition Corporation (AIAC). The plants are located in France, Luxembourg and Germany.

Philip Martens, president and chief executive officer of Novelis, said, “The foil operations are well-established businesses with strong customer bases. However, they are not aligned with the Novelis growth strategy and, therefore, we believe they will have a better future with AIAC." He said, “Novelis is focused on growing the higher-volume, premium markets of beverage cans, automobiles and speciality products."

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Beverage cans
From shifting its can body plant at Rogerstone in the United Kingdom to India, to shutting down smelters losing cash, the company has done it all. The Rogerstone plant has been shifted to Hindalco’s Hirakud facility in Orissa and will start commercial production soon. The company has already started approaching clients for certifications and approvals mandatory to supply cans. It is also investing $300 million in expanding rolling and recycling mills in Brazil. A little over 10 per cent of this is being spent on setting up a coating line for its beverage can business in the country.

Asia spending
In May, Novelis announced an expenditure of $400 million to strengthen its aluminium rolling and recycling capacities in Asia. Buying out the 31.2 per cent stake of Taihan Electric Wire Co in its Korean subsidiary, Novelis Korea, wasn’t on the cards back then. However, its seriousness on growth from emerging markets can be gauged from how swiftly the company decided to buy the stake from its joint venture partner in November and completed the $350-million financing in a month.

“Our decision to buy out the minority shareholders in Novelis Korea represents another key step in Novelis’ strategy to prepare for future growth in Asia," Martens said, adding: “We believe this transaction will provide Novelis with greater control of our manufacturing assets in the region, while at the same time helping to drive our ongoing initiatives for globally integrated operations."

In September, Novelis opened its first office in China, at Shanghai. It is looking to tap major automotive growth opportunities in Korea and China through this office. “The opening of the Shanghai office is an important step for Novelis to further capitalise on this significant opportunity. With an expansion underway in Korea, combined with our move into China, we can better serve rapidly growing consumer demand in Asia for high-margin can, automotive and specialty products," Novelis said.

In July, it announced an investment of $200 million in its rolling operations in New York to meet the rising aluminium demand in the automobile sector. It is the world leader in aluminum automotive sheet, with more than 50 per cent of the global market share for aluminum sheet used for making structural components and exterior body panels.

At the end of the third quarter of this financial year, Novelis reported liquidity of $857 million. It also revised its pure earnings guidance down slightly to $1.05-1.08 billion for 2011-12. Novelis pegged the free cash flow before capital expenditure target at $600-700 million and capital expenditure at $550-600 million in Brazil, Korea and North America.

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