UPDATE 2-Novelis posts profit, but production disruptions weigh

Wed Feb 13, 2013 2:55am IST

Related Topics

* New software system caused disruptions

* Company says production now back to "near normal" levels

* Global Q4 demand expected to be solid, CEO says

By Allison Martell and Carole Vaporean

Feb 12 (Reuters) - Novelis Inc, the world's largest producer of rolled aluminum products, reported a quarterly profit on Tuesday after a year-earlier loss, but said production disruptions linked to a new software system held back results.

The company, a unit of India's HindalCo Industries Ltd , said the transition to a new enterprise resource planning (ERP) system in North America led to lost shipments, lower productivity and higher costs in its fiscal third quarter, ended Dec. 31.

Novelis said it expects its operating performance to improve, and sees fourth-quarter earnings before interest, taxes, depreciation and amortization coming in higher than in the same quarter a year earlier.

For the third quarter, net sales fell 5.7 percent to $2.32 billion. Shipments were little changed at 647,000 tonnes, compared with 648,000 tonnes a year earlier, in part because of the software system teething pains, which the Atlanta-based company's chief executive said had been worse than expected.

"These implementation issues are largely behind us and production has returned to near normal levels," Chief Executive Philip Martens said in a release.

Most of the sales lost due to software glitches were spot deals in the company's specialty segment, which supplies the electronics, building and construction markets, he said. Long-term fixed contracts with customers in the automotive and beverage markets were not affected.

Net income attributable to its common shareholders for quarter came in at $3 million, compared with a loss of $12 million a year earlier.

The company said results were also held back in part by "unfavorable pricing dynamics," which it attributed to higher premiums in Japan due to rising demand, and increasing input costs in North America.

Looking ahead, Martens said the company expects fourth-quarter results to be more in line with its first and second quarters, when operating profit came in at $91 million and $62 million, respectively.

Solid global demand should keep bolstering revenue, especially in the beverage-can and auto sectors, where consumption continues to outpace supply for aluminum sheet.

"What we're seeing is solid market demand and solid operating performance in Q4. We've already seen it in January. We had a solid performance in Europe, shipments were up in Asia and we had a solid performance in South America," he said.

He said he sees little cause for aluminum prices to rise much above $2,700 per tonne or fall below $1,700 per tonne.

"We see a pretty steady band operating somewhere between $2,000 and $2,100 except for an occasional spike. I'm not sure I see anything on the horizon that would change that," he said.

On Tuesday, benchmark three-month aluminum last traded around $2,120 per tonne on the London Metal Exchange.

Shares of HindalCo rose 0.27 percent on India's National Stock Exchange.

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