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New ERP system hurts Novelis profitability

Keywords: Tags  Novelis, earnings report, Philip Martens, aluminum, Michael Cowden

CHICAGO — Novelis Inc.’s profits were hurt by the implementation of a new enterprise planning system (ERP).

The Atlanta-based aluminum producer said that installation of the ERP system at its facilities in North America resulted in lost shipments and reduced productivity in its fiscal third quarter, costing the company about $39 million. Higher metal costs in North America and project startups around the world also affected results, the company said.

Most of the ERP issues were experienced at Novelis’ operations in Oswego, N.Y., president and chief executive officer Philip Martens said during a conference call. He was quick to note that production had largely returned to near-normal levels and that Novelis still intends to roll out ERP systems across its operations worldwide.

Novelis posted net income of $3 million for the three months ended Dec. 31 in contrast to a $12-million net loss in the same period a year earlier on sales that slipped 5.7 percent to $2.32 billion. For the nine months ended Dec. 31, net income of $143 million was down 15.9 percent from $170 million a year earlier on sales that tumbled 13.5 percent to $7.31 billion.

"This is a heavy investment period for us that is necessary to maintain and grow our leadership position in the industry and allow us to capitalize on the significant growth we see ahead in our key end-markets," Martens said in a statement.

Novelis said it began commissioning of a 265,000-tonne recycling facility in South Korea in October, and the following month it broke ground on a 120,000-tonne automotive heat-treatment line in China and a 400,000-tonne aluminum recycling and casting center in Germany.

In Brazil, the company commissioned an expansion at its Pinda mill to increase rolling capacity in South America, but last month Novelis closed a potline at its Ouro Preto smelter because it was no longer competitive to operate.

Martens pointed to anticipated strong growth in the automotive sector as automakers look to reduce vehicle weight. "Demand in automotive sheet is consistently outstripping supply," he said.

European demand for specialty product remains healthy, if spotty, with automotive aluminum capacity "basically sold out" thanks in part to aluminum-intensive vehicles, such as certain Land Rover and Jaguar models, Martens said.

Novelis said it shipped 647,000 tonnes of aluminum rolled products in its fiscal third quarter, virtually even with a year earlier. But shipments in North America were hurt by the ERP problems, Martens said, while in China the company suffered from lower-than-expected growth as well as stiff competition.

Aluminum beverage can growth continues around the world as steel was replaced by aluminum in countries such as Spain, while growth also is expected in the can sector in Brazil, Martens said.

In general, Novelis saw improved global demand in the fiscal third quarter compared with a year earlier, and Martens said he expects improvement in the current quarter and beyond.

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