Novelis moves to become bigger part of community

Giant aluminum manufacturer -- based in Atlanta -- has made tough decisions pay off

Now, after five years of internal turmoil that brought in new management, Novelis is moving to expand its position as the world’s largest producer of rolled aluminum.

The $10.2 billion company, which is also the world’s largest aluminum recycler, says it is also ready to become more visible in the local community.

“Novelis is a relatively new company. We are number one or two in the business product areas in which we play,” says president and chief operating officer Philip Martens, hired last April. “What you are looking at is a company on a new journey after experiencing several difficult steps — some rough times.”

Those steps included being spun off as an independent public company in 2005 by Canadian aluminum producer Alcan Inc. The headquarters were moved to Atlanta for quality of life benefits. At the same time, Novelis endured internal difficulties, including financial reporting issues.

In 2007 Hindalco Industries Ltd., another aluminum company, acquired Novelis and brought in new leadership. Hindalco is the flagship company of the Aditya Birla Group, a $29 billion conglomerate headquartered in Mumbai, India.

Novelis, which produces 19 percent of the world’s flat-rolled aluminum products, operates in 11 countries with 12,300 employees — 100 to 120 of them at the Buckhead headquarters. Its customers are in high-value markets such as automotive, transportation, packaging, construction and printing. Fifty-three percent of its business is in beverage cans, followed by foil and packaging products at 14 percent.

“We are fortunate to be acquired by Aditya Birla,” said Martens. “We have a tremendous sense of stability and perspective that one can only get from an Asian point of view. They look three to five years out, not quarterly — a far more rational way.”

Martens, once vice president of product creation at Ford, is fusing Asian management philosophy with lessons from his auto-industry experience.

“I learned that denial doesn’t work,” he said. “If it’s not working, stop, reflect, recalculate and re-cut. If you think you need to do something, you do. If you don’t, it will just become a bigger issue.”

Novelis has launched a number of operational, cost-cutting and cash-management initiatives under Martens. Among them were closing a plant in Wales that employed 440 workers, tightening control of inventory levels, focusing on credit risk management, holding firm on supplier payment terms and reducing labor and energy costs.

Dave Katz, an analyst with J.P. Morgan, said Novelis already has realized $100 million of cost savings and should reach $140 million or more by September. “We believe the majority of these savings are permanent. Improvements are materializing,” he said.

Martens brought in new senior management and gave international executives unified marching orders.

“We have very strong presence in four continents, but they operated almost like independent, siloed companies. There is tremendous potential to be gained by leveraging those resources. We have a united sense of purpose,” he said.

Looking ahead, Martens is betting — and so far correctly — that Asia, particularly China and its auto industry, will become a huge market. In the first quarter of the 2010 fiscal year, Novelis’ Asian business grew 49 percent. In the second quarter of the fiscal year (Novelis’ fiscal year ends in March), Europe and North America showed small gains but Asia and South America’s growth were more dramatic. Martens expects that to remain for 2010.

“Certainly Asia is important,” Martens said. “Since we do not actually make products — we sell the aluminum sheets to the end-user — our business is reflected in health of industry sectors. For instance, there are not as many cars being made or houses built right now. We sell to those markets, so that is down; when it picks up, so will sales.”

Novelis is entering new markets, such as aerospace, and increasing its business where it already has a presence, he said. For instance, the company has expanded its upper-end car business, recently picking up the aluminum sheet business for the Jaguar XJ sedan.

More than half of Novelis’ revenues comes from its bread-and-butter can sheet business.

“That is a very stable,” Martens said. “People may not buy a new car, but they will still drink beer,” he said. Anheuser-Busch accounts for about 11 percent of its sales.

The company recycles more than 35 billion used beverage cans annually. Almost half of the 1.5 million tons of can sheet made each year by Novelis comes from recycled aluminum. In August, it entered into a joint venture with Pittsburgh-based Alcoa Inc., called Evermore Recycling LLC, to acquire used beverage cans.

Jeff Cramer, an analyst with UBS, gives Martens high marks. “Phil is on track. He’s done a lot to get the company where it is now and there is definitely great potential.”

Meanwhile, Martens wants Novelis to assume its place in the civic community.

“It’s certainly on my personal agenda and the company’s,” he said. “We want to be a more visible member of the community, especially with nonprofits.”

COO Profile

Name: Philip R. Martens

Age: 49

Title: President and chief operating officer.

Family: Wife, Carol; children, Chris, 20; Amy, 18; Max, 14.

Hometown: Buffalo, N.Y.

Education: Mechanical engineering degree from Virginia Tech; Masters of Business Administration, University of Michigan; Doctorate in Automotive Engineering from Lawrence Technological University.

Lives in: Buckhead

Best piece of advice I ignored: “Leaving graduate school, MBA in hand ... my finance professor advised me that the auto industry would be tough and I would be better off in a more entrepreneurial, growth-oriented environment. I ignored his advice and took [a] Ford job. It took me 18 years to figure out my professor was right.”

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