Alcoa Corporation · NYSE:AA
Alcoa — Q4 2014 Earnings Presentation
59 slides from Alcoa's earnings presentation, Jan 15, 2015
Slide 1: Fourth Quarter Earnings Conference
12 th Quarter Earnings Conference January 12, 2015 Exhibit 99.2
Slide 2: Cautionary Statement
Cautionary Statement 2 Forward-Looking Statements This presentation contains statements that relate to future events and expectations and as such constitute forward-looking statements. Forward-looking statements include those containing such words as “anticipates,” “estimates,” “expects,” “forecasts
Slide 3: Klaus Kleinfeld, Chairman and CEO
3 Klaus Kleinfeld Chairman and Chief Executive Officer January 12, 2015
Slide 4: Transformation Delivering Results; Profitability Up YOY
Transformation Delivering Results; Profitability Up YOY 1) 2014 Cash from Operations of $1.7 billion 2) Jamaica bauxite mine and alumina refinery owned 55% by Alcoa Minerals of Jamaica, L.L.C. 4 Delivering Strong Operational Performance Accelerating Portfolio Transformation Strong Operational perfor
Slide 5: William Oplinger, EVP and CFO
5 William Oplinger Executive Vice President and Chief Financial Officer January 12, 2015
Slide 6: Income Statement Summary
Income Statement Summary 6 See appendix for Adjusted Income reconciliation. 4Q13 3Q14 4Q14 Prior Year Change Sequential Change $ Millions, except aluminum prices and per-share amounts Realized Aluminum Price ($/MT) $2,157 $2,538 $2,578 $421 $40 Revenue $5,585 $6,239 $6,377 $792 $138 Cost of Goods So
Slide 7: Special Items
Special Items 1) Total restructuring-related charges in 4Q14 of $200 million (80 percent non-cash, 20 percent cash) See appendix for Adjusted Income reconciliation 7 4Q13 3Q14 4Q14 Income Statement Classification Segment $ Millions, except per-share amounts Net (Loss) Income ($2,339) $149 $159 Net (
Slide 8: Earnings Growth Driven by Performance and Pricing
Earnings Growth Driven by Performance and Pricing 8 See appendix for Adjusted Income reconciliation Net Income excluding Special Items ($ Millions) Market +$170 Performance +$390 Cost Headwinds/Other -$168 Volume LME 4Q 13 Energy Raw Materials Currency Price / Mix Productivity Cost Increases / Other
Slide 9: Fourth Quarter Cash Flow Overview
4 th Quarter Cash Flow Overview 9 See appendix for Free Cash Flow reconciliation ($ Millions) 4Q13 3Q14 4Q14 Cash from Operations $920 $249 $1,458 Cash from Financing Activities ($65) $2,140 ($181) Cash from Investing Activities ($425) ($281) ($2,653) Cash on Hand $1,437 $3,272 $1,877 Net (Loss) Inc
Slide 10: Share Gains Drive Engineered Products and Solutions Revenue Growth
10 Share Gains Drive Engineered Products and Solutions Revenue Growth See appendix for EBITDA reconciliation 4 th Quarter Results 4 th Quarter Business Highlights 1 st Quarter Outlook 4 th Quarter Performance Bridge $ Millions * Excluding Firth Rixson 4Q 13 3Q 14 4Q 14* Party Revenue ($ Millions) 1,
Slide 11: Aero Mix, Auto Sheet Growth, Productivity Drive Strong GRP Earnings
See appendix for EBITDA reconciliation GRP = Global Rolled Products 11 Aero Mix, Auto Sheet Growth, Productivity Drive Strong GRP Earnings 4 th Quarter Business Highlights 1 st Quarter Outlook 4 th Quarter Performance Bridge 4 th Quarter Results $ Millions 4Q 13 3Q 14 4Q 14 Party Revenue ($ Millions
Slide 12: Alumina Earnings Nearly Triple Sequentially
Alumina Earnings Nearly Triple Sequentially 12 4 th Quarter Results 4 th Quarter Business Highlights 4 th Quarter Performance Bridge 1 st Quarter Outlook $ Millions 4Q14 Actual and 1Q15 Outlook – Alumina $13 $10 $55 $1 $40 $16 $178 $62 4Q14 Cost Increases / Other -$19 Energy Prod- uctivity Price / M
Slide 13: Primary Earnings Up on Productivity, Pricing and Currency
Primary Earnings Up on Productivity, Pricing and Currency 13 4 th Quarter Results 4 th Quarter Business Highlights 4 th Quarter Performance Bridge 1 st Quarter Outlook $ Millions 4Q14 Actual and 1Q15 Outlook – Primary Metals $30 $11 $33 $23 $1 $267 $245 Cost Increases / Other -$7 Energy -$61 Prod- u
Slide 14: Transformation Leads to Change in Net Income Sensitivities
Transformation Leads to Change in Net Income Sensitivities 14 Alcoa Net Income Sensitivities LME API AUD BRL EUR CAD NOK Benchmark +/- $100/MT +/- $10/MT +/- 0.01 USD/AUD +/- 0.01 BRL/USD +/- 0.01 USD/EUR +/- 0.01 CAD/USD +/- 0.10 NOK/USD Sensitivity $240M N/A $11M $3M $2M $5M $5M Sensitivity $190M
Slide 15: Strong Performance Drives Earnings Growth, Highest Since 2011
Strong Performance Drives Earnings Growth, Highest Since 2008 15 See appendix for Adjusted Income reconciliation 292 757 540 64 123 Net Income excluding Special Items ($ Millions) Market +$107 Performance +$1,113 Cost Headwinds -$461 1,116 Cost Increases / Other Raw Materials Energy Productivity Pri
Slide 16: Sustained Working Capital Excellence
Sustained Working Capital Excellence See appendix for days working capital reconciliation 16
Slide 17: Maintained Strong Balance Sheet
17 See appendix for Net Debt reconciliation Maintained Strong Balance Sheet 9,816 8,338 6,882 6,975 7,432 7,622 6,968 1,481 1,543 1,939 1,861 1,437 1,877 9,165 9,819 10,578 8,319 8,829 9,371 8,852 (Millions) Debt to Cap Cash Net Debt 38.1% 42.5% 38.7% 34.9% 35.3% Debt, Net Debt, and Debt-to-Capital
Slide 18: Achieved Overarching Free Cash Flow Goal; Actions Deployed for 2015
18 Achieved Overarching Free Cash Flow Goal; Actions Deployed for 2015 See appendix for Free Cash Flow reconciliation Achieved overarching Free Cash Flow goal Taking the right actions in 2015 $1,194M $484M $735M $91M 37.4% Productivity $850M Growth Capital $500M Sustaining Capital $750M Saudi JV Inv
Slide 19: Market fundamentals remain positive
Market fundamentals remain positive 7% global demand growth Alumina surplus, Aluminum balanced Inventory at lowest level since Nov 2008 Premiums remain high See appendix for full scale charts 19 28.0 6.7 6.7 4.3 2.2 2.1 2.2 1.1 1.0 2.1 2015E Aluminum Supply/Demand Balance 2015E Alumina Supply/Demand
Slide 20: Klaus Kleinfeld, Chairman and CEO
20 Klaus Kleinfeld Chairman and Chief Executive Officer January 12, 2015
Slide 21: Another Strong Year for Aerospace; Steady Growth in Automotive
Another Strong year for Aerospace; Steady growth in Automotive Source: Alcoa analysis 1) International Air Transport Association 2015 Expectations 21
Slide 22: Global Heavy Duty Truck and Packaging Markets Stable
Global Heavy Duty Truck and Packaging Markets Stable Source: Alcoa analysis 22
Slide 23: Solid Commercial B&C Growth; Global Airfoil Market Improves
Solid Commercial B&C Growth; Global Airfoil Market Improves Source: Alcoa analysis B&C = Building and construction 23
Slide 24: Transforming Alcoa – Creating Compelling Sustainable Value
Transforming Alcoa – Creating Compelling Sustainable Value 24
Slide 25: Driving Value-Add Growth: Revenues Up, Profits Up
Driving Value-Add Growth: Revenues Up, Profits Up 1) Includes forecasted Firth Rixson revenue of $1.6B in 2016 2) Adjusted to exclude ~$975M related to 5 rolling mills closed or sold in Australia, Spain and France in 2014 3) Represents average of the EBITDA/MT for years 2010 through 2012 25 EPS GRP
Slide 26: Expanding Multi-Material Portfolio through Smart Investments
Expanding Multi-Material Portfolio through Smart Investments 1) Expected to close in 1Q2015 APP = Alcoa Power & Propulsion CFRP = carbon fiber reinforced polymer 26 Firth Rixson: Grows multi-material engine capability TITAL 1 : Expands structural casting offerings Organic growth extends material ran
Slide 27: Lightweighting: OEMs Need It, Consumers Like It
Lightweighting: OEMs Need It, Consumers Like It Annual Savings = ((15,000 Hwy Miles/Yr ÷ 17 Hwy MPG) – (15,000 Hwy Miles/Yr ÷ 26 Hwy MPG)) x $X/gal 27
Slide 28: Micromill Differentiated Alloy: Win-Win for Customers and Alcoa
Micromill™ Differentiated Alloy: Win-Win for Customers and Alcoa 28 HSS = High Strength Steel World’s most advanced aluminum alloy for Next-Gen automotive products 40% Creating value for the customer Creating additional opportunity for Alcoa 2X 30% 30% STRONGER LIGHTER vs. HSS vs. ingot based Al vs.
Slide 29: Breakthrough Casting Technology: Fast and Flexible; Small and Powerful
Breakthrough Casting Technology: Fast and Flexible; Small and Powerful 29 WIP = Work In Process
Slide 30: Improving Strong Alumina Position: Lower Cost, Continuing Price Shift
Improving Strong Alumina Position: Lower Cost, Continuing Price Shift 30 1) Jamaica bauxite mine and alumina refinery owned 55% by Alcoa Minerals of Jamaica, L.L.C. NG = Natural Gas
Slide 31: Reshaping the Smelting Portfolio: More Competitive, Growing Value-Add
Reshaping the Smelting Portfolio: More Competitive, Growing Value-Add 31 57% 65% Generate additional productivity gains Sale of Mt. Holly complete in 4Q14; kmt Alcoa capacity Executing to improve global competitiveness 2014 actions Reduced high cost capacity by 549 kmt Generated $269M in productivit
Slide 32: The Right Actions to Drive Growth, Operational Performance in 2015
The Right Actions to Drive Growth, Operational Performance in 2015 32 Deliver Operational Performance Invest in Growth; Manage the Base Strengthen the Balance Sheet 2015 annual financial targets Capture Productivity Gains of $900M Manage Return-Seeking Capital of $750M Control Sustaining Capital of
Slide 33: Transformation is Creating Compelling Sustainable Value
Transformation is Creating Compelling Sustainable Value 33
Slide 34: Additional Information
Additional Information 34 Kelly Pasterick Vice President, Investor Relations Alcoa 390 Park Avenue New York, NY 10022-4608 Telephone: (212) 836-2674 www.alcoa.com
Slide 35: Annual Sensitivity Summary
Annual Sensitivity Summary Currency Annual Net Income Sensitivity LME Aluminum Annual Net Income Sensitivity 35 API/Spot Alumina Annual Net Income Sensitivity +/- $100/MT = +/- $190 million Australian $ +/- $11 million per 0.01 change in USD / AUD Brazilian $ +/- $ 1 million per 0.01 change in BRL /
Slide 36: Revenue Change by Market
Revenue Change by Market 36 4Q14 Third-Party Revenue Sequential Change Year-Over-Year Change 6% 28% (3%) (1%) (5%) 9% (11%) 24% 15% (1%) 10% 43% 6% 19% 3% (5%) 10% 28% 22% 15% 17% 4% 6% 6% 7% 1% 12% 2% 16% 29% Aerospace Automotive B&C Comm. Transport Industrial Products IGT Packaging Distribution/Ot
Slide 37: Special Items
Special Items See appendix for Adjusted Income reconciliation. 37 Pre-tax, Before NCI After-tax, After NCI 3Q14 4Q14 3Q14 4Q14 Income Statement Classification Segment $ Millions, except per-share amounts Income from Continuing Operations $330 $234 $149 $159 Income Per Diluted Share - - $0.12 $0.11 R
Slide 38: Alcoa Segment Bridges
38 Alcoa Segment Bridges EPS = Engineered Products and Solutions GRP = Global Rolled Products Alumina Year-over-Year Bridge EPS Sequential Quarter Bridge GRP Sequential Quarter Bridge Primary Metals Year-over-Year Bridge $ Millions $ Millions $ Millions $ Millions 3Q14 $103 4Q14 $71 Cost Increases/
Slide 39: Composition of Regional Premium Pricing Convention
Composition of Regional Premium Pricing Convention 39 2015E Shipments Regional Premiums Estimated Pricing Convention 50% Midwest – Platts 15-day lag 35% Rotterdam DDP – Metal Bulletin 45-day lag 10% CIF Japan – Platts Month prior to Quarter start 5% Negotiated Annual
Slide 40: Alcoa smelting closures and curtailments
Alcoa smelting closures and curtailments 40 * In 4Q14 Alcoa sold its ownership stake in the Mt. Holly smelter Location Year kmt Baie Comeau Eastalco Badin Warrick Tennessee Rockdale Baie Comeau Fusina Massena East Massena East Point Henry Portovesme Mt. Holly* Total 1,368 Alcoa smelting capacity clo
Slide 41: Composition of Upstream Production Costs
Composition of Upstream Production Costs 1 Natural gas information corresponds to Point Comfort, as Australia is priced on a rolling 16 quarter average 41 Refining Cost Structure Smelting Cost Structure Fuel Oil 9% Natural gas 12% Caustic 9% Bauxite 27% Conversion 43% Input Cost Inventory flow Prici
Slide 42: 2015 Primary Aluminum Consumption Growth
Source: Alcoa estimates, CRU, Harbor, Wood Mackenzie, SMM 2015 growth maintains momentum from 2014 42 28.0 6.7 6.7 4.3 2.2 2.1 2.2 1.1 1.0 2.1 7% 4% 1.5% 1% 10% 1.5% 5% 1% 8% 7% 56.4 mmt Other includes Africa, E. Europe, Latin America ex Brazil, and Oceania 2015E Primary Aluminum Consumption (mmt),
Slide 43: China Supply/Demand Analysis
43 Source: Alcoa analysis, Brook Hunt, CRU, CNIA, NBS, Chinese Customs Alumina in surplus; Aluminum remains essentially balanced 2015E Aluminum Supply/Demand Balance 2015E Alumina Supply/Demand Balance ’000 mt China Rest of World 2015 Production 26,773 25,996 2015 Production to be added 4,400 2015 C
Slide 44: Global inventories vs. LME price over time
Source: Alcoa estimates, IAI, LME, Marubeni, Shanghai Metal Exchange Inventory declines 7 days in 2H, lowest level since Nov 2008 44 Global inventories vs. LME price over time $
Slide 45: Premiums remain at record highs
Premiums remain at record highs Source: Monthly average of daily prices - Platts Metals Week 45
Slide 46: Reconciliation of ATOI to Consolidated Net (Loss) Income
Reconciliation of ATOI to Consolidated Net (Loss) Income Attributable to Alcoa 46 (in millions) 4Q13 1Q14 2Q14 3Q14 4Q14 Total segment ATOI $224 $1,217 $325 $418 $619 $681 $2,043 Unallocated amounts (net of tax): Impact of LIFO (7) (8) (18) (21) (54) Interest expense (73) (294) (78) (69) (81) (80) (
Slide 47: Reconciliation of Adjusted Income
Reconciliation of Adjusted Income 47 (in millions, except per- share amounts) Income Diluted EPS Quarter ended Quarter ended December 31, September 30, December 31, December 31, September 30, December 31, Net (loss) income attributable to Alcoa $(2,339) $149 $159 $(2.19) $0.12 $0.11 Restructuring an
Slide 48: Reconciliation of Adjusted Income, continued
Reconciliation of Adjusted Income, continued 48 (in millions, except per- share amounts) Income Diluted EPS Year ended Year ended December 31, December 31, December 31, December 31, Net (loss) income attributable to Alcoa $(2,285) $268 $(2.14) $0.21 Restructuring and other charges Discrete tax items
Slide 49: Reconciliation of Alcoa Adjusted EBITDA
Reconciliation of Alcoa Adjusted EBITDA 49 ($ in millions) 4Q13 3Q14 4Q14 Net income (loss) attributable to Alcoa $1,310 $1,233 $2,248 $2,564 $(74) $(1,151) $254 $611 $191 $(2,285) $268 $(2,339) $149 $159 Add: Net income (loss) attributable to noncontrolling interests (29) (91) (18) (45) Cumulative
Slide 50: Reconciliation of Alumina Adjusted EBITDA
Reconciliation of Alumina Adjusted EBITDA 50 ($ in millions, except per metric ton amounts) 4Q13 3Q14 4Q14 After-tax operating income (ATOI) $632 $682 $1,050 $956 $727 $112 $301 $607 $90 $259 $370 $70 $62 $178 Add: Depreciation , depletion, and amortization Equity (income) loss (1) – (1) (7) (8) (10
Slide 51: Reconciliation of Primary Metals Adjusted EBITDA
Reconciliation of Primary Metals Adjusted EBITDA 51 ($ in millions, except per metric ton amounts) 4Q13 3Q14 4Q14 After-tax operating income (ATOI) $808 $822 $1,760 $1,445 $931 $(612) $488 $481 $309 $(20) $594 $(35) $245 $267 Add: Depreciation , depletion, and amortization Equity (income) loss (58)
Slide 52: Reconciliation of Global Rolled Products Adjusted EBITDA
Reconciliation of Global Rolled Products Adjusted EBITDA 52 ($ in millions, except per metric ton amounts) 2010* 2011* 2012* 4Q13 3Q14 4Q14 After-tax operating income (ATOI) $290 $300 $317 $151 $(41) $(106) $241 $260 $346 $252 $312 $21 $103 $71 Add: Depreciation , depletion, and amortization Equity
Slide 53: Reconciliation of Engineered Products and Solutions Adjusted EBITDA
Reconciliation of Engineered Products and Solutions Adjusted EBITDA 53 ($ in millions) 2014* 4Q13 3Q14 4Q14* After-tax operating income (ATOI) $161 $276 $382 $423 $522 $311 $419 $537 $612 $726 $767 $168 $209 $165 Add: Depreciation , depletion, and amortization Equity loss (income) – – – – (2) (2) (1
Slide 54: Reconciliation of Free Cash Flow
Reconciliation of Free Cash Flow 54 (in millions) Quarter ended March 31, June 30, September 30, December 31, March 31, June 30, September 30, December 31, March 31, June 30, September 30, December 31, Cash from operations $(236) $537 $263 $933 $(70) $514 $214 $920 $(551) $518 $249 $1,458 Capital ex
Slide 55: Reconciliation of Free Cash Flow, continued
Reconciliation of Free Cash Flow, continued 55 (in millions) Quarter ended March 31, June 30, September 30, December 31, March 31, June 30, September 30, December 31, March 31, June 30, September 30, December 31, Cash from operations $(271) $328 $184 $1,124 $199 $300 $392 $1,370 $(236) $798 $489 $1,
Slide 56: Days Working Capital
Days Working Capital 56 ($ in millions) Quarter ended 31-Mar-12 30-Jun-12 30-Sep-12 31-Dec-12 31-Mar-13 30-Jun-13 30-Sep-13 31-Dec-13 31-Mar-14 30-Jun-14 30-Sep-14 31-Dec-14 Receivables from customers, less allowances $1,709 $1,650 $1,600 $1,573 $1,704 $1,483 $1,427 $1,383 $1,391 $1,401 $1,526 $1,51
Slide 57: Reconciliation of Net Debt
Reconciliation of Net Debt 57 Net debt is a non-GAAP financial measure. Management believes that this measure is meaningful to investors because management assesses Alcoa’s leverage position after factoring in available cash that could be used to repay outstanding debt. (in millions) December 31, Sh
Slide 58: Reconciliation of Net Debt-to-Capital
Reconciliation of Net Debt-to-Capital 58 ($ in millions) December 31, 2013* December 31, 2014 Debt-to-Capital Cash and Cash Equivalents Net Debt-to-Capital Debt-to-Capital Cash and Cash Equivalents Net Debt-to-Capital Total Debt Short -term borrowings $57 $54 Long -term debt due within one year Long
Slide 59: Advancing each generation.
Advancing each generation.