Alcoa Corporation · NYSE:AA
Alcoa — BMO Capital Markets 28th Global Metals & Mining Conference 2019
39 slides from Alcoa's conference presentation, Feb 26, 2019
Slide 1: Alcoa Corporation Investor Presentation
Alcoa Corporation Investor Presentation February 2019
Slide 2: Important information
Important information Cautionary statement regarding forward-looking statements This presentation contains statements that relate to future events and expectations and as such constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-lo
Slide 3: Important information (continued)
Important information (continued) Non-GAAP financial measures Some of the information included in this presentation is derived from Alcoa’s consolidated financial information but is not presented in Alcoa’s financial statements prepared in accordance with accounting principles generally accepted in
Slide 4: Alcoa is an aluminum industry leader
Alcoa is an aluminum industry leader Company overview Strategic priorities Keys to Alcoa Our values are the foundation of our business and license to operate around the world Global network of aluminum industry assets; low cost position in bauxite and alumina Strong financial profile; positioned to
Slide 5: Our values support our license to operate around the world
Our values support our license to operate around the world Global operations by business segment Iceland: Norway: Canada: United States: Spain: Saudi Arabia: Guinea: Suriname: Brazil: Australia: Bauxite Alumina Aluminum Transformation 5
Slide 6: Rigorous standard in place to manage tailings and residue
Rigorous standard in place to manage tailings and residue Industry leading standard established over 25 years ago; continuously improved and updated Robust management process Inventory of tailings dams & residue storage ▪ Governance structure with global oversight and clearly ▪ No Alcoa operated ups
Slide 7: Superior bauxite and alumina assets, solid smelter portfolio
Superior bauxite and alumina assets, solid smelter portfolio 2018 Cost curve and business position Bauxite Alumina Aluminum 1st Quartile 1st Quartile 3rd Quartile ▪ World’s second largest bauxite ▪ Largest alumina refiner and largest ▪ Top 10 global aluminum smelter miner, with a first quartile cost
Slide 8: Projecting aluminum to remain in deficit in 2019
Projecting aluminum to remain in deficit in 2019 Final 2018 and projected 2019 global market balances Bauxite Alumina Aluminum (3rd-party seaborne) (smelter grade) (primary) Final 2018 Surplus Deficit Deficit Balance 2019 Outlook Surplus Surplus Deficit 2019 Supply/Demand Balance, Mmt Global 7 to 11
Slide 9: China export growth outpacing domestic end use growth
China export growth outpacing domestic end use growth Chinese primary aluminum consumption, Mmt For domestic end use For net exported products1 +6% CAGR +0.6 +11% CAGR +0.8 28.0 28.6 7.3 26.2 6.4 24.0 22.8 5.6 5.3 4.8 2014 2015 2016 2017 2018 2014 2015 2016 2017 2018 Source: Alcoa analysis of CRU an
Slide 10: Two years of progress; focused on further improvement
Two years of progress; focused on further improvement Alcoa Corporation progression over time Separate Strengthen Succeed November 1, 2016 ▪ Earn separation during ▪ Deliver on strategic priorities ▪ Maintain gains and 2016 downturn ▪ Leverage favorable market increase strength ▪ Structure the new c
Slide 11: Questions?
Questions? Alcoa Corporation
Slide 12: Appendix: 4Q18 Financial Results and Other Information
Appendix: 4Q18 Financial Results and Other Information as presented on January 16, 2019
Slide 13: Revenue slightly lower sequentially, up 5% year-over-year
Revenue slightly lower sequentially, up 5% year-over-year Quarterly income statement Prior Year Sequential M, Except realized prices and per share amounts 4Q17 3Q18 4Q18 Change Change Realized primary aluminum price ($/mt) $2,365 $2,465 $2,358 $(7) $(107) Realized alumina price ($/mt) $406 $493 $479
Slide 14: Special items total $82M, driven by Brazil tax asset change
Special items total $82M, driven by Brazil tax asset change Breakdown of special items by income statement classification – gross basis M, Except per share amounts 4Q17 3Q18 4Q18 Description of significant 4Q18 special items Net income (loss) attributable to Alcoa Corporation $(196) $(41) $43 Dilute
Slide 15: Adjusted net earnings $125 million; adjusted EPS $0.66
Adjusted net earnings $125 million; adjusted EPS $0.66 Quarterly income statement excluding special items Prior Year Sequential M, Except realized prices and per share amounts 4Q17 3Q18 4Q18 Change Change Realized primary aluminum price ($/mt) $2,365 $2,465 $2,358 $(7) $(107) Realized alumina price
Slide 16: Volume improves, but pricing lowers adjusted EBITDA
Volume improves, but pricing lowers adjusted EBITDA Adjusted EBITDA excluding special items sequential changes, $M 48 $795 52 3 0 3 8 $749 (49) (70) (41) 3Q18 Metal API Currency Volume Price / Operational Energy Raw Other 4Q18 Prices Mix Impacts Materials 16
Slide 17: Bauxite and Alumina profits rise, while Aluminum offsets
Bauxite and Alumina profits rise, while Aluminum offsets Adjusted EBITDA excluding special items breakdown Segment information, $M Total Adjusted EBITDA information, $M 3Q18 4Q18 +3% 3Q18 4Q18 Change Segment total $839 $740 $(99) $660 $683 Transformation 1 (1) (2) +4% -173% Corporate inventory accou
Slide 18: 2018 Cash flow used to improve financial position
2018 Cash flow used to improve financial position Quarterly cash comparison and cash flow information Quarter ending cash balance, $M 2018 Cash flow information, $B AWAC debt & other Stock repurchases & debt prepayment Debt offering for pension contribution Capital expenditures $(245) Operating cash
Slide 19: Pension/OPEB net liability reduced by $1.2 billion in 2018
Pension/OPEB net liability reduced by $1.2 billion in 2018 Key financial metrics as of December 31, 2018 Key metrics Pension & OPEB net liability bridge, $B 4Q18 Days Pension OPEB Cash working capital $3.5 $1.1B 22 Days FY18 Capital FY18 (0.8) 0.2 $2.3 expenditures1 Return on capital 2.3 (0.4) (0.2)
Slide 20: 2018 framework complete; multiyear framework in place
2018 framework complete; multiyear framework in place Capital allocation framework and update 2018 Framework New multiyear framework Maintain liquidity Greater than Maintain liquidity throughout the cycle $1B cash balance Return cash to Sustain the Sustain and improve operations stockholders operati
Slide 21: 2019 Outlook
2019 Outlook FY19 Key metrics Income statement excl. special items impacts Cash flow impacts FY18 Actual FY19 Outlook FY18 Actual FY19 Outlook Bauxite shipments (Mdmt) 46.9 47.0 – 48.0 Minimum required pension/all OPEB funding $412M ~ $300M Alumina shipments (Mmt) 13.6 13.6 – 13.7 Additional pension
Slide 22: 4Q18 Financial summary
4Q18 Financial summary Three months ending December 31, 2018, excluding special items Corporate $M inventory Other Alcoa Bauxite Alumina Aluminum4,5 Transformation accounting corporate Corporation Total revenue1 $325 $1,699 $2,111 $25 $(817) $1 $3,344 Third-party revenue $80 $1,132 $2,107 $24 - $1 $
Slide 23: 4Q18 Adjusted EBITDA drivers by segment
4Q18 Adjusted EBITDA drivers by segment Adjusted EBITDA excl. special items sequential changes by segment, $M Adj. Adj. EBITDA Metal Op. Raw EBITDA Segment 3Q18 Prices API Currency Volume Price/Mix Impacts Energy Materials Other 4Q18 Bauxite $106 - - (2) 9 (1) (2) (1) - 1 $110 Alumina $660 - 23 (3)
Slide 24: Aluminum value chain
Aluminum value chain 2018 Alcoa product shipments by segment, Mmt Bauxite Alumina Aluminum 3.3 32% 100% Aluminum 3rd Party 13.6 88% 68% Alumina 3rd Party 46.9 12% Bauxite 3rd Party 24
Slide 25: Composition of alumina and aluminum production costs
Composition of alumina and aluminum production costs Alcoa 4Q18 production cash costs Alumina refining Input Inventory Pricing FY19 Annual Cost Cost Flow Convention Sensitivity Bauxite Caustic Soda 5 - 6 Months Quarterly $10M per $10/dmt Conversion 34% 31% Natural Gas1 N/A N/A N/A 5% 17% Fuel Oil 1
Slide 26: 2019 Business information
2019 Business information Estimated annual Adjusted EBITDA sensitivities $M AUD BRL CAD EUR ISK NOK LME API Midwest Europe Japan + 0.01 + 0.10 + 0.01 + 0.01 + 10 + 0.10 Segment + $100/mt + $10/mt + $100/mt + $100/mt + $100/mt USD/AUD BRL/USD CAD/USD USD/EUR ISK/USD NOK/USD Bauxite (4) 3 Alumina 120
Slide 27: Additional business considerations
Additional business considerations Important items for 2019 ▪ Expect improvement in Alumina operational stability and higher year on year refinery production ▪ Anticipate sequential recovery of approximately two-thirds of 4Q18 Alumina price/mix decline in 1Q19: ~$30 million ▪ Sequentially lower alum
Slide 28: Pension and OPEB summary
Pension and OPEB summary Net pension and OPEB liability and financial impacts Net liability as of December 31, 20181 Estimated financial impacts, $M Expense impact 2019 Segment pension $45 OPEB Segment OPEB $5 Total U.S. Pension U.S. Corporate pension & OPEB $5 $1.0B $1.0 Total $1.1 Total adj. EBITD
Slide 29: Investments summary
Investments summary Ownership Carrying Value as of Income Statement Location of Investee Country Nature of Investment4 Interest December 31, 2018 Equity Earnings Elysis Limited Partnership Canada Aluminum smelting technology 48.235% Ma’aden Aluminum Company1 Saudi Arabia Aluminum smelter 25.1% Ma’ad
Slide 30: Production and capacity information
Production and capacity information Alcoa Corporation annual consolidated amounts as of December 31, 2018 Bauxite production, Mdmt Alumina refining, kmt Aluminum smelting, kmt 2018 Mine Country Production Facility Country Capacity Curtailed Facility Country Capacity Curtailed Darling Range Australia
Slide 31: Valuation framework
Valuation framework Valuation framework key considerations FY18 Adj. EBITDA excl. special items Economic value using market multiple of: + Bauxite i. AWAC joint venture, minus small portions of AWAC JV in Aluminum and $426M Transformation + Alumina ii. Ownership in certain mines and refineries outsi
Slide 32: Adjusted EBITDA reconciliation
Adjusted EBITDA reconciliation $M 4Q17 FY17 1Q18 2Q18 3Q18 4Q18 FY18 Net income (loss) attributable to Alcoa Corporation $(196) $217 $150 $75 $(41) $43 $227 Add: Net income attributable to noncontrolling interest 140 342 124 155 196 169 644 Provision for income taxes 272 600 138 180 251 157 726 Othe
Slide 33: Special items detail, net of tax and noncontrolling interest
Special items detail, net of tax and noncontrolling interest $M 4Q17 3Q18 4Q18 FY18 P&L classification Special items $391 $160 $82 $448 Warrick smelter restart costs 29 1 1 20 Cost of goods sold Bécancour lockout related costs 3 2 2 8 Cost of goods sold Contractor arbitration loss - - - 15 Cost of g
Slide 34: Free Cash Flow reconciliation
Free Cash Flow reconciliation $M 4Q17 1Q18 2Q181 3Q18 4Q18 Cash from operations $455 $55 $(430) $288 $535 Capital expenditures (150) (74) (95) (82) (148) Free cash flow $305 $(19) $(525) $206 $387 Free Cash Flow is a non-GAAP financial measure. Management believes that this measure is meaningful to
Slide 35: Net Debt reconciliation
Net Debt reconciliation FY16 FY17 FY18 Alcoa Alcoa Alcoa $M Cons. NCI Prop. Cons. NCI Prop. Cons. NCI Prop. Short-term borrowings $1 $- $1 $8 $- $8 $- $- $- Long-term debt due within one year 21 - 21 16 - 16 1 - 1 Long-term debt, less amount due within one year 1,424 1 1,423 1,388 7 1,381 1,801 34 1
Slide 36: Days Working Capital
Days Working Capital $M 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 Receivables from customers $708 $789 $840 $811 $814 $1,025 $1,017 $830 Add: Inventories 1,294 1,287 1,323 1,453 1,630 1,668 1,666 1,644 Less: Accounts payable, trade 1,434 1,508 1,618 1,898 1,813 1,752 1,711 1,663 DWC working capital $5
Slide 37: Return on Capital
Return on Capital Reconciliation and calculation information $M FY17 FY18 (PBT + net interest3 + special items1) x (1 – fixed tax rate4) ROC % = X 100 Numerator: ( Total assets – cash5 – current liabilities + short-term debt) Net income attributable to Alcoa Corporation 217 227 Add: Net income attri
Slide 38: Glossary of terms
Glossary of terms Abbreviations listed in alphanumeric order Abbreviation Description Abbreviation Description % pts Percentage points FY## Twelve months ending December 31 1Q## Three months ending March 31 GAAP Accounting principles generally accepted in the United States of America 2Q## Three mont
Slide 39: The Element of Possibility
The Element of Possibility”
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