Alcoa Corporation · NYSE:AA
Alcoa — Q2 2020 Earnings Presentation
45 slides from Alcoa's earnings presentation, Jul 15, 2020
Slide 1: 2nd Quarter Earnings
2nd Quarter Earnings Alcoa Corporation July 15, 2020
Slide 2: Important information
Important information Cautionary statement regarding forward-looking statements This presentation may contain 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
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: Roy Harvey
Roy Harvey President and Chief Executive Officer
Slide 5: Operations and improvements continue amid pandemic
Operations and improvements continue amid pandemic 2Q20 Financial results and business review ▪ Net loss of $197 million, or $1.06 per share; excluding special items, 2Q20 adjusted net loss of $4 million, or $0.02 per share Financial results ▪ Adjusted EBITDA excluding special items of $185 million
Slide 6: Path forward to assure health, safety, business continuity
Path forward to assure health, safety, business continuity COVID-19 crisis response framework and actions COVID-19 crisis framework Alcoa COVID-19 response Response levels As of June 30, 474 (~2%) employees and Level 1 contractors diagnosed with COVID-19, 97% Crisis Preparation have fully recovered
Slide 7: Operations running well; commercial activity picking up
Operations running well; commercial activity picking up Segment operational and commercial update Segment production and operational performance Commercial impacts Average daily production, kdmt ▪ Juruti quarterly shipments record ▪ Shipments and pricing largely +8% unaffected ▪ First half and quart
Slide 8: Prices beginning recovery with inventory build slowing
Prices beginning recovery with inventory build slowing 2020 market dynamics Alumina Aluminum Alumina price ($/t) LME aluminum cash price ($/t) Global total aluminum stocks1 (Mt) FOB WA LME China World ex-China 400 352 Shanxi 2,200 2,068 SHFE 13.5 14.2 Prices 1,978 12.5 11.2 11.0 11.1 350 323 2,000 4
Slide 9: Continuing near and long term improvement programs
Continuing near and long term improvement programs Key strategic actions, 2020 programs, COVID-19 response New operating model: Creating a leaner, more integrated, operator-centric Alcoa Non-core asset sales: Generating additional cash through non-core asset sales Key strategic ▪ Gum Springs treatme
Slide 10: William Oplinger
William Oplinger Executive Vice President and Chief Financial Officer
Slide 11: Debt issuance provides optionality in uncertain times
Debt issuance provides optionality in uncertain times Liquidity position and rationale for debt issuance ($M) Pro forma cash and maturity profile Reasons for debt issuance Cash balance Maturity profile On July 13, issued $750 million aggregate principal amount of 5.5% senior notes due 2027 1,701 1,5
Slide 12: Revenues, Adjusted EBITDA, reflect softer market
Revenues, Adjusted EBITDA, reflect softer market Quarterly income statement highlights Prior year Sequential M, Except realized prices and per share amounts 2Q19 1Q20 2Q20 change change Income statement highlights Revenue $2,711 $2,381 $2,148 $(563) $(233) Restructuring and other charges, net $370 $
Slide 13: Lower market prices impact Adjusted EBITDA
Lower market prices impact Adjusted EBITDA Adjusted EBITDA excluding special items sequential changes, $M 321 1Q20 2Q20 Change (27) Bauxite $120 $131 $11 Alumina 193 88 (105) 25 185 Aluminum 62 (34) (96) 37 Segment total 375 185 (190) (142) 15 16 9 Transformation (16) (10) 6 (23) (46) Intersegment (
Slide 14: Cash balance improves to $965 million
Cash balance improves to $965 million Quarterly cash comparison and cash flow information Quarter ending cash balance, $M YTD Cash flow information, $M +$131 $830 $1,017 $965 Change in $744 working capital $125 $879 $43 Other $834 $841 $829 $50 Special items Proceeds from $199 $56 Environmental/ARO
Slide 15: Focus on balance sheet; modest pension impacts
Focus on balance sheet; modest pension impacts Key financial metrics and pension/OPEB update Key financial metrics Pension/OPEB update 2Q20 Days 1H20 Balance sheet impacts (remeasured at year end) working capital Return on equity ▪ Pension expected return on plan assets is 6.28%; preliminary actual
Slide 16: On target to achieve cash actions totaling ~$900 million
On target to achieve cash actions totaling ~$900 million Impacts of announced FY20 actions, before tax and noncontrolling interest, $M Cash actions YTD Run rate One time Deferral FY20 Comments Key strategic actions New operating model 60 45 Savings at full run rate in 2Q20 Non-core asset sales 200 2
Slide 17: 2020 Outlook
2020 Outlook FY20 Key metrics Income statement excl. special items impacts Cash flow impacts 1H20 FY20 Outlook 1H20 FY20 Outlook Bauxite shipments (Mdmt) 24.3 48.0 – 49.0 Minimum required pension/all OPEB funding $103M ~ $180M Alumina shipments (Mmt) 6.8 13.6 – 13.7 Additional pension funding $4M Wi
Slide 18: Roy Harvey
Roy Harvey President and Chief Executive Officer
Slide 19: Operating well through pandemic; positioning for future
Operating well through pandemic; positioning for future Key takeaways • Care and safety Protecting our employees and our operations throughout the COVID-19 pandemic Drive results and • Strong operating performance YoY production increases across all deliver returns to segments; working capital stock
Slide 20: Appendix
Appendix
Slide 21: Strengthening the Company, 2017-2019
Strengthening the Company, 2017-2019 Key actions 2017 – 2018 2019 ▪ Revitalized safety program; zero fatalities in 2018 ▪ Continued solid safety performance; zero fatalities ▪ Restarted Portland smelter and Lake Charles calciner ▪ Set annual and quarterly production records ▪ Streamlined business un
Slide 22: Capital allocation framework
Capital allocation framework Capital allocation framework and considerations Maintain liquidity throughout the cycle ▪ $1 billion target for minimum cash balance ▪ Sustaining capital expenditures of ~$340 million, return seeking capital of ~$35 Capital expenditures to sustain and improve operations
Slide 23: Quarterly income statement
Quarterly income statement Quarterly income statement Prior Year Sequential M, Except realized prices and per share amounts 2Q19 1Q20 2Q20 Change Change Realized primary aluminum price ($/mt) $2,167 $1,988 $1,694 $(473) $(294) Realized alumina price ($/mt) $376 $299 $250 $(126) $(49) Revenue $2,711
Slide 24: Special items
Special items Breakdown of special items by income statement classification – gross basis M, Except per share amounts 2Q19 1Q20 2Q20 Description of significant 2Q20 special items Net (loss) income attributable to Alcoa Corporation $(402) $80 $(197) Diluted (loss) earnings per share $(2.17) $0.43 ($1
Slide 25: Quarterly income statement excluding special items
Quarterly income statement excluding special items Quarterly income statement excluding special items Prior Year Sequential M, Except realized prices and per share amounts 2Q19 1Q20 2Q20 Change Change Realized primary aluminum price ($/mt) $2,167 $1,988 $1,694 $(473) $(294) Realized alumina price ($
Slide 26: 2Q20 Financial summary
2Q20 Financial summary Three months ending June 30, 2020, excluding special items Intersegment Other Alcoa $M Bauxite Alumina Aluminum3,4 Transformation eliminations corporate Corporation Total revenue $311 $892 $1,477 $4 $(536) - $2,148 Third-party revenue $66 $603 $1,475 $4 - - $2,148 Adjusted EBI
Slide 27: 2Q20 Adjusted EBITDA drivers by segment
2Q20 Adjusted EBITDA drivers by segment Adjusted EBITDA excl. special items sequential changes by segment, $M Adj. Adj. EBITDA Metal Raw Production EBITDA Segment 1Q20 Currency prices API materials Energy Price/mix Volume costs Other 2Q20 Bauxite $120 2 0 0 0 2 (2) 9 (2) 2 $131 Alumina $193 (29) 0 (
Slide 28: Aluminum value chain
Aluminum value chain 1H20 Alcoa product shipments by segment Bauxite Alumina Aluminum 24.3 Mdmt shipments 6.8 Mmt shipments 1.5 Mmt shipments Third Party Intercompany 0% 12% Intercompany 30% 70% 88% Third Party 100% Intercompany Third Party 28
Slide 29: Composition of alumina and aluminum production costs
Composition of alumina and aluminum production costs Alcoa 2Q20 production cash costs Alumina refining Input Inventory Pricing FY20 Annual Cost Cost Flow Convention Sensitivity Conversion Caustic Soda 5 - 6 Months Quarterly, Spot $10M per $10/dmt Bauxite 35% 35% Natural Gas1 N/A N/A N/A 4% 12% Fuel
Slide 30: 2020 Business information
2020 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 + $100/mt 0.661 5.381 1.391 1.101 141.371 10.041 Bauxite (4) 3 Alumina 119 (18) 8 (1
Slide 31: With large currency moves, revaluations can have impacts
With large currency moves, revaluations can have impacts Currency balance sheet revaluation and EBITDA sensitivities ($M, except currencies) Balance sheet revaluation impact Currency annual sensitivity and actual impact +0.01 +0.10 +0.01 +0.01 + 10 +0.10 AUD BRL CAD EUR ISK NOK Total AUD BRL CAD EUR
Slide 32: Additional business considerations
Additional business considerations Items expected to impact adjusted EBITDA for 3Q20 ▪ In the Bauxite segment, Adjusted EBITDA is expected to be ~$5 million lower, primarily due to lower export volume ▪ In the Alumina segment, expecting ~$15 million lower due to higher energy costs from Western Aust
Slide 33: Pension and OPEB summary
Pension and OPEB summary Net pension and OPEB liability and financial impacts Net liability as of June 30, 20201 Estimated financial impacts, $M OPEB Total Expense impact 2020 $0.8B Segment pension $50 U.S. $0.8 Segment OPEB 5 Corporate pension & OPEB 5 U.S. Pension Total adj. EBITDA impact 60 $1.3
Slide 34: Investments summary
Investments summary Investments listing and income statement location Ownership Carrying Value as of Income Statement Location of Investee Country Nature of Investment4 Interest June 30, 2020 Equity Earnings ELYSISTM Limited Partnership Canada Aluminum smelting technology 48.235% Ma’aden Aluminium C
Slide 35: Rigorous standard in place to manage tailings and residue
Rigorous standard in place to manage tailings and residue Tailings and residue impoundments management process and inventory Robust and ongoing management process Inventory of tailings dams & residue storage1 ▪ Established industry-leading standards over 25 years ago; ▪ No Alcoa operated upstream ba
Slide 36: Production and capacity information
Production and capacity information Alcoa Corporation annual consolidated amounts as of June 30, 2020 Bauxite production, Mdmt Alumina refining, kmt Aluminum smelting, kmt 2019 Mine Country Production Facility Country Capacity Curtailed Facility Country Capacity Curtailed Darling Range Australia 34.
Slide 37: Valuation framework
Valuation framework LTM ending Valuation framework key considerations 6/30/2020 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 $517M Transformation + Alumina ii. Ownership in certain mines and
Slide 38: Adjusted EBITDA reconciliation
Adjusted EBITDA reconciliation $M 1Q19 2Q19 3Q19 4Q19 FY19 1Q20 2Q20 LTM Net (loss) income attributable to Alcoa $(199) $(402) $(221) $(303) $(1,125) $80 $(197) ($641) Add: Net income (loss) attributable to noncontrolling interest 141 109 74 (52) 272 59 47 128 Provision for income taxes 150 116 95 5
Slide 39: Free Cash Flow reconciliation
Free Cash Flow reconciliation $M 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 Cash from (used in) operations $168 $82 $174 $262 $(90) $288 Capital expenditures (69) (89) (87) (134) (91) (77) Free cash flow 99 (7) 87 128 (181) 211 Contributions from noncontrolling interest 20 1 20 10 - 16 Distributions to noncontro
Slide 40: Net Debt reconciliation
Net Debt reconciliation 4Q19 1Q20 2Q20 Alcoa Alcoa Alcoa $M Cons. NCI Prop. Cons. NCI Prop. Cons. NCI Prop. Short-term borrowings $- $- $- $- $- $- $- $- $- Long-term debt due within one year 1 - 1 1 - 1 1 - 1 Long-term debt, less amount due within one year 1,799 31 1,768 1,801 31 1,770 1,800 31 1,7
Slide 41: Days Working Capital
Days Working Capital $M 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 Receivables from customers $758 $684 $596 $546 $570 $402 Add: Inventories 1,799 1,767 1,649 1,644 1,509 1,419 Less: Accounts payable, trade 1,503 1,523 1,418 1,484 1,276 1,253 DWC working capital $1,054 $928 $827 $706 $803 $568 Sales $2,719 $2,71
Slide 42: Annualized Return on Equity (ROE)
Annualized Return on Equity (ROE) Reconciliation and calculation information $M 1H19 1H20 (Net Loss/Income Attributable to Alcoa + Special Items) ROE % = X 100 Numerator: (Total Assets – Total Liabilities – Noncontrolling Interest)2 Net (loss) income attributable to Alcoa Corporation $(601) $(117) A
Slide 43: Annualized Return on Capital (ROC)
Annualized Return on Capital (ROC) Reconciliation and calculation information $M 1H19 1H20 (PBT + net interest3 + special items1) x 4 x (1 – fixed tax rate4) ROC % = X 100 Numerator: (Total assets – cash5 – current liabilities + short-term debt) Net (loss) income attributable to Alcoa Corporation $(
Slide 44: Glossary of terms
Glossary of terms Abbreviations listed in alphanumeric order Abbreviation Description Abbreviation Description % pts Percentage points FY## Twelve months ending December 31 1H## Six months ending June 30 GAAP Accounting principles generally accepted in the United States of America 1Q## Three months
Slide 45: The Element of Possibility
The Element of Possibility”