Kaiser Aluminum Corporation · NASDAQ:KALU
Kaiser Aluminum — Investor Day (May 2009)
60 slides from Kaiser Aluminum's investor day presentation, May 20, 2009
Slide 1: Kaiser Aluminum Investor Day
KAISER ALUMINUM Investor Day May 20, 2009
Slide 2: Forward-Looking Statements
2 Forward-Looking Statements The information contained in this presentation includes statements based on management's current expectations, estimates and projections that constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. You should ke
Slide 3: Non-Run-Rate Items
3 Non-Run-Rate Items Non-run-rate items to us are items that, while they may recur from period to period, (1) are particularly material to results, (2) impact costs as a result of external market factors and (3) may not recur in future periods if the same level of underlying performance were to occu
Slide 4: Non-GAAP Financial Measures
4 Non-GAAP Financial Measures This earnings release contains certain non-GAAP financial measures. A "non-GAAP financial measure" is defined as a numerical measure of a company's financial performance that excludes or includes amounts so as to be different than the most directly comparable measure ca
Slide 5: Agenda
5 Agenda Company Overview Business Overview Market Dynamics Strategic Investment Initiatives Managing Through Economic Uncertainty Financial Review
Slide 6: Agenda
6 Agenda Company Overview Business Overview Market Dynamics Strategic Investment Initiatives Managing Through Economic Uncertainty Financial Review
Slide 7: Investment Thesis
7 Investment Thesis Leading positions in strategic market segments Focus on demanding applications where Kaiser has competitive strength Differentiated by customer satisfaction and broad product offering Positioning as a low-cost producer Blue chip customer base Strong platform positioned for long-t
Slide 8: Strong and Experienced Management
8 Fabricated Products Operations Strong and Experienced Management Jack Hockema President, CEO, Chairman Kaiser - 19 years Industry - 41 years John Barneson SVP Corporate Development Kaiser - 34 years Industry - 34 years Dan Rinkenberger SVP & CFO Kaiser - 18 years Industry - 18 years John Donnan SV
Slide 9: Agenda
9 Agenda Company Overview Business Overview Market Dynamics Strategic Investment Initiatives Managing Through Economic Uncertainty Financial Review
Slide 10: Focused on Demanding Applications Where We Have Competitive Strength
10 Fabricated Products Portfolio Transition Offering included non-strategic products: Can stock Common alloy sheet & plate Castings Non-automotive forgings Forged truck wheels Competitive strength in strategic applications: Aerospace & defense General engineering Automotive Focused on Demanding Appl
Slide 11: Served Market Segment Focus
11 Served Market Segment Focus Focused on Demanding Applications Where We Have Competitive Strength GLOBAL FLAT ROLLED PRODUCTS MARKET NORTH AMERICAN EXTRUSION MARKET Typical market size estimates from CRU, Aluminum Association, and Kaiser (based on industry shipments) ~21 Billion Pounds ~4 Billion
Slide 12: Served Market Segments: 2008 Value-Added Revenue
12 Served Market Segments KAISER 2008 VALUE-ADDED REVENUE Kaiser 'Non-Core' Served Market Segments Kaiser 'Core' Served Market Segments General Engineering 37% Aerospace / High Strength 48% Automotive Extrusions 6% Other Custom 8% Cast Billet 1% Value-added revenue = net sales less hedged cost of al
Slide 13: Fabricated Mill Products
13 Fabricated Mill Products Plate Rod & Bar Pipe & Tube Automotive Extrusions Industrial Extrusions Sheet
Slide 14: Transportation and Industrial Applications
14 Transportation and Industrial Applications Armor Military Aircraft Automotive Munitions Electronic Equipment Commercial Aircraft
Slide 15: Blue Chip Customer Base
15 Blue Chip Customer Base OEMs SERVICE CENTERS
Slide 16: Kaiser Aluminum Facilities
16 Kaiser Aluminum Facilities Facilities focus on specific products and applications Managed for maximum efficiency employing lean sigma practices Extrusions Sheet & Plate Drawn Products Forgings Headquarters Richmond, VA Los Angeles, CA Kalamazoo, MI (2010) Foothill Ranch, CA Trentwood, WA Richland
Slide 17: Agenda
17 Agenda Company Overview Business Overview Market Dynamics Strategic Investment Initiatives Managing Through Economic Uncertainty Financial Review
Slide 18: Market Dynamics Overview
18 Market Dynamics Overview Aerospace & High Strength General Engineering Automotive Extrusions
Slide 19: Fabricated Products Trends
19 Fabricated Products Trends Shipments grew steadily from 2002-2008 Economic expansion Aerospace plate demand growth Trentwood heat treat plate expansion Recessionary decline began in Q3 2008 Reflects the profit opportunity Value-added revenue growth Growing shipments Enriched mix (increased $/#) C
Slide 20: Market Dynamics Overview: Aerospace & High Strength
20 Market Dynamics Overview Aerospace & High Strength - 48% General Engineering Automotive Extrusions 2008 VALUE-ADDED REVENUE
Slide 21: Aerospace / High Strength Products / Applications
21 Commercial Aircraft Joint Strike Fighter Business Jets SABOT (Munitions) Aerospace / High Strength Products / Applications PRODUCTS Plate Sheet & Coil Cold Finish Rod & Bar Seamless Drawn Tube High strength alloys (2x, 7x) Furnace heat treat processing High barriers to entry Metallurgical technol
Slide 22: Commercial Aerospace Trends
22 Commercial Aerospace Trends Commercial Airframe Builds >50 Seats 0 500 1,000 1,500 2,000 2,500 3,000 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 Source: Airline Monitor Feb. 2009 Global Economic Growth Drives Growth in Passenger Miles Larger Aircraft Driven by Longer Routes and Larger
Slide 23: Order Backlog Cushions Recession Impact
23 Order Backlog Cushions Recession Impact 6+ years of backlog for >100 seats Geographically diversified (~20% NA) Increased demand for larger aircraft Demand for Regional Jets is declining Mix shift to larger Regional Jets REGIONAL JETS (<100 SEATS) '00 '02 '04 '06 '08 '10 '12 '14 '16 500 1,000 BOE
Slide 24: Aerospace Plate Demand Drivers
24 Aerospace Plate Demand Drivers LONG-TERM DEMAND DRIVERS AEROSPACE HEAT TREAT PLATE Growing build rates Larger airframes Monolithic design Composite materials GRAPHIC REPRESENTATION LARGER AIRFRAMES AND MONOLITHIC DESIGN Source: Kaiser estimates Regional Narrowbody Widebody Extra Large Transport A
Slide 25: Aerospace / High Strength Sales Mix
25 Increasing value-added price Aerospace / High Strength Sales Mix VALUE-ADDED PYRAMID VALUE-ADDED PRICE VOLUME Aero / HS mix includes a portfolio of products A significant portion of the mix has contract pricing A portion of the mix has contractual volume provisions Plate Sheet & Coil Cold Finish
Slide 26: Aerospace / High Strength Trends
26 QUARTERLY AVERAGE Aerospace / High Strength Trends Significant growth driven by HT plate: Monolithic design Larger aircraft Trentwood expansion '00 '01 '02 '03 '04 '05 '06 '07 '08 '08 2Q '08 3Q '08 4Q '09 1Q Millions of Pounds SHIPMENTS Current value-added revenue $ ~2x prior peak ~3x prior valle
Slide 27: Aerospace / High Strength Summary
27 Short-term Trends Long-term Trends Aerospace / High Strength Summary 1 15 14 13 12 11 10 9 8 7 6 5 4 3 2 YEARS 2Q 2009 shipments are trending toward mid-2008 pace Destocking throughout supply chain High value-added service center products most affected Expect plate shipments substantially higher
Slide 28: Market Dynamics Overview: General Engineering
28 Market Dynamics Overview Aerospace & High Strength - 48% General Engineering - 37% Automotive Extrusions 2008 VALUE-ADDED REVENUE
Slide 29: General Engineering Products / Applications
29 General Engineering Products / Applications PRODUCTS Plate Sheet Rod & Bar Pipe & Tube 6x series alloys Performance attributes Machinability Ballistics REPRESENTATIVE APPLICATIONS Tooling Plate Semiconductor Vacuum Chambers Air Cylinder Tubes Hydraulic Valve Bodies Armored Vehicles Parts From Sel
Slide 30: General Engineering Rod / Bar Demand Trends
30 General Engineering Rod / Bar Demand Trends Destocking - Restocking Amplifies Cyclicality INDEX OF INDUSTRIAL PRODUCTION SERVICE CENTER ROD / BAR INVENTORY - -20% 0% 20% 40% '01 '02 '03 '04 '05 '06 '07 '08 '09 - -20% 0% 20% 40% '01 '02 '03 '04 '05 '06 '07 '08 '09 SERVICE CENTER ROD / BAR SHIPMENT
Slide 31: General Engineering Trends
31 General Engineering Trends QUARTERLY AVERAGE 2002-2008 economic expansion Past 3 quarters Recessionary demand Destocking throughout supply chain '00 '01 '02 '03 '04 '05 '06 '07 '08 Millions of Pounds SHIPMENTS Improved $/# attributable to rising spot prices for general engineering plate (global h
Slide 32: General Engineering Summary
32 Short-term Trends Long-term Trends General Engineering Summary 1 15 14 13 12 11 10 9 8 7 6 5 4 3 2 YEARS Limited visibility 2Q 2009 shipments pace similar to 1Q General engineering plate competitive price pressure Long-term demand Economic recovery, restocking NA industrial growth Relatively stro
Slide 33: Market Dynamics Overview: Automotive Extrusions
33 Market Dynamics Overview Aerospace & High Strength - 48% General Engineering - 37% Automotive Extrusions - 6% 2008 VALUE-ADDED REVENUE
Slide 34: Automotive and Light Truck Applications
34 Automotive and Light Truck Applications Focused on Demanding Applications Where We Have Competitive Strength Drive Shafts Bumper Systems ABS Antilock Braking Systems
Slide 35: Automotive Extrusion Demand Drivers
35 '08 17.2 15.5 16.4 15.9 15.8 15.8 15.3 15.1 12.6 8.2 Automotive Extrusion Demand Drivers NORTH AMERICAN AUTO EXTRUSIONS '00 '01 '02 '03 '04 '05 '06 '07 '09F NORTH AMERICAN LIGHT VEHICLE BUILDS '08 '00 '01 '02 '03 '04 '05 '06 '07 '09F Millions Millions of Pounds Pounds Per Vehicle Source: April 20
Slide 36: Automotive and Other Applications Trends
Automotive and Other Applications Trends
Slide 37: Automotive / Other Applications Trends
37 $27 $20 $22 $21 $25 $27 $30 $29 $26 $16 $21 $26 $27 $0.57 $0.63 $0.84 $0.78 $0.71 $0.70 $0.75 $0.79 $0.73 $0.74 $0.78 $0.70 $0.73 Millions of Pounds 47 32 27 27 34 39 40 37 36 38 37 27 22 Automotive / Other Applications Trends QUARTERLY AVERAGE 1Q 2009 shipments below 2002-2003 pace Auto builds ~
Slide 38: Market Dynamics Summary
Market Dynamics Summary
Slide 39: Fabricated Products Trends
39 Fabricated Products Trends QUARTERLY AVERAGE '00 '01 '02 '03 '04 '05 '06 '07 '08 Millions of Pounds SHIPMENTS '00 '01 '02 '03 '04 '05 '06 '07 '08 Millions of Dollars Dollars Per Pound QUARTERLY AVERAGE VALUE-ADDED REVENUE '08 2Q '08 3Q '08 4Q '09 1Q '08 2Q '08 3Q '08 4Q '09 1Q $112 $94 $77 $81 $1
Slide 40: Market Dynamics Summary
40 LONG-TERM OUTLOOK IS POSITIVE KAISER IS WELL-POSITIONED Market Dynamics Summary Commercial Aerospace Strong and diversified order backlog Trend to larger aircraft Monolithic design Defense F-35 Joint Strike Fighter funding Relatively strong armor demand General Engineering Economic recovery will
Slide 41: Agenda
41 Agenda Company Overview Business Overview Market Dynamics Strategic Investment Initiatives Managing Through Economic Uncertainty Financial Review
Slide 42: Internal Investment Initiatives
42 Internal Investment Initiatives ~ $250 Million Investment Trentwood HT Plate Other (quality, efficiency, capacity) Kalamazoo Rod & Bar World-class heat treat plate expansion completed late in 2008 Trentwood, WA Completed late in 2008 New, world-class rod & bar plant Kalamazoo, MI Startup early 20
Slide 43: Trentwood Heat Treat Plate Expansion
43 Trentwood Heat Treat Plate Expansion Continuous Heat Treat Furnace Plate Flow and Stretcher More than doubled heat treat plate capacity Expands product offering to access growing heavy-gauge plate market Supported by underlying customer contracts Positions Kaiser as industry leader for quality, c
Slide 44: New Kalamazoo Rod / Bar Plant
44 New Kalamazoo Rod / Bar Plant Foundation - 4000T Extrusion Press World-class Kaiser Select(r) remelt / extrusion plant startup early 2010 Positions Kaiser as a premium quality, low cost producer Designed to accommodate future expansion
Slide 45: Kaiser Select Product Differentiation
45 Kaiser Select(r) Product Differentiation KAISER SELECT(r) PROCESS KAISER SELECT(r) VALUE Voice of the customer Develop product to meet specific customer needs Metallurgical features Physical features Develop process to assure consistently superior product Equipment capability Kaiser Production Sy
Slide 46: Agenda
46 Agenda Company Overview Business Overview Market Dynamics Strategic Investment Initiatives Managing Through Economic Uncertainty Financial Review
Slide 47: Managing Through Economic Uncertainty
47 Managing Through Economic Uncertainty WELL-POSITIONED 2009 PRIORITIES Competitive strength Market presence Differentiation Cost position Financial strength Balance sheet Liquidity Customer satisfaction Manufacturing efficiency Flex operations and costs Capture benefit from investments Liquidity R
Slide 48: Agenda
48 Agenda Company Overview Business Overview Market Dynamics Strategic Investment Initiatives Managing Through Economic Uncertainty Financial Review
Slide 49: Financial Strength and Flexibility
49 Financial Strength and Flexibility Strong cash flows Low debt level, prudent liquidity management Significant U.S. tax attributes (~$900 million1) Metal price neutrality 1 Refer to Kaiser's 2008 10-K for additional detail regarding tax attributes
Slide 50: Metal Price Neutrality
50 Metal Price Neutrality Fabricated Products - Pass-through Metal Price to Customers PRICING MECHANISM HOW IT WORKS EFFECT Spot Metal pass-through Index-Based Metal pass-through Firm Requires back-to-back hedge Kaiser can change selling price up to the point of shipment Price is a contractually neg
Slide 51: Fabricated Products Drives EBITDA
51 Fabricated Products Drives EBITDA1 8.2 2005 2006 2007 2008 EBITDA Millions of Dollars 1 EBITDA = Operating Income, before non-run-rate items, plus depreciation and amortization 2 Consolidated EBITDA = Fab Products EBITDA + Primary Aluminum EBITDA - Corporate Core Fabricated Products segment drive
Slide 52: Capital Spending Funded From EBITDA
52 Capital Spending Funded From EBITDA1 2005 2006 2007 2008 INTERNALLY FUNDED INVESTMENT Millions of Dollars Significant growth capital investments through 2009 Trentwood heat treat plate expansion (completed in 2008) Kalamazoo rod and bar project (to be completed in early 2010) Other plant investme
Slide 53: Prudent Cash Management
53 Beginning Net Cash1 EBITDA2 Working Capital3 Dividends VEBA Payments Other Uses Prudent Cash Management Primary cash source is EBITDA Cash priorities: Millions of Dollars PRESERVING CASH AND LIQUIDITY LONG-TERM Capital spending (sustaining levels) Growth initiatives (internal and acquisition) Div
Slide 54: Additional Financial Considerations
54 Additional Financial Considerations SIGNIFICANT TAX ATTRIBUTES VEBA1 OBLIGATIONS Approximately $900 million of Net Operating Loss carryforwards and other tax attributes Applies to US and state pretax income Single-digit percentage cash tax rate (lower than book tax rate) Profit-sharing formula ba
Slide 55: Conservative Liquidity and Debt Management
55 Conservative Liquidity and Debt Management 1 Actual availability fluctuates with borrowing base Solid cash flow from operations; virtually no debt $265 million revolving credit facility1 Provides liquidity cushion through economic cycles Strong group of lending banks Matures in July 2011 Availabl
Slide 56: Summary
Summary
Slide 57: Investment Thesis
Investment Thesis Leading positions in strategic market segments Strong platform positioned for long-term growth Positioned to navigate economic uncertainty and prosper upon rebound Management depth and experience with solid track record
Slide 58: Appendix
Appendix
Slide 59: Reconciliation of Operating Income as Reported to EBITDA
59 Reconciliation of Operating Income as Reported to EBITDA1 1 EBITDA = Operating Income, before non-run-rate items, plus depreciation and amortization 2 Totals may not sum due to rounding 3 NRR = non-run-rate items
Slide 60: Kaiser Aluminum
KAISER ALUMINUM