Slide 1: 2nd Quarter Earnings
2nd Quarter Earnings Alcoa Corporation July 18, 2018 Update 7/19/18: This presentation originally reported $(12)M for the 1H18 Actual Corporate inventory EBITDA impacts on slide 15; the correct amount is $(1)M.
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: Roy Harvey
Roy Harvey President and Chief Executive Officer
Slide 5: Results driven by market factors; executing priorities
Results driven by market factors; executing priorities 2Q18 Financial results and business update ▪ Net income of $75 million, or $0.39 per share; excluding special items, adjusted 2Q18 net income of $286 million, or $1.52 per share Financial ▪ Adjusted EBITDA excluding special items of $904 million
Slide 6: William Oplinger
William Oplinger Executive Vice President and Chief Financial Officer
Slide 7: Revenue up 16% sequentially on higher market prices
Revenue up 16% sequentially on higher market prices Quarterly income statement Prior Year Sequential M, Except realized prices and per share amounts 2Q17 1Q18 2Q18 Change Change Realized primary aluminum price ($/mt) $2,199 $2,483 $2,623 $424 $140 Realized alumina price ($/mt) $314 $385 $467 $153 $8
Slide 8: Special items total $211M
Special items total $211M Breakdown of special items by income statement classification – gross basis M, Except per share amounts 2Q17 1Q18 2Q18 Description of significant 2Q18 special items Net income attributable to Alcoa Corporation $75 $150 $75 Diluted earnings per share $0.40 $0.80 $0.39 Specia
Slide 9: Adjusted net earnings $286 million; adjusted EPS $1.52
Adjusted net earnings $286 million; adjusted EPS $1.52 Quarterly income statement excluding special items Prior Year Sequential M, Except realized prices and per share amounts 2Q17 1Q18 2Q18 Change Change Realized primary aluminum price ($/mt) $2,199 $2,483 $2,623 $424 $140 Realized alumina price ($
Slide 10: Adjusted EBITDA increase led by favorable market factors
Adjusted EBITDA increase led by favorable market factors Adjusted EBITDA excluding special items sequential changes, $M 37 3 232 (39) $904 (28) (22) (15) (13) 96 $653 1Q18 Metal API Currency Volume Price / Operational Energy Raw Other 2Q18 Prices Mix Impacts Materials 10
Slide 11: Alumina, Aluminum segments see gains on higher prices
Alumina, Aluminum segments see gains on higher prices Adjusted EBITDA excluding special items breakdown Segment information, $M Total Adjusted EBITDA information, $M 1Q18 2Q18 +63% 1Q18 2Q18 Change Segment total $655 $969 $314 $638 Transformation (2) (1) 1 $392 +51% Corporate inventory accounting1 3
Slide 12: Cash at $1.1 billion after pension, Wenatchee payments
Cash at $1.1 billion after pension, Wenatchee payments Quarterly cash comparison and cash flows, $M Quarter ending cash balance Free cash flow and change in cash 2Q17 3Q17 4Q17 1Q18 2Q18 +239 (162) Cash from (used for) operations $311 $384 $455 $55 $(430) 1,358 (107) +165 Capital expenditures (88) (
Slide 13: Capital allocation plan in process; reducing net leverage
Capital allocation plan in process; reducing net leverage Capital allocation and key financial metrics as of June 30, 2018 Maintain liquidity 2Q18 Days Cash Greater than working capital $1B cash balance $1,089M 24 Days Return cash to Sustain the 1H18 Capital 1H18 Annualized stockholders operations e
Slide 14: Several actions address pension net liability in 1H18
Several actions address pension net liability in 1H18 1H18 Pension & OPEB net liability overview Net liability bridge, $B Actions Pension OPEB ▪ Pension freeze for U.S. and Canadian salaried employees announced in January, $3.5 effective January 1, 2021 (0.1) (0.1) $2.71 ▪ Announced elimination of c
Slide 15: 2018 Outlook
2018 Outlook FY18 Key metrics Total shipments Adjusted EBITDA excl. special items impacts 1H18 Actual FY18 Outlook 1H18 Actual FY18 Outlook Bauxite (Mdmt) 23.1 47.5 – 48.5 Adjusted EBITDA excl. special items $1.6B $3.0 – $3.2B1 Alumina (Mmt) 6.8 13.7 – 13.9 Transformation EBITDA impacts $(3)M ~ $(30
Slide 16: Roy Harvey
Roy Harvey President and Chief Executive Officer
Slide 17: Increasing aluminum deficit projection for 2018
Increasing aluminum deficit projection for 2018 Projected 2018 market balances Bauxite Alumina Aluminum (3rd-party seaborne) (smelter grade) (primary) 2018 Outlook Surplus Deficit Deficit 2018 Supply/Demand Balance, Mmt Global 3 to 11; stockpile growth -1.0 to -0.2; deficit -1.5 to -1.1; deficit Chi
Slide 18: Tariffs drive limited smelter restarts, imports remain vital
Tariffs drive limited smelter restarts, imports remain vital U.S. Primary aluminum market estimates and update Est. U.S. Primary aluminum supply, Mmt Challenges and solutions for U.S. smelting Alcoa U.S. operating capacity U.S. remains an import market Competitor U.S. operating capacity ▪ 232 tariff
Slide 19: New R&D joint venture focused on carbon-free aluminum
New R&D joint venture focused on carbon-free aluminum Overview of Elysis Joint venture description ▪ Alcoa, Rio Tinto, the Government of Canada, the Government of Quebec and Apple agree to provide a combined investment of $188 million (CAD) into the joint venture ▪ Patent-protected technology elimin
Slide 20: Focused on executing priorities and capital allocation plan
Focused on executing priorities and capital allocation plan 2Q18 Summary Strategic priorities 2Q18 Review Constructive market factors drove over $250 million in adj. EBITDA growth FY18 adjusted EBITDA outlook excluding special items of $3.0 to $3.2B1 De-risking balance sheet; pension and OPEB action
Slide 21: Questions?
Questions? Alcoa Corporation
Slide 22: Appendix
Appendix
Slide 23: 2Q18 Financial summary
2Q18 Financial summary Three months ending June 30, 2018, excluding special items Corporate $M inventory Other Alcoa Bauxite Alumina Aluminum4,5 Transformation accounting corporate Corporation Total revenue1 $303 $1,604 $2,417 $23 $(768) - $3,579 Third-party revenue $77 $1,068 $2,413 $21 - - $3,579
Slide 24: 2Q18 Adjusted EBITDA drivers by segment
2Q18 Adjusted EBITDA drivers by segment Adjusted EBITDA excl. special items sequential changes by segment, $M Adj. Adj. EBITDA Metal Op. Raw EBITDA Segment 1Q18 Prices API Currency Volume Price/Mix Impacts Energy Materials Other 2Q18 Bauxite $110 - - 6 4 (6) (8) - - (6) $100 Alumina $392 - 292 28 (1
Slide 25: Aluminum value chain
Aluminum value chain 1H18 Alcoa product shipments by segment, Mmt Bauxite Alumina Aluminum 1.6 31% 100% Aluminum 3rd Party 6.8 88% 69% Alumina 3rd Party 23.1 12% Bauxite 3rd Party 25
Slide 26: Composition of alumina and aluminum production costs
Composition of alumina and aluminum production costs Alcoa 2Q18 production cash costs Alumina refining Input Inventory Pricing Estimated Annual Cost Flow Convention Cost Sensitivity Bauxite Caustic Soda 5 - 6 Months Quarterly $9M per $10/dmt Conversion 35% 31% Natural Gas1 N/A N/A N/A 5% 16% Fuel Oi
Slide 27: 2018 Business information
2018 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 (3) 4 Alumina 119
Slide 28: Pension and OPEB summary
Pension and OPEB summary Pension and OPEB net liability and financial impacts Net liability as of June 30, 20181 Estimated financial impacts, $M Expense impact 2018 Segment pension $55 OPEB Segment OPEB $5 Total U.S. Pension Corporate pension & OPEB $5 $1.2 U.S. Total $1.2B $1.3 Total adj. EBITDA im
Slide 29: Investments summary
Investments summary Ownership Carrying Value as of P&L Location of Investee Country Nature of Investment4 Interest June 30, 2018 Equity Earnings Elysis Limited Partnership Canada Aluminum smelting technology 48.235% Ma’aden Aluminum Company1 Saudi Arabia Aluminum smelter 25.1% Ma’aden Bauxite and Al
Slide 30: Production and capacity information
Production and capacity information Alcoa Corporation annual consolidated amounts Bauxite production, Mdmt Alumina refining, kmt Aluminum smelting, kmt 2017 Mine Country Production Facility Country Capacity Curtailed Facility Country Capacity Curtailed Darling Range Australia 33.2 Kwinana Australia
Slide 31: Adjusted EBITDA reconciliation
Adjusted EBITDA reconciliation $M 2Q17 1Q18 2Q18 LTM Net income attributable to Alcoa Corporation $75 $150 $75 $142 Add: Net income attributable to noncontrolling interest 63 124 155 475 Provision for income taxes 99 138 180 709 Other expenses, net 28 21 9 108 Interest expense 25 26 32 111 Restructu
Slide 32: Special items detail, net of tax and noncontrolling interest
Special items detail, net of tax and noncontrolling interest $M 2Q17 1Q18 2Q18 P&L classification Special items $41 $(5) $211 Contractor arbitration loss - - 15 Cost of goods sold Warrick smelter restart costs - 16 2 Cost of goods sold Bécancour lockout related costs - 2 2 Cost of goods sold Portlan
Slide 33: Free Cash Flow reconciliation
Free Cash Flow reconciliation $M 2Q17 3Q17 4Q17 1Q18 2Q18 Cash from operations $311 $384 $455 $55 $(430)1 Capital expenditures (88) (96) (150) (74) (95) Free cash flow $223 $288 $305 $(19) $(525) Free Cash Flow is a non-GAAP financial measure. Management believes that this measure is meaningful to i
Slide 34: Net Debt reconciliation
Net Debt reconciliation $M 1Q18 2Q18 Long-term debt due within one year $15 $13 Long-term debt, less amount due within one year 1,445 1,916 Total debt1 1,460 1,929 Less: Cash and cash equivalents 1,196 1,089 Net debt $264 $840 Net debt is a non-GAAP financial measure. Management believes that this m
Slide 35: Days Working Capital
Days Working Capital $M 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 Receivables from customers $708 $789 $840 $811 $814 $1,025 Add: Inventories 1,294 1,287 1,323 1,453 1,630 1,668 Less: Accounts payable, trade 1,434 1,508 1,618 1,898 1,813 1,752 DWC working capital $568 $568 $545 $366 $631 $941 Sales $2,655 $2,85
Slide 36: Annualized Return on Capital
Annualized Return on Capital Reconciliation and calculation information (PBT + net interest3 + special items) x 2 x (1 – fixed tax rate4) $M 1H17 1H18 ROC % = X 100 Numerator: ( Total assets – cash5 – current liabilities + short-term debt) Net income attributable to Alcoa Corporation 300 225 Add: Ne
Slide 37: Glossary of terms
Glossary of terms Abbreviations listed in alphanumeric order Abbreviation Description Abbreviation Description % pts Percentage points GAAP Accounting principles generally accepted in the United States of America 1H## Six months ending June 30 GWh Gigawatt hour 1Q## Three months ending March 31 ISK
Slide 38: The Element of Possibility
The Element of Possibility”