Slide 1: 3rd Quarter Earnings
3rd Quarter Earnings Alcoa Corporation October 18, 2017
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 This presentation includes unaudited “non-GAAP financial measures” (GAAP means accounting principles generally accepted in the United States of America) as defined in Regulation G under the Securities Exchange Act of 1934. Alcoa Corporati
Slide 4: Roy Harvey, President and Chief Executive Officer
Roy Harvey President and Chief Executive Officer
Slide 5: Growing earnings, building cash, executing on priorities
Growing earnings, building cash, executing on priorities 3Q17 Financial results and business updates ▪ Net income of $113 million, or $0.60 per share; excluding special items, adjusted 3Q17 net income of $135 million, or $0.72 per share Financial ▪ Adjusted EBITDA excluding special items1 of $561 mi
Slide 6: William Oplinger, Executive Vice President and Chief Financial Officer
William Oplinger Executive Vice President and Chief Financial Officer
Slide 7: Revenues up 4% sequentially, 27% year on year
Revenues up 4% sequentially, 27% year on year Quarterly income statement Prior Year Sequential M, Except realized prices and per share amounts 3Q16 2Q17 3Q17 Change Change Realized primary aluminum price ($/mt) $1,873 $2,199 $2,237 $364 $38 Realized alumina price ($/mt) $248 $314 $314 $66 $0 Revenue
Slide 8: Special items total $22 million
Special items total $22 million Breakdown of special items by income statement classification – Gross Basis M, Except per share amounts 3Q16 2Q17 3Q17 Description Net income (loss) $(10) $75 $113 Net income (loss) per diluted share1 $(0.06) $0.40 $0.60 Special items $(85) $41 $22 COGS - $13 $34 Alum
Slide 9: Adjusted net earnings grow to $135 million
Adjusted net earnings grow to $135 million Quarterly income statement excluding special items Prior Year Sequential M, Except realized prices and per share amounts 3Q16 2Q17 3Q17 Change Change Realized primary aluminum price ($/mt) $1,873 $2,199 $2,237 $364 $38 Realized alumina price ($/mt) $248 $31
Slide 10: Positive factors outpacing currency, raw materials offsets
Positive factors outpacing currency, raw materials offsets Adjusted EBITDA excl. special items1 sequential change by key impact area, $M 37 38 561 38 14 14 4 21 $483 (39) (49) 2Q17 Metal API Currency Volume Price / Net Energy Raw Other 3Q17 Prices Mix Productivity Materials 1. See appendix for adjus
Slide 11: Aluminum up 37% sequentially, segment total up 13%
Aluminum up 37% sequentially, segment total up 13% Adjusted EBITDA1,2 sequential comparison, $M 2Q17 3Q17 +37% +13% -11% $303 $619 $546 +15% $227 $221 $203 $98 $113 Bauxite Alumina Aluminum Segment Total 3Q17 Segment Adj. EBITDA Margin % 34.8% 18.3% 14.4% 17.5% Change vs. 2Q17, Margin % +0.8% pts -1
Slide 12: Non-segment costs improve $5M sequentially
Non-segment costs improve $5M sequentially 3Q17 Adjusted EBITDA excluding special items1 breakdown by component, $M 2Q17 3Q17 $ Change Segment total adjusted EBITDA $546 $619 $73 Transformation & legacy pension/OPEB2 (40) (25) 15 Impact of LIFO and metal price lag 3 (9) (12) Other corporate expenses
Slide 13: Cash position surpasses $1.1 billion
Cash position surpasses $1.1 billion Sequential quarter cash comparison and cash flows, $M Quarter ending cash balance Free cash flow and change in cash 1Q17 2Q17 3Q17 +165 Cash Provided From Operations $74 $311 $384 +150 1,119 Capital Expenditures (71) (88) (96) (49) 954 Free Cash Flow $3 $223 $288
Slide 14: Balance sheet strengthens further
Balance sheet strengthens further Key financial metrics as of September 30, 2017 3Q17 Days Cash ▪ Manage cash position Working Capital ▪ Optimize working capital $1,119M 17 Days 2017 YTD 2017 YTD ▪ Maintain assets Capital Expenditures1 Return on Capital2 ▪ Invest in return seeking projects $255M 6.3
Slide 15: 2017 Progress and outlook
2017 Progress and outlook FY17 Key metrics Adjusted EBITDA excl. special items Financial metrics 2017 YTD FY17 2017 YTD FY17 Actual Outlook Actual Outlook Transformation & legacy pension/OPEB $98M ~ $115M INCOME STATEMENT Adjusted EBITDA excl. $1.6B ~$2.4B1 Other corporate expenses3 $89M ~ $185M IMP
Slide 16: Disciplined capital allocation strategy and value focus
Disciplined capital allocation strategy and value focus Capital allocation and valuation frameworks Capital allocation Value creation Maintain Bauxite liquidity + Operations Alumina Business + Aluminum Return cash to Sustain the - Non-segment expenses stockholders operations = Enterprise value - Non
Slide 17: Roy Harvey, President and Chief Executive Officer
Roy Harvey President and Chief Executive Officer
Slide 18: Aluminum outlook improves on curtailments and demand
Aluminum outlook improves on curtailments and demand Projected 2017 market balances Bauxite Alumina Aluminum (3rd-party seaborne) (smelter grade) (primary) Outlook Relative balance Relative balance Relative balance Supply/Demand Balance, (Mmt) Global 0 to 2; stockpile growth -0.4 to 0.4; balanced -0
Slide 19: Chinese curtailments realized; awaiting full MEP impact
Chinese curtailments realized; awaiting full MEP impact Primary aluminum supply impacts from Chinese policy-driven curtailments Chinese policy initiative updates Capacity at risk from NDRC and MEP programs Mmtpa National Development and Reform Commission (NDRC) 7.6 ▪ Program to curtail capacity oper
Slide 20: Confluence of factors supporting alumina market
Confluence of factors supporting alumina market Smelter grade alumina market fundamentals ▪ Reduced supply: MEP winter curtailments ▪ Bauxite availability concerns: Concerns in in China will reduce alumina output; World Henan and Shanxi provinces in China ex-China tightness. associated with increase
Slide 21: Operations focus driving results and improving value
Operations focus driving results and improving value World-class operations across the aluminum value chain Bauxite Bauxite Alumina Aluminum Corporate + Alumina ▪ Very low second ▪ World-class, low- ▪ Competitive ▪ Expect annualized Operations quartile cost cost assets with a smelters with mid adjus
Slide 22: Delivering on commitments and strategic priorities
Delivering on commitments and strategic priorities Progress on strategic priorities ▪ Resolved power contract to simplify options for Rockdale; drives $60 to $70 million Reduce in annualized adjusted EBITDA benefit beginning in 4Q17 Complexity ▪ Warrick smelter restart progressing to streamline roll
Slide 23: Questions?
Questions? Alcoa Corporation
Slide 24: Appendix
Appendix
Slide 25: Global portfolio of low-cost, world-class assets
Global portfolio of low-cost, world-class assets 2017 global cost curve positions Bauxite Alumina Aluminum 28th 12th 37th percentile percentile percentile $/dmt $/t $/t 50 400 2,500 40 300 2,000 30 20 200 1,500 10 0 100 1,000 0 50 100 150 200 250 300 350 0 20 40 60 80 100 120 140 0 10 20 30 40 50 60
Slide 26: 3Q17 Financial summary
3Q17 Financial summary Three months ending September 30, 2017, excluding special items Transformation & Impact from Other Alcoa $M Bauxite Alumina Aluminum3,4 Legacy Pension / LIFO & Metal Corporate Corporation OPEB Costs Price Lag Expenses Total Total revenue1 $325 $1,111 $2,099 $55 - $(626) $2,964
Slide 27: 3Q17 Adjusted EBITDA drivers by segment
3Q17 Adjusted EBITDA drivers by segment Sequential Adjusted EBITDA change impacts by segment vs. 2Q17, $M Adj. Net Adj. EBITDA Metal Product- Raw EBITDA Segment 2Q17 Prices API Currency Volume Price/Mix ivity Energy Materials Other 3Q17 Bauxite $98 0 0 (6) 12 1 0 0 0 8 $113 Alumina $227 1 14 (25) 0
Slide 28: Aluminum value chain
Aluminum value chain 2017 YTD Alcoa product shipments by segment, Mmt Bauxite Alumina Aluminum 2.5 32% 100% Aluminum 3rd Party 10.2 86% 68% Alumina 3rd Party 35.4 14% Bauxite 3rd Party 28
Slide 29: Composition of alumina and aluminum production costs
Composition of alumina and aluminum production costs Alcoa 3Q17 production cash costs Alumina refining Input Inventory Pricing Estimated Annual Fuel Oil Natural Gas Cost Flow Convention Cost Sensitivity 5% 14% Fuel Oil 1 - 2 Months Prior Month $3M per $1/bbl Caustic Conversion 35% 14% Natural Gas1 N
Slide 30: 2017 Business sensitivities
2017 Business sensitivities Estimated annual EBITDA sensitivities $ in millions 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
Slide 31: Pension and OPEB summary
Pension and OPEB summary Pension and OPEB overview $2.8B Net balance sheet liability 2017 Impacts, $M as of September 30, 2017 Pension OPEB Segments ~50% ~15% OPEB Legacy Operations ~15% ~15% Total U.S. Corporate ~5% - $1.2B $1.2 Pension U.S. Total Expense ~ $175M $1.3 Total $1.6B Pension OPEB ROW $
Slide 32: Equity investments summary
Equity investments summary Ownership Carrying Investee Country Nature of Investment4 Interest Value6 P&L Impact Ma’aden Smelting Company1 Saudi Arabia Aluminum smelter 25.1% Ma’aden Bauxite and Alumina Company1 Saudi Arabia Bauxite mine and Alumina refinery 25.1%5 Ma’aden Rolling Company1 Saudi Arab
Slide 33: Capacity closed, sold and curtailed
Capacity closed, sold and curtailed Smelting and Refining capacity information as of September 30, 2017 Smelting capacity Refining capacity Closed / Sold since December 2007 Curtailed Closed / Sold since December 2007 Curtailed Facility Year kmt Facility Year kmt Facility Year kmt Facility Year kmt
Slide 34: Special items detail, net of tax and noncontrolling interest
Special items detail, net of tax and noncontrolling interest $M 3Q16 2Q17 3Q17 Income Statement Classification Special items $(85) $41 $22 Warrick restart costs - - $17 COGS Portland restart power exposure - $6 $3 COGS Brazil tax settlement - - $7 COGS/SG&A Separation-related costs $23 - - SG&A Mark
Slide 35: Adjusted EBITDA reconciliation
Adjusted EBITDA reconciliation $M 3Q16 2Q17 3Q17 LTM Net income (loss) attributable to Alcoa Corporation ($10) $75 $113 $288 Add: Net income (loss) attributable to noncontrolling interest 20 63 56 198 Provision for income taxes 92 99 119 334 Other expenses / (income), net (106) 6 27 (66) Interest ex
Slide 36: Free Cash Flow reconciliation
Free Cash Flow reconciliation $M 3Q16 1Q17 2Q17 3Q17 Cash from operations ($109) $74 $311 $384 Capital expenditures (86) (71) (88) (96) Free cash flow1 ($195) $3 $223 $288 1. Free Cash Flow is a non-GAAP financial measure. Management believes that this measure is meaningful to investors because mana
Slide 37: Net Debt reconciliation
Net Debt reconciliation $M 3Q17 Short-term borrowings $3 Long-term debt due within one year 17 Long-term debt, less amount due within one year 1,384 Total debt 1,404 Less: Cash and cash equivalents 1,119 Net debt1 $285 1. Net debt is a non-GAAP financial measure. Management believes that this measur
Slide 38: Days Working Capital
Days Working Capital $M 1Q17 2Q17 3Q17 Receivables from customers $708 $789 $840 Add: Inventories 1,294 1,287 1,323 Less: Accounts payable, trade 1,434 1,508 1,618 DWC Working Capital $568 $568 $545 Revenue $2,655 $2,859 $2,964 Number of Days in the Quarter 90 91 92 Days Working Capital1 19 18 17 1.
Slide 39: 2017 YTD Annualized ROC
2017 YTD Annualized ROC Reconciliation and calculation information $M 2017 YTD (PBT + Net Interest4 + Special Items) x 4/32 x (1 – Fixed Tax Rate5) ROC % = X 100 Numerator: Net income attributable to Alcoa Corporation 413 (Assets – Cash – Current Liabilities + Short Term Debt) Add: Net income attrib
Slide 40: 2016 Baseline ROC for Long-Term Incentive Plan (LTIP)
2016 Baseline ROC for Long-Term Incentive Plan (LTIP) Reconciliation and calculation information (PBT + Net Interest3 + Special Items) x (1 – Fixed Tax Rate4) $M FY 16 ROC % = X 100 Numerator: (Assets – Cash – Current Liabilities + Short Term Debt) Net loss attributable to Alcoa Corporation (400) Ad
Slide 41: Glossary of terms
Glossary of terms Abbreviations listed in alphabetical order Abbreviation Description Abbreviation Description % pts Percentage points ISK Icelandic Krona 1Q## Three months ending March 31 kmt Thousand metric tons 2Q## Three months ending June 30 LIFO Last in first out method of inventory accounting
Slide 42: The Element of Possibility
The Element of Possibility”