Alcoa Corporation · NYSE:AA
Alcoa — Q3 2008 Earnings Presentation
37 slides from Alcoa's earnings presentation, Oct 10, 2008
Slide 1: 3rd Quarter 2008 Analyst Conference
Exhibit 99.2 rd 3 Quarter 2008 Analyst Conference [Alcoa logo] October 7, 2008
Slide 2: Forward Looking Statements
[Alcoa logo] Forward Looking Statements Today’s discussion may include “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements relate to future events and expectations and involve known and unknown risks and uncertainties. Alcoa’s actu
Slide 3: Chuck McLane, Executive Vice President and Chief Financial Officer
Chuck McLane [Alcoa logo] Executive Vice President and Chief Financial Officer
Slide 4: 3rd Quarter 2008 Financial Overview
3rd Quarter 2008 Financial Overview [Alcoa logo] – Net income of $268m, or $0.33 per share – includes $29m or $0.04 per share for restructuring – Sequentially, currency translation was a negative $52m, or $0.06 per share – Typical sequential seasonal decline amplified by weakening markets – Revenues
Slide 5: Margin squeeze impacting entire industry
[Alcoa logo] Margin squeeze impacting entire industry Alumina EBITDA Change –1H 08 vs 1H 07 Alcoa (-27%) Competitor A (-40%) Competitor B (-40%) Competitor C (-23%) Smelting EBITDA Change –1H 08 vs 1H 07 Alcoa (-22%) Competitor A (-44%) Competitor B (-13%) Competitor C (-21%) Source: Company filings
Slide 6: The industry is facing significant input cost escalation
[Alcoa logo] The industry is facing significant input cost escalation Caustic Soda ( per dmt) Calcined Coke (per mt) Ocean Freight (Baltic Dry Index) 88% $958 (4%) $526 7,412 110% 7,123 $510 $250 3Q07 3Q08 3Q07 3Q08 3Q07 3Q08 Source: CMAI Source: PACE Source: Bloomberg Natural Gas (US Henry Hub per
Slide 7: 3Q vs 3Q 2007 Earnings Bridge
[Alcoa logo] 3Q vs 3Q 2007 Earnings Bridge Income from Continuing Operations excluding Restructuring, Transaction Costs, and Chalco Gain millions $400 340 177 50 298 $300 145 36 $200 117 24 139 23 17 $100 64 35 $0 7
Slide 8: Sequential Income Statement
[Alcoa logo] Sequential Income Statement In Millions 2Q 08 3Q 08 Change Sales $7,620 $7,234 (5%) Cost of Goods Sold $6,090 $5,944 (2%) % of Sales 79.9% 82.2% 2.3 pts SG&A $306 $283 (8%) % of Sales 4.0% 3.9% (0.1 pts) Restructuring and Other Charges $2 $43 nm Interest Expense $87 $97 11% Other Expens
Slide 9: 3Q vs 2Q 2008 Earnings Bridge
[Alcoa logo] 3Q vs 2Q 2008 Earnings Bridge Income from Continuing Operations Excluding Restructuring millions $600 539 76 $500 18 34 45 9 17 396 98 $400 23 27 298 $300 $200 $100 $0 9
Slide 10: Alumina
[Alcoa logo] Alumina rd rd 3 Quarter Highlights 3 Quarter Business Conditions 3Q 07 2Q 08 3Q 08 Production records at Pinjarra & San Ciprian Production (kmt) 3,775 3,820 3,790 Point Comfort production affected by rd 3 Party Shipments (kmt) 1,937 1,913 2,010 Hurricane Ike (~ 60 kmt) rd 3 Party Revenu
Slide 11: Primary Metals
[Alcoa logo] Primary Metals rd rd 3 Quarter Highlights 3 Quarter Business Conditions 3Q 07 2Q 08 3Q 08 Realized pricing down 4% sequentially Production (kmt) 934 1,030 1,011 Higher costs for carbon products and LME- 3 rd Party Shipments (kmt) 584 750 704 linked costs 3 rd Party Revenue ($ million) 1
Slide 12: Flat-Rolled Products
[Alcoa logo] Flat-Rolled Products rd ATOI ($ million) 3 Quarter Business Conditions 3Q 07 2Q 08 3Q 08 Typical seasonal slowdown compounded by softer market demand Global Rolled Products, 85 74 60 exc Russia & China Higher costs for metals & energy of $8 million Start-up costs in China of $3 million
Slide 13: Engineered Products and Solutions
[Alcoa logo] Engineered Products and Solutions rd ATOI ($ million) 3 Quarter Business Conditions 3Q 07 2Q 08 3Q 08 Record third quarter profitability Volume decreases in excess of typical AFL, Auto Castings & Structures (32) (9) (37) seasonal slowdown for automotive & commercial transportation Inves
Slide 14: Cash Flow Statement
[Alcoa logo] Cash Flow Statement In Millions 3Q 07 2Q 08 3Q 08 Net Income $555 $546 $268 DD&A 338 321 317 Change in Working Capital 345 234 (519) Other Adjustments (440) (46) 259 Pension Contributions (206) (48) (418) Cash From Operating Activities $592 $1,007 $(93) Dividends to Shareholders $(150)
Slide 15: Management actions leading to better capital structure
[Alcoa logo] Management actions leading to better capital structure Refinancing Impacts Long-Term Debt Maturity Profile ($Millions) 2007 New Issue 2008 New Issue 9.8 9.2 8.6 6.3% 6.2% 5.6% 5.2% 3.9 Pre New Post New Pre New Post New Issue Issue Issue Issue Weighted Life (Years) Weighted Interest Rate
Slide 16: Klaus Kleinfeld, President and Chief Executive Officer
[Alcoa logo] Klaus Kleinfeld President and Chief Executive Officer
Slide 17: Market conditions weakened during 3rd Quarter
[Alcoa logo] Market conditions weakened during 3rd Quarter Growth by Industry & Geography 2008 vs. 2007 17
Slide 18: Slowing growth in several regions
[Alcoa logo] Slowing growth in several regions Brazil 1.0 6% 15% CIS 1.1 8% Asia w/o China 5.3 3% 2008 Global Demand Growth Rates North America 6.0 -10% -5% 2Q Forecast: +8% 3Q Forecast: +6% Europe 8.0 -2% 1% China 13.8 15% 22% 2008 Projected 2008 Consumption (million mt) Projected Growth Rates 2nd
Slide 19: Higher inventories and lower LME price
[Alcoa logo] Higher inventories and lower LME price 1,400,000 $3,500 1,200,000 $3,000 1,000,000 $2,500 800,000 600,000 $2,000 400,000 $1,500 200,000 0 $1,000 Source: LME 19
Slide 20: About 1/3 of global production under water
[Alcoa logo] About 1/3 of global production under water Global Smelting Cash Cost Curve (per mt) $3,600 Cash cost (per mt) 2008 $3,200 2007 2006 $2,800 2005 $2,400 Current LME price = $2,200/mt $2,000 $1,600 ~ 1/3 total $1,200 $800 0 5 10 15 20 25 30 35 40 45 Worldwide Capacity (million mt) Source:
Slide 21: Market remains optimistic on aluminum prospects
[Alcoa logo] Market remains optimistic on aluminum prospects Forward Curve of LME Aluminum Pricing $3,600 $3,400 June 30, 2008 $3,200 Sept 30, 2008 $3,000 $2,800 +23% $2,600 $2,400 Sept 30, 2007 $2,200 3 mo 15 mo 27 mo 39 mo 51 mo 63 mo 123 mo Source: Bloomberg 21
Slide 22: Taking decisive actions
[Alcoa logo] Taking decisive actions Alcoa Actions M A Decelerating Review Upstream Footprint R Aluminum Growth K E T Review Product Portfolio End Market Capture Pricing Opportunities Weakness C Balance Capacity with Demand O N D Complete Repowering Efforts I Cost Pressures Capture Procurement Oppor
Slide 23: Strong demand for aluminum will continue
[Alcoa logo] Strong demand for aluminum will continue World Aluminum Consumption (million metric tons) 67 E. Europe/ Mid East/ 6% CAGR 7.3 Africa Europe/ME/ Africa 10.6 W.Europe 6% CAGR 2.6 South 9.2 North Americas 38 5% 4.6 Rest of 8.6 Asia 8.2 4% 22 6% 1.3 2.8 6.7 Asia 5.6 1% 8% 0.8 5.2 29.1 China
Slide 24: Fjardaal – successful start-up that will drive profit growth
[Alcoa logo] Fjardaal – successful start-up that will drive profit growth Projected Smelting Production (kmt) +30 kmt 320 346 350 2008F 2009F 2010F + $ 170m incremental EBITDA in 2010 Projected Cash Conversion Cost of Production (per mt) (17%) 2008F 2009F 2010F Source: Alcoa analysis 24
Slide 25: Brazil mining & refining projects to contribute to results
[Alcoa logo] Brazil mining & refining projects to contribute to results Juruti Bauxite Mine Development Sao Luis Alumina Refinery Expansion + $ 80m incremental EBITDA in 2010 • Initial production of 2.6 million mt per annum – • Expansion from 0.8 million mt to 1.9 million mt estimated 200 year reser
Slide 26: Can sheet market provides profitable growth opportunities
[Alcoa logo] Can sheet market provides profitable growth opportunities Alcoa Can Sheet Production in Russia & China (kmt) Can Sheet Opportunity • Strong global demand growth • Alcoa well-positioned with +41% p.a. global customers • Recycling infrastructure 160 improves cost position and 80 107 envir
Slide 27: We are committed to our strategic priorities
[Alcoa logo] We are committed to our strategic priorities Alcoa’s Three Strategic Priorities Profitable Growth Alcoa Advantage in every business creating value for all businesses Business Programs that define: – Talent – 3-year aspirations – Technology – Priority levers – Customer Intimacy – Account
Slide 28: For Additional Information, Contact
[Alcoa logo] For Additional Information, Contact: Greg Aschman Director, Investor Relations Alcoa 390 Park Avenue New York, N.Y. 10022-4608 Telephone: (212) 836-2674 Facsimile: (212) 836-2813 www.alcoa.com 28
Slide 29: [Alcoa logo]
[Alcoa logo] [Alcoa logo] 29
Slide 30: Appendix
[Alcoa logo] [Alcoa logo] APPENDIX 30
Slide 31: Reconciliation of ATOI to Consolidated Net Income
[Alcoa logo] Reconciliation of ATOI to Consolidated Net Income (in millions) 1Q07 2Q07 3Q07 4Q07 2007 1Q08 2Q08 3Q08 Total segment ATOI $ 948 $ 991 $ 678 $ 518 $ 3,135 $ 666 $ 830 $ 633 Unallocated amounts (net of tax): Impact of LIFO (27) (16) 10 9 (24) (31) (44) (5) Interest income 11 9 10 10 40 9
Slide 32: Days of Working Capital
[Alcoa logo] Days of Working Capital Quarter ended September 30, June 30, September 30, (in millions) 2007 2008 2008 Receivables from customers, less allowances $ 2,976 $ 3,063 $ 2,700 Add: Inventories 3,311 3,813 3,844 Less: Accounts payable, trade 2,649 3,121 2,791 Working Capital $ 3,638 $ 3,755
Slide 33: Other Financial Reconciliations
[Alcoa logo] Other Financial Reconciliations (in millions) Third-party Sales Debt-to-Capital September 30, 2008 Quarter ended September 30, Cash and cash Net Debt-to- 2007 Debt-to-Capital equivalents Capital Sales $ 7,387 Total Debt Short-term borrowings $ 498 $ – $ 498 Divested businesses (a) 885 C
Slide 34: Reconciliation of Adjusted Income
[Alcoa logo] Reconciliation of Adjusted Income (in millions) Quarter ended 3Q07 2Q08 3Q08 Net income $ 555 $ 546 $ 268 Loss from discontinued operations (3) – (1) Income from continuing operations 558 546 269 Discrete tax items 464 (9) – Gain on sale of Chalco investment (1,140) – – Transaction cost
Slide 35: EBITDA Reconciliations
[Alcoa logo] EBITDA Reconciliations (in millions) Six months Six months Six months Six months ended ended ended ended June 30, June 30, June 30, June 30, 2007 2008 2007 2008 Alumina Primary Metals After-tax operating income (ATOI) (1) $ 536 $ 359 $ 966 $ 735 Add: Income taxes 202 124 410 247 Depreci
Slide 36: Reconciliation of Return on Capital
[Alcoa logo] Reconciliation of Return on Capital 3Q'08 2Q'08 1Q'08 4Q'07 3Q'07 2Q'07 1Q'07 Bloomberg Bloomberg Bloomberg Bloomberg Bloomberg Bloomberg Bloomberg (In Millions) Method Method Method Method Method Method Method Net income $1,749 $2,036 $2,205 $2,564 $2,291 $2,273 $2,302 Minority interes
Slide 37: Reconciliation of Adjusted Return on Capital
[Alcoa logo] Reconciliation of Adjusted Return on Capital 3Q'08 2Q'08 1Q'08 4Q'07 3Q'07 2Q'07 1Q'07 Bloomberg Bloomberg Bloomberg Bloomberg Bloomberg Bloomberg Bloomberg (In Millions) Method Method Method Method Method Method Method Numerator (sum total) $2,346 $2,580 $2,788 $3,191 $2,936 $2,975 $3,