Howmet Aerospace Inc. · NYSE:HWM
Howmet Aerospace — Investor Day (February 2020)
53 slides from Howmet Aerospace's investor day presentation, Feb 25, 2020
Slide 1: Howmet Aerospace: A Differentiated Aerospace Supplier
Howmet Aerospace A Differentiated Aerospace Supplier February 25, 2020
Slide 2: Important Information
Important Information 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-looking statements include those
Slide 3: Important Information (continued)
Important Information (continued) References herein to Howmet Aerospace refer to Arconic Inc., which will be renamed “Howmet Aerospace Inc.” upon its separation from Arconic Rolled Products Corporation (to be renamed “Arconic Corporation” upon the separation). Non-GAAP Financial Measures Some of the
Slide 4: Today’s Presenters
Today’s Presenters John Plant Ken Giacobbe Executive Chairman & Co-Chief Executive Officer EVP & Chief Financial Officer Howmet Aerospace Howmet Aerospace Current Chairman & Chief Executive Officer Current EVP & Chief Financial Officer Arconic Inc. Arconic Inc. 4
Slide 5: Howmet Aerospace: Unique Assets with Iconic, Trusted Brand & Differentiated Technologies
Howmet Aerospace: Unique Assets with Iconic, Trusted Brand & Differentiated Technologies Iconic, Trusted Brand Differentiated Technologies Mission-Critical Supplier with Rich IP Portfolio and in Growing Markets Process Know-How 80+ year history – major presence in jet engines Deep customer relations
Slide 6: Howmet Aerospace: Key Takeaways
Howmet Aerospace: Key Takeaways • Aerospace Revenue growth above aircraft build rates • EBIT/EBITDA margins in top quartile of Aerospace peer set • Greater than 90% Adjusted Free Cash Flow conversion • Disciplined capital allocation strategy Note: Adj. Free Cash Flow conversion defined as Adj. Free
Slide 7: Aerospace Market
Aerospace Market ri HOWMET Ui AEROSPACE
Slide 8: Secular Tailwinds Drive Sustained Aerospace Market Growth
Secular Tailwinds Drive Sustained Aerospace Market Growth Passenger Miles Projected to Grow 1.8x in the Next Decade Global Revenue Passenger Miles, In Billions1 Passenger miles projected to 9,623 grow at a ~6.0% CAGR1 between 2018 and 2028 6% CAGR 7,085 1.8x 5,269 3,751 1.8x 2,882 2008 2013 2018 202
Slide 9: Airlines Continue Expanding Their Fleets
Airlines Continue Expanding Their Fleets Airlines Fleets Expected to Grow 1.6x in the Next Decade Long-Term Build Rates Are Expected to Remain Robust Commercial Aircraft Fleet, In Thousands1 Commercial Jetliner and Regional Aircraft Builds2 Larger fleet with higher Over ~17,000 commercial utilizatio
Slide 10: New Engines Drive Improved Fuel Consumption and Lower Environmental Footprint
New Engines Drive Improved Fuel Consumption and Lower Environmental Footprint The LEAP and GTF are substantially more fuel efficient than their predecessor engines. Howmet Aerospace has the know-how and proprietary intellectual property to deliver critical sub-components necessary to achieve these i
Slide 11: Key Aerospace Industry Trends Driving Howmet Aerospace Growth
Key Aerospace Industry Trends Driving Howmet Aerospace Growth Large commercial aircraft order book currently at ~8 years1 Commercial air traffic projected to grow at ~6% CAGR over the next decade New engines deliver improved fuel efficiency and lower environmental footprint Commercial aircra
Slide 12: Howmet Aerospace
Howmet Aerospace ri HOWMET Ui AEROSPACE
Slide 13: Four Segments with Over 70% of Revenue from Aerospace End Market
Four Segments with Over 70% of Revenue from Aerospace End Market Leading Global Provider of Advanced Engineered Solutions Engine Products Fastening Systems Engineered Structures Forged Wheels ~$3.3B ~$1.5B ~$1.3B1 ~$1.0B 2019 Revenue 2019 Revenue 2019 Revenue 2019 Revenue Global leader Global leader
Slide 14: Market Leader in Investment Castings, Fasteners, Rings, and Forgings
Market Leader in Investment Castings, Fasteners, Rings, and Forgings Howmet Aerospace is a multi-material business with the vast majority of its products made from Superalloys and Titanium 2019 Revenue by Segment 2019 Material Type Forged Wheels 14% Aluminum 20% Engineered Engine Structures 1 Produc
Slide 15: Anatomy of a Turbofan Engine
Anatomy of Differentiated a Turbofan Technology Engine Driving Best-in-Class Capabilities in Jet Engines Key Howmet Aerospace Engine Content 1 Front Frame (Ti), Variable Bleed 2 Inner Diffuser, TOBI (Ni Superalloy) Valve Door (Al) 1 4 3 2 3 Mid Turbine Frame (Ni Superalloy) 4 Turbine Rear Frame (Ni
Slide 16: Howmet Aerospace is the Sole Provider for Highest Temperature Engines in JSF
Howmet Aerospace is the Sole Provider for Highest Temperature Engines in JSF Joint Strike Fighter’s F135 Modern Commercial Jet Turbine Inlet Temperature Turbine Inlet Temperature ~3,600°F1 ~2,500°F2 FUTURE TECHNOLOGY FLOW 1) American Society of Engineers. 2) Fundamentals of Jet Propulsion with Appli
Slide 17: Engine Products: Technology to Support Growth on Next-Generation Engine Programs
Engine Products: Technology to Support Growth on Next-Generation Engine Programs Multi-wall cooling directs air to critical areas Multi-wall Cooling Airfoil Design Innovative Thin trailing edge exits reduce cooling air Cross Section Patent Drawing Cooling Wall contouring enhances performance
Slide 18: Fasteners: Move to Composite Aircraft Driving Higher Value Capture
Fasteners: Move to Composite Aircraft Driving Higher Value Capture Howmet Aerospace Fasteners are Industry Leading Revenue per Shipset – Metallic Plane vs. Composite Plane Patented and proprietary aerospace products to solve customer and industry challenges ~80% of Fasteners 3x • Advanced materials
Slide 19: Proprietary Designs Offer Safety and Efficiency Gains
Proprietary Designs Offer Safety and Efficiency Gains Flite-Tite® Fasteners Help Make Composite Aircraft Possible Automation With composite materials, come technological challenges: From LABOR INTENSIVE two-sided assembly Lightning strike Delamination during installation Flite-Tite® sleeve expands i
Slide 20: Engineered Structures: Global leader in Aerospace and US Defense Structures
Engineered Structures: Global leader in Aerospace and US Defense Structures JSF Titanium and Aluminum Bulkheads Howmet Aerospace Sole-Source Product 20
Slide 21: ESG: Proprietary Technologies Drive Efficiency; Reduce Growing Air Traffic Environmental Impacts
ESG: Proprietary Technologies Drive Efficiency; Reduce Growing Air Traffic Environmental Impacts Advanced technologies: Growing global air passenger miles continue to drive an increase in jet fuel • Patented airfoils with consumption and carbon emissions advanced cooling for Aircraft manufacturers a
Slide 22: Forged Wheels: Differentiated Products Providing Fuel and Weight Savings
Forged Wheels: Differentiated Products Providing Fuel and Weight Savings Proprietary Technology & Leading Brands Strongest and Lightest Portfolio with Premium Finishes Differentiated technology provides strength and weight savings • 5x stronger than steel and 47% lighter with patented alloy Ultra
Slide 23: February 2020 Launch of Lightest Heavy Duty Truck Wheel
February 2020 Launch of Lightest Heavy Duty Truck Wheel Alcoa® Ultra ONE® New Wheel Brings Efficiency to New Levels Weight Industry-leading lightweight wheel portfolio enhanced by new reduced to Alcoa® Ultra ONE® 39 lbs. aluminum heavy duty truck wheel 39 lbs. Available at all major truck OEMs
Slide 24: Increasing Aircraft Fleet & Spares Demand
Increasing Aircraft Fleet & Spares Demand 24
Slide 25: Aircraft Installed Base Expected to Grow Rapidly Over Next Decade
Aircraft Installed Base1 Expected to Grow Rapidly Over Next Decade 2028 2018 ~28,000 ~44,000 Aircraft installed Aircraft installed ~57% increase base base 1) Airline Monitor June 2019 World Airline Passenger Fleet and Cargo Aircraft. 25
Slide 26: Substantial Aerospace Engines Spares Opportunity on Legacy Platforms
Substantial Aerospace Engines Spares Opportunity on Legacy Platforms Large Percentages of the CFM Fleet Yet to be Serviced Spares Trends Projected CFM56 shop visits annually 3,000 Widely installed engines expected to have significant ongoing spares potential 2,000 Wave of next gen platform intro
Slide 27: Growth and Utilization of Commercial Aircraft Engine Fleet Will Drive Spares
Growth and Utilization of Commercial Aircraft Engine Fleet Will Drive Spares ~95K Commercial Engines In Service Within Next 10 Years … ...Leading to Strong OEM Spare Part Outlook Commercial Aircraft Engines In Service, In Thousands1 Fleet OEM’s shop visit forecast ~5% - 7% CAGR Increased utiliza
Slide 28: Airfoil Spares, Favorable Pricing and Strategic Investments Will Drive Growth in 2020
Airfoil Spares, Favorable Pricing and Strategic Investments Will Drive Growth in 2020 Spares Business Critical to Howmet Aerospace Market Dynamics Favor Howmet Aerospace Total Airfoils Revenue Airfoil Spares Revenue Performance requires increasing engine temperatures ~$0.8B ~$2.0B o Designs increa
Slide 29: Revenue Shipset Growth on Next-Generation Engine Platforms up 80% - 100%
Revenue Shipset Growth on Next-Generation Engine Platforms up 80% - 100% Revenue Shipset Growth 80%-100% Next Generation Engine Platforms B737MAX B787 Legacy Engine B777X Platforms B737NG A320neo B767 B777 A330neo A320 A350 A330 B767 A320 A330 B737NG B787 A350 B737MAX B777X (19
Slide 30: Financial
Financial FP) HOWMET Ui AEROSPACE
Slide 31: Howmet Aerospace Year-over-Year Progression
Howmet Aerospace1 Year-over-Year Progression FY 2018 FY 2019 (YoY) Total Revenue $6,798M $7,105M, up 5% (up 6% organically) Segment Operating Profit $1,105M $1,390M, up 26% Segment Operating Profit Margin 16.3% 19.6%, up 330 bps Capital Expenditures $407M $344M, down 15% Capital Expenditures as a %
Slide 32: Howmet Aerospace 2019 vs 2018 Year-over-Year Progression
Howmet Aerospace1 2019 vs 2018 Year-over-Year Progression 1Q19 2Q19 3Q19 4Q19 vs vs vs vs 1Q18 2Q18 3Q18 4Q18 Segment Operating Profit Up 20% Up 23% Up 28% Up 32% Segment Operating Profit Margin +210 bps +300 bps +330 bps +480 bps 1All metrics exclude Howmet Aerospace Corporate Costs 2019 estimated
Slide 33: Operating Model
Operating Model Focused Growth Price Increase and Cost Reduction Asset Utilization Leading positions in growing markets Price Increases Improvement in critical asset with material science, process utilization with minimal capital Long term agreements (LTAs) technology and quality investment re
Slide 34: Capital Expenditures: Targeting ~25% Reduction from 2018 to ~4% of Revenue in 2020
Capital Expenditures: Targeting~25% Reduction from 2018 to ~4% of Revenue in 2020 Targeting Asset Review prior to Capital request ~25% • Equipment & plant-level asset utilization must be near peak before new Reduction in $407M Capex from capital expenditures are considered 2018 to 2020 • 2019 emph
Slide 35: Expanded Capacity for Aerospace Airfoils, Rings and Forged Wheels
Expanded Capacity for Aerospace Airfoils, Rings and Forged Wheels Major Capital Spending TOTAL SPEND Whitehall, Dover, Dives casting furnaces Future capital Engine requirements expected Whitehall & Morristown airfoil capacity ~$300M Products to decline to ~4% Rancho Cucamonga rings press of revenue
Slide 36: Strong Operational Performance Compared to Peers
Strong Operational Performance Compared to Peers Howmet Aerospace compares favorably vs. peers across growth, profitability, and FCF generation metrics Historical Sales Growth (2016 – 2018) Net Debt / LTM Adj. EBITDA1 Mean = 6 % Mean = 1.2 x 2.6 x 14 % 2.2 x 1.9 x 1.8 x 1.5 x 7% 7% 7% 7% 6% 1.1 x 5%
Slide 37: Howmet Aerospace: Pro Forma Capital Structure as of 12/31/2019
Howmet Aerospace: Pro Forma Capital Structure as of 12/31/2019 Howmet $M Arconic Inc Arconic Corp Aerospace Cash1 $1,703 $400 $1,303 Gross Debt $5,940 $1,200 $4,740 Net Debt $4,237 $800 $3,437 Net-Debt-to-LTM EBITDA2 1.8x N/A ~2.2x3 Financial Position Financial Stewardship 2020 Free Cash Flow Conv
Slide 38: 2020 Guidance Assumptions
2020 Guidance Assumptions 2Q – 4Q 2020 Assumptions FY 2020 Assumptions Comments • Excludes separation capex of Capex $200M - $250M $275M - $325M ~$10M expected in 2020 Pension Cash • Separation does not trigger Contributions & OPEB $135M - $165M $180M - $220M incremental pension cash Payments contri
Slide 39: Capital Allocation Priorities and Guidance
Capital Allocation Priorities and Guidance Reduce leverage and Targeting ~$0.02 gross pension Share repurchases per share quarterly Bolt-on acquisitions liabilities dividend 2020 Guidance Revenue EPS ex. Special Items Adj. Free Cash Flow 2Q – 4Q $5.2B – 5.4B $1.20 – $1.28 $775M – $825M 2020 Full Yea
Slide 40: Howmet Aerospace Management Team
Howmet Aerospace Management Team John Plant, Executive Chairman & Co-Chief Executive Officer, Howmet Aerospace; Current Chairman & Chief Executive Officer Arconic Inc. Held his role as CEO since February 2019 Mr. Plant has served as a director since 2016 and Chairman of the Board since 2017 Mr
Slide 41: Howmet Aerospace Management Team (continued)
Howmet Aerospace Management Team (continued) Tolga Oal, Co-Chief Executive Officer-Designate, Howmet Aerospace; Acting President, Engineered Structures Held his role since 2019 Previously held leadership roles in operations and purchasing for American Axle & Manufacturing Prior to American Axl
Slide 42: Howmet Aerospace: Key Takeaways
Howmet Aerospace: Key Takeaways Aerospace Revenue growth above aircraft build rates EBIT/EBITDA margins in top quartile of Aerospace peer set Greater than 90% Adjusted Free Cash Flow conversion Disciplined capital allocation strategy Note: Adj. Free Cash Flow conversion defined as Adj. Free
Slide 43: Appendix
Appendix FP) HOWMET Ui AEROSPACE
Slide 44: Reconciliation of Arconic Inc Engineered Products & Forgings Segment Organic Revenue
Reconciliation of Arconic Inc Engineered Products & Forgings Segment Organic Revenue ($ in millions) Year ended December 31, 2018 2019 Arconic Inc Engineered Products and Forgings Segment Third-party sales $6,798 $7,105 Less: Sales – Eger forgings 32 — Sales – UK forgings 131 116 Aluminum price impa
Slide 45: Arconic Inc Calculation of Total Segment Operating Profit Margin
Arconic Inc Calculation of Total Segment Operating Profit Margin ($ in millions) 1Q18 2Q18 3Q18 4Q18 2018 1Q19 2Q19 3Q19 4Q19 2019 Arconic Inc Third Party Sales – Engineered Products & Forgings $1,666 $1,734 $1,683 $1,715 $6,798 $1,756 $1,822 $1,794 $1,733 $7,105 Arconic Inc Third Party Sales – Glob
Slide 46: Reconciliation of Arconic Inc Total segment operating profit to Consolidated income before income taxes
Reconciliation of Arconic Inc Total segment operating profit to Consolidated income before income taxes ($ in millions) 1Q18 2Q18 3Q18 4Q18 2018 1Q19 2Q19 3Q19 4Q19 2019 Arconic Inc Total segment operating profit $401 $433 $391 $361 $1,586 $448 $539 $524 $504 $2,015 Unallocated amounts: Restructurin
Slide 47: Reconciliation of Arconic Inc Corporate Expense Excluding Special Items
Reconciliation of Arconic Inc Corporate Expense Excluding Special Items ($ in millions) 4Q18 2018 1Q19 2Q19 3Q19 4Q19 2019 Arconic Inc Corporate expense $49 $252 $62 $121 $79 $98 $360 Special items: Costs associated with planned separation — — 3 16 25 34 78 Legal and other advisory costs related to
Slide 48: Calculation of Arconic Inc Engineered Products and Forgings Segment Operating Profit Margin and Capital Expenditures
Calculation of Arconic Inc Engineered Products and Forgings Segment Operating Profit Margin and Capital Expenditures as a Percent of Third Party Sales ($ in millions) 1Q18 2Q18 3Q18 4Q18 2018 1Q19 2Q19 3Q19 4Q19 2019 Segment operating profit $261 $292 $284 $268 $1,105 $313 $360 $363 $354 $1,390 Thir
Slide 49: Calculation of Arconic Inc Engineered Products and Forgings Segment Historical Sales Growth
Calculation of Arconic Inc Engineered Products and Forgings Segment Historical Sales Growth Year ended December 31, ($ in millions) 2016 2017 2018 Third-party sales $5,890 $6,300 $6,798 Compound Annual Growth Rate 7% Arconic Inc Engineered Products and Forgings Segment Information Our audited consol
Slide 50: Reconciliation of Arconic Inc Net Debt
Reconciliation of Arconic Inc Net Debt ($ in millions) December 31, March 31, June 30, September 30, December 31, March 31, June 30, September 30, December 31, 2017 2018 2018 2018 2018 2019 2019 2019 2019 Short-term debt $38 $45 $45 $42 $434 $435 $434 $1,434 $1,034 Long-term debt, less amount due wi
Slide 51: Reconciliation of Arconic Inc Net debt to Adjusted EBITDA Excluding Special Items
Reconciliation of Arconic Inc Net debt to Adjusted EBITDA Excluding Special Items ($ in millions) Trailing-12 months ended December 31, March 31, June 30, September 30, December 31, March 31, June 30, September 30, December 31, 2017 2018 2018 2018 2018 2019 2019 2019 2019 Net (loss) income $ (74) $
Slide 52: Reconciliation of Howmet Aerospace Pro Forma Adjusted EBITDA Margin and Net Debt to Adjusted EBITDA
Reconciliation of Howmet Aerospace Pro Forma Adjusted EBITDA Margin and Net Debt to Adjusted EBITDA ($ in millions) 2019 Arconic Inc Engineered Products & Forgings – Segment operating profit $1,390 Arconic Inc Engineered Products & Forgings – Provision for depreciation and amortization 269 Allocatio
Slide 53: rr) HOWMET
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