Howmet Aerospace Inc. · NYSE:HWM
Howmet Aerospace — Q1 2015 Earnings Presentation
60 slides from Howmet Aerospace's earnings presentation, Apr 8, 2015
Slide 1: 1st Quarter Earnings Conference
1st Quarter Earnings Conference April 8, 2015 12
Slide 2: Important Information
Important Information Forward-Looking Statements This communication 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) 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: Klaus Kleinfeld
Klaus Kleinfeld Chairman and Chief Executive Officer April 8, 2015 4
Slide 5: Strong Operational Results + Transformation Fully on Track
Strong Operational Results + Transformation Fully on Track 1Q 2015 Overview ▪ Revenue up 7% Y-O-Y ($5.8B): Driven primarily by organic growth in auto & aero; positive market factors partially offset by capacity reductions and portfolio actions ▪ Profits substantially up Delivering Strong – Downstrea
Slide 6: William Oplinger
William Oplinger Executive Vice President and Chief Financial Officer April 8, 2015 6
Slide 7: Income Statement Summary
Income Statement Summary Prior Year Sequential $ Millions, except aluminum prices and per-share amounts 1Q14 4Q14 1Q15 Change Change Realized Aluminum Price ($/MT) $2,205 $2,578 $2,420 $215 ($158) Revenue $5,454 $6,377 $5,819 $365 ($558) Cost of Goods Sold $4,495 $4,973 $4,443 ($52) ($530) COGS % Re
Slide 8: Special Items
Special Items Income Statement $ Millions, except per-share amounts 1Q14 4Q14 1Q15 Segment Classification Net (Loss) Income ($178) $159 $195 Net (Loss) Income Per Diluted Share ($0.16) $0.11 $0.14 Restructuring and Other Restructuring-Related1 ($296) ($200) ($158) Charges/COGS Corporate / All Tax It
Slide 9: Operating results more than triple Y-O-Y on Performance and Market factors
Operating results more than triple Y-O-Y on Performance and Market factors Net Income excluding Special Items ($ Millions) 156 -31 10 -110 363 45 42 97 55 1 98 1Q 14 LME API Currency Volume Price Productivity Energy Raw Cost 1Q 15 / Mix Materials Increases / Other Market Performance Cost Headwinds +
Slide 10: EPS: Higher volumes, productivity offset currency and cost headwinds
EPS: Higher volumes, productivity offset currency and cost headwinds 1Q15 Actual and 2Q15 Outlook – Engineered Products and Solutions 1st Quarter Results 1st Quarter Business Highlights 1Q 14 4Q 14* 1Q 15* Revenue up 17% year-over-year, EBITDA margin of 20.1% 3rd Party Revenue ($ Millions) 1,443 1
Slide 11: GRP: Productivity and record Auto offset by cost increases and pricing
GRP: Productivity and record Auto offset by cost increases and pricing 1Q15 Actual and 2Q15 Outlook – Global Rolled Products 1st Quarter Results 1st Quarter Business Highlights 1Q 14 4Q 14 1Q 15 Strong productivity and record Auto shipments Unfavorable metal price lag impact 3rd Party Revenue ($
Slide 12: Alumina: Stronger US dollar and lower energy costs
Alumina: Stronger US dollar and lower energy costs 1Q15 Actual and 2Q15 Outlook – Alumina 1st Quarter Results 1st Quarter Business Highlights 1Q 14 4Q 14 1Q 15 Production down due to Jamaica refinery sale and fewer days Production (kmt) 4,172 4,161 3,933 Favorable currency movements in productio
Slide 13: Primary Metals: Lower LME prices and energy headwinds
Primary Metals: Lower LME prices and energy headwinds 1Q15 Actual and 2Q15 Outlook – Primary Metals 1st Quarter Results 1st Quarter Business Highlights 1Q 14 4Q 14 1Q 15 Unfavorable LME pricing driver to sequential decline Production (kmt) 839 731 711 Favorable currency movements in production r
Slide 14: Organic DWC maintained year-over-year, acquisition adds days
Organic DWC maintained year-over-year, acquisition adds 3 days Average Days Working Capital since First Quarter 2010 9 day reduction Acquisition (3 days) 43 44 since 1Q10 42 Alcoa ex Acquisition (30 days) 40 40 40 37 36 36 34 35 32 33 33 30 31 32 29 30 28 28 30 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q1
Slide 15: 1st Quarter Cash Flow Overview
1st Quarter Cash Flow Overview 1Q14, 4Q14 & 1Q15 Cash Flow ($ Millions) 1Q14 4Q14 1Q15 Net (Loss) Income before Noncontrolling Interests ($197) $114 $255 DD&A $340 $336 $321 Change in Working Capital ($687) $656 ($595) Pension Expense in Excess of Contributions $18 $47 $37 Other Adjustments ($25) $3
Slide 16: Maintained Strong Balance Sheet
Maintained Strong Balance Sheet Debt, Net Debt, and Debt-to-LTM EBITDA (Millions) Cash Net Debt Debt-to-LTM EBITDA 9,165 9,371 8,829 8,852 8,817 8,319 1,543 1,939 1,191 1,861 1,877 1,437 4.20 3.39 3.27 2.87 2.49 2.22 7,622 7,432 6,968 6,882 6,975 7,626 2010 2011 2012 2013 2014 1Q15 LTM = last twelve
Slide 17: Aggressive targets drive growth and operational performance in 2015
Aggressive targets drive growth and operational performance in 2015 2015 Annual Financial Targets Drive Productivity Gains of $900M Deliver Process productivity Operational Procurement savings Performance Overhead cost reductions Invest in the Future; Actively Manage Return-Seeking Capital of
Slide 18: Market fundamentals remain strong
Market fundamentals remain strong 6.5% 2015 Demand Growth on Higher Base Alumina surplus tightens, Al in balance Russia 2015 Primary Aluminum Consumption (mmt), Annualized Growth (%) Brazil 1.0 1.1 -2% 0.5% Other ¹ 2.1 4% MENA 2.1 5% SE Asia 2.1 7% India 2.2 8% 4.3 1% North Asia 6.7 Higher North Ame
Slide 19: Klaus Kleinfeld
Klaus Kleinfeld Chairman and Chief Executive Officer April 8, 2015 19
Slide 20: Another Strong year for Aerospace; Steady growth in Automotive
Another Strong year for Aerospace; Steady growth in Automotive Alcoa End Markets: Current Assessment of 2015 vs. 2014 End Market 2015 Growth Global and Regional Commentary Aerospace • Large Commercial Aircraft segment Growth of 9.6% • Strong Commercial Jet Order Book: 9 Years of Production at 2014 d
Slide 21: Heavy Duty Truck – Strong U.S., Weak China; Packaging Stable
Heavy Duty Truck – Strong U.S., Weak China; Packaging Stable Alcoa End Markets: Current Assessment of 2015 vs. 2014 End Market 2015 Growth Global and Regional Commentary • Orders Up: +0.4% YTD Mar, on top of record 4Q14 orders Heavy Duty Truck NA • Rising Order Book: Feb 189.6k trucks, +66% YoY; Hig
Slide 22: Solid Commercial B&C Growth; Global Airfoil Market Improves
Solid Commercial B&C Growth; Global Airfoil Market Improves Alcoa End Markets: Current Assessment of 2015 vs. 2014 End Market 2015 Growth Global and Regional Commentary Building and Positive Early Indicators: Construction NA • Non-Residential Contracts Awarded: +13.3% in March (mean of 12-month roll
Slide 23: Transforming Alcoa – Creating Compelling Sustainable Value
Transforming Alcoa – Creating Compelling Sustainable Value Building a Lightweight Multi-Material Creating a Globally Competitive Innovation Powerhouse Commodity Business Increasing share in exciting Increasing competitiveness, growth markets mitigating downside risk (e.g., aerospace, automotive,
Slide 24: Organic and Inorganic Growth Expands Higher Value-Add Portfolio
Organic and Inorganic Growth Expands Higher Value-Add Portfolio Summary of Key Innovations, Growth Projects, and Inorganic Investments Organic Growth through Innovation Inorganic Growth in Robust Aerospace Market Automotive Building & Construction Alcoa 951 Leading product portfolio across all OptiQ
Slide 25: Firth Rixson Enhances Leadership Position in Jet Engine Components
Firth Rixson Enhances Leadership Position in Jet Engine Components Firth Rixson Strategic and Financial Benefits and Alcoa’s Expanded Jet Engine Suite Portfolio Enhancing: Expands Jet Engine Suite Doubles Engine Content 2016E $1.6B revenue $350M EBITDA Financial $40M net synergies in year 2; $100M
Slide 26: Alcoa Advantage Track Record Drives Post-Merger Integration
Alcoa Advantage Track Record Drives Post-Merger Integration 190% deployed versus 2016E synergy target3 Examples of Operational, Financial, and Productivity Execution and Expertise to Capture Firth Rixson Synergies Alcoa Strategic Priorities Successful Execution Track Record On Track to Deliver $40M
Slide 27: Alcoa + RTI Combination Expands Titanium Customer Solutions
Alcoa + RTI Combination Expands Titanium Customer Solutions 2019E $1.2B revenue 25% EBITDA Strategic and Financial Benefits of RTI and Mid and Downstream Titanium Value Chain margin Enhances Offerings: Expands Ti, Value-Add Solutions Complements Mid and Downstream Value Chain $30M net synergies in
Slide 28: Alcoa Advantages to Drive Synergies and Further Growth Opportunities
Alcoa Advantages to Drive Synergies and Further Growth Opportunities Net Synergies $100M1 30% in year 2 Examples of RTI Synergy Levers, Growth Technologies, and Expanding End Markets 100% in year 4 Meaningful RTI Synergies Identified Growth from Foundational Technologies Maximize internal metal su
Slide 29: Transitioning GRP Portfolio From Lower Margin Markets
Transitioning GRP Portfolio From Lower Margin Markets… On track for Can Sheet Supply/Demand Dynamics and Actions to Shift Portfolio $344/MT EBITDA or Higher by 2016 Oversupply, Weaker Demand Weighs on Can Sheet Upgrading Portfolio to Drive Higher Profitability % of GRP Revenues Market Sector 14A 16E
Slide 30: …To Higher Growth and Higher Margin End Markets
…To Higher Growth and Higher Margin End Markets Aluminum Auto Demand Drivers, Alcoa Auto Sheet Investments and Revenue Growth Lightweighting Trend Accelerates Al Sheet Demand Auto Sheet Investments a Key Driver of Growth OEMs Need Fuel Economy… North America Aluminum Davenport Fully Operational Proj
Slide 31: Looking Forward: Alcoa Invents for Next-Generation Automotive
Looking Forward: Alcoa Invents for Next-Generation Automotive Micromill’s Innovation in Automotive Alloys, Value Proposition and Development Progress Breakthrough Al Alloy + Casting Technology Stronger, Better, Faster: Win for the Customer and Alcoa 2x more formable, while 30% lighter Advanced imp
Slide 32: Commodity Strategy is Working: Lowering Costs and Enhancing Revenue
Commodity Strategy is Working: Lowering Costs and Enhancing Revenue Key Commodity Business Metrics: 2010 and 2014 Actual and 2016 Targets Lower Cost… … Enhance Revenue 2014 Global Alumina Cost Curve API/spot % $55 EBITDA/MT Alumina 2010 30th percentile 2016 84% 25th 2014 percentile 2014 68% -4% poin
Slide 33: Executing Robust Process to Maximize Global Competitiveness
Executing Robust Process to Maximize Global Competitiveness Strategic Review Process and Capacity Actions Executed Against 2015 Strategic Review To Take Quick, Decisive Action 33% reduction in smelting operating capacity since 20071 Fix Sell Fix/Sell March 6, 2015 Explore alternative Monetize assets
Slide 34: Global Businesses Focused on Upstream Value Creation
Global Businesses Focused on Upstream Value Creation Global Primary Products Global Business Units Alumina Primary Metals MINING REFINING ENERGY SMELTING CASTING Explore Improve Leverage assets; Lower cost; Grow value-add opportunities in competitiveness; Secure long-term enhance product mix externa
Slide 35: Creating Sustainable Value for Shareholders
Creating Sustainable Value for Shareholders Continue to Deliver Strong Operational Results Profitable Growth from Organic & Inorganic – Fully on Track Disciplined Execution Improves Upstream Competitiveness 35
Slide 36: Additional Information
Additional Information Nahla Azmy Vice President, Investor Relations Alcoa 390 Park Avenue New York, NY 10022-4608 Telephone: (212) 836-2674 Email: nahla.azmy@alcoa.com www.alcoa.com 36
Slide 37: Annual Sensitivity Summary
Annual Sensitivity Summary LME Aluminum Annual Net Income Sensitivity +/- $100/MT = +/- $190 million API/Spot Alumina Annual Net Income Sensitivity +/- $10/MT = +/- $20 million Currency Annual Net Income Sensitivity Australian $ +/- $11 million per 0.01 change in USD / AUD Brazilian $ +/- $ 1 millio
Slide 38: Composition of Regional Premium Pricing Convention
Composition of Regional Premium Pricing Convention 2015E Shipments Regional Premiums Estimated Pricing Convention 50% Midwest – Platts 15-day lag 35% Rotterdam DDP – Metal Bulletin 45-day lag 10% CIF Japan – Platts Month prior to Quarter start 5% Negotiated Annual 38
Slide 39: Alcoa Segment Bridges
Alcoa Segment Bridges EPS Sequential Quarter Bridge GRP Sequential Quarter Bridge $ Millions $ Millions $27 -$14 $191 $20 -$2 $165 -$5 71 -36 4 2 0 -2 -10 9 -3 34 4Q14 Currency Volume Price / Mix Productivity Cost 1Q15 4Q14 LME Currency Volume Price / Productivity Energy Cost Portfolio 1Q15 Increase
Slide 40: Special Items
Special Items Pre-tax, Before NCI After-tax, After NCI Income Statement $ Millions, except per-share amounts 4Q14 1Q15 4Q14 1Q15 Classification Segment Income from Continuing Operations $234 $481 $159 $195 Income Per Diluted Share - - $0.11 $0.14 Restructuring and Restructuring-Related ($388) ($177)
Slide 41: Revenue Change by Market
Revenue Change by Market Sequential Year-Over-Year 1Q15 Third-Party Revenue Change Change Aerospace 14% 24% Automotive 7% 46% 27% 21% B&C (23%) (18%) Comm. Transport 3% 13% Industrial Products (25%) (28%) 5% IGT (13%) (5%) 5% Packaging (15%) (5%) 15% 7% Distribution/Other (9%) 43% 2% 11% 6% Alumina
Slide 42: Revenue Change by Market
Revenue Change by Market Year-Over-Year FY 2014 Third-Party Revenue Change Aerospace 3% 28% 17% Automotive 17% B&C 3% 4% Comm. Transport 15% Industrial Products (3%) 6% IGT (11%) 6% Packaging 1% 15% Distribution/Other 24% 8% 1% 2% Alumina 6% 13% Primary Metals 3% 42
Slide 43: Composition of Upstream Production Costs
Composition of Upstream Production Costs Refining Cost Structure Input Cost Inventory flow Pricing Annual ATOI Fuel Oil convention Sensitivity Natural gas 7% Conversion 13% Fuel oil 1 – 2 months Prior month $2m per $1/bbl 44% Caustic 9% Natural gas N/A Spot1 $13m per $1/GJ1 Spot & semi- $8m per Caus
Slide 44: Alcoa Upstream capacity closed, sold and idled
Alcoa Upstream capacity closed, sold and idled Smelting Capacity Refining Capacity Closed/sold since December 2007 Idled Closed/sold since December 2007 Idled Facility Year kmt Facility kmt Facility Year kmt Facility kmt Baie Comeau 2008 53 Rockdale 191 Jamalco (sale of 55% interest) 2014 779 Surina
Slide 45: 6.5% 2015 demand growth on higher base
6.5% 2015 demand growth on higher base Russia 2015 Primary Aluminum Consumption (mmt), Annualized Growth (%) Brazil 1.0 1.1 -2% 0.5% Other ¹ 2.1 4% MENA 2.1 5% SE Asia 2.1 7% India 2.2 8% 4.3 1% North Asia 6.7 Higher North America 5% Final 2014 global demand growth 6.7 +9% vs. +7% Europe 1.5% China
Slide 46: Alumina surplus tightens, Aluminum in balance
Alumina surplus tightens, Aluminum in balance Supply/Demand Analysis 2015E Alumina Supply/Demand Balance 2015E Aluminum Supply/Demand Balance 4Q14 4Q14 Surplus 1,996 Surplus Surplus Deficit 2,932 (38) 2,699 326 ’000 mt China Rest of World ’000 mt China Rest of World 2015 Production 47,522 54,921 201
Slide 47: Global inventories have fallen to 66 days; down 10 days year-over year
Global inventories have fallen to 66 days; down 10 days year-over year Global inventories vs. LME price over time $ Days of $ per metric ton Consumption Days of Days of Days of Consumption Consumption Consumption 83 days 76 days 66 days 105 Days of Consumption LME Cash Price LME Cash Price LME Cash
Slide 48: Premiums down from record highs; remain above 2014 levels
Premiums down from record highs; remain above 2014 levels $ per metric Regional Premiums over time $ per metric ton ton $600 $600 Region 1Q15 Average Average Europe $431/MT 1Q15 vs. 1Q14 $500 $500 Japan $390/MT Europe 26% Midwest USA $496/MT Japan 23% $400 $400 Midwest USA 18% $300 $300 $200 $200 $1
Slide 49: Reconciliation of ATOI to Consolidated Net (Loss) Income Attributable to Alcoa
Reconciliation of ATOI to Consolidated Net (Loss) Income Attributable to Alcoa (in millions) 1Q14 2Q14 3Q14 4Q14 2014 1Q15 Total segment ATOI $325 $418 $619 $681 $2,043 $633 Unallocated amounts (net of tax): Impact of LIFO (7) (8) (18) (21) (54) 7 Interest expense (78) (69) (81) (80) (308) (80) Nonc
Slide 50: Reconciliation of Adjusted Income
Reconciliation of Adjusted Income (in millions, except (Loss) Income Diluted EPS(3) per-share amounts) Quarter ended Quarter ended March 31, December 31, March 31, March 31, December 31, March 31, 2014 2014 2015 2014 2014 2015 Net (loss) income attributable to Alcoa $(178) $159 $195 $(0.16) $0.11 $0
Slide 51: Reconciliation of Alcoa Adjusted EBITDA
Reconciliation of Alcoa Adjusted EBITDA ($ in millions) 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 1Q14 4Q14 1Q15 Net income (loss) attributable to Alcoa $1,310 $1,233 $2,248 $2,564 $(74) $(1,151) $254 $611 $191 $(2,285) $268 $(178) $159 $195 Add: Net income (loss) attributable to noncon
Slide 52: Reconciliation of Alumina Adjusted EBITDA
Reconciliation of Alumina Adjusted EBITDA ($ in millions, except per metric ton amounts) 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 1Q14 4Q14 1Q15 After-tax operating income (ATOI) $632 $682 $1,050 $956 $727 $112 $301 $607 $90 $259 $370 $92 $178 $221 Add: Depreciation, depletion, and amo
Slide 53: Reconciliation of Primary Metals Adjusted EBITDA
Reconciliation of Primary Metals Adjusted EBITDA ($ in millions, except per metric ton amounts) 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 1Q14 4Q14 1Q15 After-tax operating income (ATOI) $808 $822 $1,760 $1,445 $931 $(612) $488 $481 $309 $(20) $594 $(15) $267 $187 Add: Depreciation, dep
Slide 54: Reconciliation of Global Rolled Products Adjusted EBITDA
Reconciliation of Global Rolled Products Adjusted EBITDA ($ in millions, except per metric ton amounts) 2004 2005 2006 2007 2008 2009 2010* 2011* 2012* 2013 2014 1Q14 4Q14 1Q15 After-tax operating income (ATOI) $290 $300 $317 $151 $(41) $(106) $241 $260 $346 $252 $312 $59 $71 $34 Add: Depreciation,
Slide 55: Reconciliation of Engineered Products and Solutions Adjusted EBITDA
Reconciliation of Engineered Products and Solutions Adjusted EBITDA ($ in millions) 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013(1) 2014(2) 1Q14 4Q14(2) 1Q15(3) After-tax operating income (ATOI) $161 $276 $382 $423 $522 $311 $419 $537 $612 $726 $767 $189 $165 $191 Add: Depreciation, depletion,
Slide 56: Reconciliation of Free Cash Flow
Reconciliation of Free Cash Flow Year ended Quarter ended (in millions) December 31, December 31, December 31, December 31, December 31, December 31, March 31, December 31, March 31, 2009 2010 2011 2012 2013 2014 2014 2014 2015 Cash from $1,365 $2,261 $2,193 $1,497 $1,578 $1,674 $(551) $1,458 $(175)
Slide 57: Days Working Capital
Days Working Capital ($ in millions) Quarter ended 31-Mar-12 30-Jun-12 30-Sep-12 31-Dec-12 31-Mar-13 30-Jun-13 30-Sep-13 31-Dec-13 31-Mar-14 30-Jun-14 30-Sep-14 31-Dec-14 31-Mar-15(3) Receivables from customers, less allowances $1,709 $1,650 $1,600 $1,573 $1,704 $1,483 $1,427 $1,383 $1,391 $1,401 $1
Slide 58: Reconciliation of Net Debt
Reconciliation of Net Debt (in millions) December 31, March 31, 2010 2011 2012 2013 2014 2015 Short-term borrowings $92 $62 $53 $57 $54 $80 Commercial paper – 224 – – – – Long-term debt due within one year 231 445 465 655 29 26 Long-term debt, less amount due within one year 8,842 8,640 8,311 7,607
Slide 59: Reconciliation of Debt-to-Adjusted EBITDA Ratio
Reconciliation of Debt-to-Adjusted EBITDA Ratio ($ in millions) 2010 2011 2012 2013 2014 1Q15* Net income (loss) attributable to Alcoa $254 $611 $191 $(2,285) $268 $641 Add: Net income (loss) attributable to noncontrolling interests 138 194 (29) 41 (91) (12) Loss from discontinued operations 8 3 – –
Slide 60: Advancing each generation. Alcoa
Advancing each generation. '¢9] ALCOA