Alcoa Corporation · NYSE:AA
Alcoa — BMO Capital Markets 29th Global Metals & Mining Conference 2020
42 slides from Alcoa's conference presentation, Feb 25, 2020
Slide 1: Investor Presentation
Investor Presentation February 2020
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: Alcoa: A global values-driven enterprise
Alcoa: A global values-driven enterprise Global operations by business segment Iceland: Norway: Canada: United States: Spain: Saudi Arabia: Guinea: Brazil: Australia: Bauxite Alumina Aluminum 4
Slide 5: Key trends expected to drive aluminum demand growth
Key trends expected to drive aluminum demand growth Projected global demand trends and sector growth projections Demand trends Sector demand growth China and Asia continue to be key drivers of aluminum demand 2020-2030 global semis demand growth in Mt (CAGR) Developing economies • China targets shif
Slide 6: Alcoa positioning as low cost, sustainable supplier
Alcoa positioning as low cost, sustainable supplier Global supply trends and Alcoa position Supply trends Alcoa position ▪ ~90% of World ex-China Chinese bauxite import demand High quality, low cost assets with global reach (Mmt) (WxC) seaborne bauxite 176 187 ▪ World’s second largest miner, first q
Slide 7: Recent and ongoing progress to strengthen the Company
Recent and ongoing progress to strengthen the Company Update on key actions Non-Core Asset Sales Portfolio Review Sustainability ▪ Target range of $500 million to ▪ Alumina: Closed Point Comfort ▪ Differentiating products through $1 billion in cash proceeds refinery on December 16, 2019 excellence i
Slide 8: Additional actions in 2020 expected to drive value
Additional actions in 2020 expected to drive value Other actions and anticipated benefits in FY20 Targeting working capital benefits $706 Leaner ~$600-$625 of $75-100 million to improve working operating cash flow capital (based on current prices) 31-Dec-19 31-Dec-20 DWC Working capital, $M Improved
Slide 9: A stronger, prepared Alcoa, acting on strategic priorities
A stronger, prepared Alcoa, acting on strategic priorities Strategic priorities • Reduce complexity A portfolio and operating model that is low cost, competitive and resilient in a low price environment • Drive returns Drive results and Improve commercial capabilities, invest in deliver returns to t
Slide 10: The Element of Possibility
The Element of Possibility” $
Slide 11: Appendix: 4Q19 Financial Results and Other Information
Appendix: 4Q19 Financial Results and Other Information as presented on January 15, 2020
Slide 12: Revenue off 5% as volume gain partially offsets price slip
Revenue off 5% as volume gain partially offsets price slip Quarterly income statement Prior Year Sequential M, Except realized prices and per share amounts 4Q18 3Q19 4Q19 Change Change Realized primary aluminum price ($/mt) $2,358 $2,138 $2,042 $(316) $(96) Realized alumina price ($/mt) $479 $324 $2
Slide 13: Special items total $246M, primarily Point Comfort closure
Special items total $246M, primarily Point Comfort closure Breakdown of special items by income statement classification – gross basis M, Except per share amounts 4Q18 3Q19 4Q19 Description of significant 4Q19 special items Net income (loss) attributable to Alcoa Corporation $51 $(221) $(303) Dilute
Slide 14: Adjusted net loss $57M, adjusted loss per share $0.31
Adjusted net loss $57M, adjusted loss per share $0.31 Quarterly income statement excluding special items Prior Year Sequential M, Except realized prices and per share amounts 4Q18 3Q19 4Q19 Change Change Realized primary aluminum price ($/mt) $2,358 $2,138 $2,042 $(316) $(96) Realized alumina price
Slide 15: Alumina and metal prices drive EBITDA change
Alumina and metal prices drive EBITDA change Adjusted EBITDA excluding special items sequential changes, $M 388 (3) 50 346 (23) 18 0 6 1 (77) (14) 3Q19 Currency Metal API Raw Energy Price / mix Volume Production Other 4Q19 prices materials costs 15
Slide 16: Bauxite stable; market impacts Alumina; Aluminum gains
Bauxite stable; market impacts Alumina; Aluminum gains Adjusted EBITDA excluding special items breakdown Segment information, $M Total Adjusted EBITDA information, $M 3Q19 4Q19 3Q19 4Q19 Change $(90) Segment total $400 $340 $(60) $(2) $223 Transformation (6) (6) - $134 $132 $133 $32 Intersegment eli
Slide 17: Year-end cash balance at $0.9 billion, stable
Year-end cash balance at $0.9 billion, stable Quarterly cash comparison and cash flow information Quarter ending cash balance, $M 2019 Cash flow information, $B Change in W/C Environmental/ARO Adjusted EBITDA Interest Minimum required pension/all OPEB funding3 $(234) Restucturing2 $1,113 Capital exp
Slide 18: Strong balance sheet management in 2019
Strong balance sheet management in 2019 Key financial metrics and pension & OPEB bridge as of December 31, 2019 Key metrics Pension & OPEB net liability bridge, $B 4Q19 Days 2019 Pension OPEB working capital Return on capital 0.2 $2.4 $2.3 27 Days 4.2% 0.2 0.6 (0.3) (0.2) FY19 Sustaining capital FY1
Slide 19: 2020 Outlook
2020 Outlook FY20 Key metrics Income statement excl. special items impacts Cash flow impacts FY19 Actual FY20 Outlook FY19 Actual FY20 Outlook Bauxite shipments (Mdmt) 47.6 48.0 – 49.0 Minimum required pension/all OPEB funding $292M ~ $400M Alumina shipments (Mmt) 13.5 13.6 – 13.7 Additional pension
Slide 20: Strengthening the Company, to date
Strengthening the Company, to date Key actions to date 2017 – 2018 2019 ▪ Revitalized safety program; zero fatalities in 2018 ▪ Continued solid safety performance; zero fatalities ▪ Restarted Portland smelter and Lake Charles calciner ▪ Set annual and quarterly production records ▪ Streamlined busin
Slide 21: Capital allocation framework
Capital allocation framework Capital allocation framework and considerations Maintain liquidity throughout the cycle ▪ $1 billion target for minimum cash balance ▪ Sustaining capital expenditures of ~$400 million, return seeking capital of ~$75 Capital expenditures to sustain and improve operations
Slide 22: FY19 Income statement information
FY19 Income statement information Annual income statement Adjusted excl. M, Except realized prices and per share amounts Reported Special items special items Realized primary aluminum price ($/mt) $2,141 $2,141 Realized alumina price ($/mt) $343 $343 Revenue $10,433 $10,433 Cost of goods sold 8,537
Slide 23: FY19 Financial information
FY19 Financial information FY19 Highlights and annual change impacts Full year financial highlights Adjusted EBITDA excl. special items bridge, $M FY19 vs. FY18 Realized primary aluminum price ($/mt) $2,141 $(343) 206 $3,129 Realized alumina price ($/mt) $343 $(112) Revenue, $M $10,433 $(2,970) (750
Slide 24: 4Q19 Financial summary
4Q19 Financial summary Three months ending December 31, 2019, excluding special items Intersegment Other Alcoa $M Bauxite Alumina Aluminum3,4 Transformation eliminations corporate Corporation Total revenue $311 $1,048 $1,640 $21 $(584) - $2,436 Third-party revenue $65 $718 $1,634 $19 - - $2,436 Adju
Slide 25: 4Q19 Adjusted EBITDA drivers by segment
4Q19 Adjusted EBITDA drivers by segment Adjusted EBITDA excl. special items sequential changes by segment, $M Adj. Adj. EBITDA Metal Raw Production EBITDA Segment 3Q19 Currency prices API materials Energy Price/mix Volume costs Other 4Q19 Bauxite $134 1 - - - - 9 (1) (9) (2) $132 Alumina $223 (8) -
Slide 26: Aluminum value chain
Aluminum value chain FY19 Alcoa product shipments by segment, as of December 31, 2019, Mmt Bauxite Alumina Aluminum 2.9 30% 100% Aluminum 3rd Party 13.5 87% 70% Alumina 3rd Party 47.6 13% Bauxite 3rd Party 26
Slide 27: Composition of alumina and aluminum production costs
Composition of alumina and aluminum production costs Alcoa 4Q19 production cash costs Alumina refining Input Inventory Pricing FY19 Annual Cost Cost Flow Convention Sensitivity Conversion Bauxite Caustic Soda 5 - 6 Months Quarterly $10M per $10/dmt 35% 35% Natural Gas1 N/A N/A N/A 6% 11% Fuel Oil 1
Slide 28: 2020 Business information
2020 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 (4) 3 Alumina 119
Slide 29: Additional business considerations
Additional business considerations Items expected to impact adjusted EBITDA for 1Q20 ▪ In the Bauxite segment, Adjusted EBITDA is expected to be $35 million lower, primarily due to lower sales prices and seasonally lower volumes ▪ In the Alumina segment, lower bauxite, energy and caustic costs are e
Slide 30: Pension and OPEB summary
Pension and OPEB summary Net pension and OPEB liability and financial impacts Net liability as of December 31, 20191 Estimated financial impacts, $M OPEB Expense impact 2020 Total Segment pension $50 $0.9B U.S. Segment OPEB 5 $0.9 Pension Corporate pension & OPEB 5 U.S. $1.2 Total Total adj. EBITDA
Slide 31: Investments summary
Investments summary Investments listing and income statement location Ownership Carrying Value as of Income Statement Location of Investee Country Nature of Investment4 Interest December 31, 2019 Equity Earnings ELYSISTM Limited Partnership Canada Aluminum smelting technology 48.235% Ma’aden Alumini
Slide 32: Rigorous standard in place to manage tailings and residue
Rigorous standard in place to manage tailings and residue Industry leading standard established over 25 years ago; continuously improved and updated Robust management process Inventory of tailings dams & residue storage ▪ Governance structure with global oversight and clearly ▪ No Alcoa operated ups
Slide 33: Production and capacity information
Production and capacity information Alcoa Corporation annual consolidated amounts as of December 31, 2019 Bauxite production, Mdmt Alumina refining, kmt Aluminum smelting, kmt 2019 Mine Country Production Facility Country Capacity Curtailed Facility Country Capacity Curtailed Darling Range Australia
Slide 34: Valuation framework
Valuation framework FY19 Valuation framework key considerations Adj. EBITDA excl. special items Economic value using market multiple of: + Bauxite i. AWAC joint venture, minus small portions of AWAC JV in Aluminum and $504M Transformation + Alumina ii. Ownership in certain mines and refineries outsi
Slide 35: Adjusted EBITDA reconciliation
Adjusted EBITDA reconciliation $M 1Q18 2Q18 3Q18 4Q18 FY18 1Q19 2Q19 3Q19 4Q19 FY19 Net income (loss) attributable to Alcoa $195 $10 $(6) $51 $250 $(199) $(402) $(221) $(303) $(1,125) Add: Net income attributable to noncontrolling interest 145 121 201 176 643 141 109 74 (52) 272 Provision for income
Slide 36: Special items detail, net of tax and noncontrolling interest
Special items detail, net of tax and noncontrolling interest $M 4Q18 3Q19 4Q19 Income statement classification Special items $82 $139 $246 USW master agreement negotiation - 2 - Cost of goods sold Bécancour lockout and restart costs 2 9 16 Cost of goods sold Point Comfort refinery closure - - 2 Cost
Slide 37: Free Cash Flow reconciliation
Free Cash Flow reconciliation $M 1Q18 2Q181 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 Cash from operations $55 $(430) $288 $535 $168 $82 $174 $262 Capital expenditures (74) (95) (82) (148) (69) (89) (87) (134) Free cash flow (19) (525) 206 387 99 (7) 87 128 Contributions from noncontrolling interest 53 56 - 40
Slide 38: Net Debt reconciliation
Net Debt reconciliation FY17 FY18 FY19 Alcoa Alcoa Alcoa $M Cons. NCI Prop. Cons. NCI Prop. Cons. NCI Prop. Short-term borrowings $8 $- $8 $- $- $- $- $- $- Long-term debt due within one year 16 - 16 1 - 1 1 - 1 Long-term debt, less amount due within one year 1,388 7 1,381 1,801 34 1,767 1,799 31 1,
Slide 39: Days Working Capital
Days Working Capital $M 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 Receivables from customers $814 $1,025 $1,017 $830 $758 $684 $596 $546 Add: Inventories 1,855 1,772 1,819 1,819 1,799 1,767 1,649 1,644 Less: Accounts payable, trade 1,813 1,752 1,711 1,663 1,503 1,523 1,418 1,484 DWC working capital $8
Slide 40: Annualized Return on Capital (ROC)
Annualized Return on Capital (ROC) Reconciliation and calculation information $M 2018 2019 (PBT + net interest2 + special items1) x (1 – fixed tax rate3) ROC % = X 100 Numerator: ( Total assets – cash4 – current liabilities + short-term debt) Net income (loss) attributable to Alcoa Corporation $250
Slide 41: Glossary of terms
Glossary of terms Abbreviations listed in alphanumeric order Abbreviation Description Abbreviation Description % pts Percentage points FY## Twelve months ending December 31 1H## Six months ending June 30 GAAP Accounting principles generally accepted in the United States of America 1Q## Three months
Slide 42: The Element of Possibility
The Element of Possibility” $
Alcoa — BMO Capital Markets 29th Global Metals & Mining Conference 2020 on 6ix