Slide 1: 4th Quarter Earnings Conference
4th Quarter Earnings Conference January 12, 2015 12
Slide 2: Cautionary Statement
Cautionary Statement Forward-Looking Statements This presentation contains statements that relate to future events and expectations and as such constitute forward-looking statements. Forward-looking statements include those containing such words as “anticipates,” “estimates,” “expects,” “forecasts,”
Slide 3: Klaus Kleinfeld
Klaus Kleinfeld Chairman and Chief Executive Officer January 12, 2015 3
Slide 4: Transformation Delivering Results; Profitability Up YOY
Transformation Delivering Results; Profitability Up YOY 4Q 2014 Overview ▪ Strong Operational performance: – Downstream: 19th Consecutive Quarter of YOY ATOI growth excluding Firth Rixson – Midstream: ATOI of $71 million (+238% YOY) Delivering Strong – Upstream: Improved Performance – 13 Consecutive
Slide 5: William Oplinger
William Oplinger Executive Vice President and Chief Financial Officer January 12, 2015 5
Slide 6: Income Statement Summary
Income Statement Summary Prior Year Sequential $ Millions, except aluminum prices and per-share amounts 4Q13 3Q14 4Q14 Change Change Realized Aluminum Price ($/MT) $2,157 $2,538 $2,578 $421 $40 Revenue $5,585 $6,239 $6,377 $792 $138 Cost of Goods Sold $4,708 $4,904 $4,973 $265 $69 COGS % Revenue 84.
Slide 7: Special Items
Special Items Income Statement $ Millions, except per-share amounts 4Q13 3Q14 4Q14 Segment Classification Net (Loss) Income ($2,339) $149 $159 Net (Loss) Income Per Diluted Share ($2.19) $0.12 $0.11 Restructuring and Other Corporate / Restructuring-Related1 ($46) ($202) ($200) Charges/COGS Primary M
Slide 8: Earnings Growth Driven by Performance and Pricing
Earnings Growth Driven by Performance and Pricing Net Income excluding Special Items ($ Millions) 210 26 16 158 432 153 27 37 133 40 4Q 13 LME Currency Volume Price Productivity Energy Raw Cost 4Q 14 / Mix Materials Increases / Other Market Performance Cost Headwinds/Other +$170 +$390 -$168 See appe
Slide 9: 4th Quarter Cash Flow Overview
4th Quarter Cash Flow Overview 4Q13, 3Q14 & 4Q14 Cash Flow ($ Millions) 4Q13 3Q14 4Q14 Net (Loss) Income before Noncontrolling Interests ($2,310) $131 $114 DD&A $350 $346 $336 Change in Working Capital $522 ($411) $642 Pension Contributions ($108) ($164) ($55) Other Adjustments $2,466 $347 $421 4Q14
Slide 10: Share Gains Drive Engineered Products and Solutions Revenue Growth
Share Gains Drive Engineered Products and Solutions Revenue Growth 4Q14 Actual and 1Q15 Outlook – Engineered Products and Solutions 4th Quarter Results 4th Quarter Business Highlights 4Q 13 3Q 14 4Q 14* Revenue up 11% year-over-year (organic up 6%) driven by strong share gains across all markets 3
Slide 11: Aero Mix, Auto Sheet Growth, Productivity Drive Strong GRP Earnings
Aero Mix, Auto Sheet Growth, Productivity Drive Strong GRP Earnings 4Q14 Actual and 1Q15 Outlook – Global Rolled Products 4th Quarter Results 4th Quarter Business Highlights Record Auto sheet shipments and strong Aerospace demand 4Q 13 3Q 14 4Q 14 Rising metal prices benefitted results 3rd Party
Slide 12: Alumina Earnings Nearly Triple Sequentially
Alumina Earnings Nearly Triple Sequentially 4Q14 Actual and 1Q15 Outlook – Alumina 4th Quarter Results 4th Quarter Business Highlights 4Q 13 3Q 14 4Q 14 Higher API/Spot and LME-based prices reflecting favorable Production (kmt) 4,249 4,196 4,161 market conditions 3rd Party Shipments (kmt) 2,578 2,
Slide 13: Primary Earnings Up on Productivity, Pricing and Currency
Primary Earnings Up on Productivity, Pricing and Currency 4Q14 Actual and 1Q15 Outlook – Primary Metals 4th Quarter Results 4th Quarter Business Highlights 4Q 13 3Q 14 4Q 14 Regional premiums drive positive price/mix Production (kmt) 866 760 731 Production down due to Pt. Henry closure and Mt. H
Slide 14: Transformation Leads to Change in Net Income Sensitivities
Transformation Leads to Change in Net Income Sensitivities Alcoa Net Income Sensitivities 2014 2015 Benchmark Sensitivity Sensitivity LME +/- $100/MT $240M $190M API +/- $10/MT N/A $20M AUD +/- 0.01 USD/AUD $11M $11M BRL +/- 0.01 BRL/USD $3M $1M EUR +/- 0.01 USD/EUR $2M $2M CAD +/- 0.01 CAD/USD $5M
Slide 15: Strong Performance Drives Earnings Growth, Highest Since 2008
Strong Performance Drives Earnings Growth, Highest Since 2008 Net Income excluding Special Items ($ Millions) 31 48 540 757 1,116 292 357 64 16 123 2013 LME Currency Volume Price Productivity Energy Raw Cost 2014 / Mix Materials Increases / Other Market Performance Cost Headwinds +$107 +$1,113 -$461
Slide 16: Sustained Working Capital Excellence
Sustained Working Capital Excellence Average Days Working Capital since Fourth Quarter 2009 43 44 9 day reduction 42 40 40 40 since 4Q09 37 37 36 36 34 35 32 33 32 30 31 29 28 30 28 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1 day 6 days
Slide 17: Maintained Strong Balance Sheet
Maintained Strong Balance Sheet Debt, Net Debt, and Debt-to-Capital % (Millions) Cash Net Debt Debt to Cap 10,578 762 9,819 9,165 9,371 1,481 8,829 8,852 8,319 1,543 1,939 1,861 1,877 1,437 42.5% 9,816 38.7% 38.1% 37.4% 8,338 34.9% 35.3% 34.8% 7,622 7,432 6,882 6,975 6,968 2008 2009 2010 2011 2012 2
Slide 18: Achieved Overarching Free Cash Flow Goal; Actions Deployed for 2015
Achieved Overarching Free Cash Flow Goal; Actions Deployed for 2015 2014 and 2015 annual financial targets and 2014 full year results Achieved overarching Free Cash Flow goal Taking the right actions in 2015 Actual Capture Productivity Gains of $900M Productivity $850M $1,194M Positive Manage Retu
Slide 19: Market fundamentals remain positive
Market fundamentals remain positive 7% global demand growth Alumina surplus, Aluminum balanced Russia 2015E Primary Aluminum Consumption (mmt), Annualized Growth (%) Supply/Demand Analysis Brazil 1% 1.0 1.1 2015E Alumina Supply/Demand Balance 2015E Aluminum Supply/Demand Balance Other ¹ 2.1 1.5% 4%
Slide 20: Klaus Kleinfeld
Klaus Kleinfeld Chairman and Chief Executive Officer January 12, 2015 20
Slide 21: 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 15.0% • Strong Commercial Jet Order Book: Over 8 Years of Production at
Slide 22: Global Heavy Duty Truck and Packaging Markets Stable
Global Heavy Duty Truck and Packaging Markets Stable Alcoa End Markets: Current Assessment of 2015 vs. 2014 End Market 2015 Growth Global and Regional Commentary Heavy Duty Truck • Strong Production: YTD Nov +20.5% and Trailer NA • Solid Fundamentals: +3.2% Freight ton miles (YTD Nov); +3.6% Freight
Slide 23: 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: +12.5% in November (mean of 12-month r
Slide 24: 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 25: Driving Value-Add Growth: Revenues Up, Profits Up
Driving Value-Add Growth: Revenues Up, Profits Up Key value-add business metrics: 2014 actual and 2013-2016 targets Executed in 2014… …Strong progress toward 2016 targets Revenue +$2.8B Firth Rixson Revenue EPS $6.0B $8.5B1 Revenue $5.7B EBITDA margin exceeding $900M from 21.9% innovation and share
Slide 26: Expanding Multi-Material Portfolio through Smart Investments
Expanding Multi-Material Portfolio through Smart Investments Alcoa’s recent multi-material investments to capture growth Firth Rixson: Grows multi-material engine capability Organic growth extends material range 2016 $1.6B revenue Lafayette $90M+: Grows Al-Lithium Capability $100M sales Global Lea
Slide 27: Lightweighting: OEMs Need It, Consumers Like It
Lightweighting: OEMs Need It, Consumers Like It Multiple trends driving consumer benefits from light truck ownership OEMS need fuel economy… …And consumers benefit Lower gas price = bigger vehicles Sample OEM 2014 MPG performance vs. 2025 Light Truck CAFE target Better Performance Gasoline prices ($
Slide 28: Micromill Differentiated Alloy: Win-Win for Customers and Alcoa
Micromill™ Differentiated Alloy: Win-Win for Customers and Alcoa Micromill™ alloy characteristics and benefits to the customer and Alcoa World’s most advanced aluminum alloy for Next-Gen automotive products MORE FORMABLE STRONGER LIGHTER 40% 2X 30% 30% Unique vs. ingot vs. HSS vs. ingot vs. HSS Allo
Slide 29: Breakthrough Casting Technology: Fast and Flexible; Small and Powerful
Breakthrough Casting Technology: Fast and Flexible; Small and Powerful Micromill™ process description and advantages over conventional technology Taking a 20 day traditional rolling process… Hot Cold 130+ patents worldwide Melt/Cast WIP WIP Anneal WIP Line Mill World’s most productive continuous
Slide 30: Improving Strong Alumina Position: Lower Cost, Continuing Price Shift
Improving Strong Alumina Position: Lower Cost, Continuing Price Shift Global alumina cost curve, actions to lower cost position, and API/spot conversion rates 2014 cost position down, 4% pts to go Pulling multiple levers to enhance cost position $/MT Generate additional productivity gains 500 Ja
Slide 31: Reshaping the Smelting Portfolio: More Competitive, Growing Value-Add
Reshaping the Smelting Portfolio: More Competitive, Growing Value-Add Global aluminum cost curve, actions to lower cost position, and value-add cast house product growth 2014 cost position stable, 5% pts to go Executing to improve global competitiveness $/MT 3,000 2010: Generate additional product
Slide 32: The Right Actions to Drive Growth, Operational Performance in 2015
The Right Actions to Drive Growth, Operational Performance in 2015 2015 annual financial targets Deliver Operational Capture Productivity Gains of $900M Performance Generate Invest in Growth; Manage Return-Seeking Capital of $750M $500M+ Manage the Base Control Sustaining Capital of $725M of Free Ca
Slide 33: Transformation is Creating Compelling Sustainable Value
Transformation is Creating Compelling Sustainable Value Smart Investments Expand Multi-Material Capabilities Innovative Differentiation Enhances Value-Add Growth Platform Disciplined Execution Improves Upstream Competitiveness 33
Slide 34: Additional Information
Additional Information Kelly Pasterick Vice President, Investor Relations Alcoa 390 Park Avenue New York, NY 10022-4608 Telephone: (212) 836-2674 www.alcoa.com 34
Slide 35: 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 36: Revenue Change by Market
Revenue Change by Market Sequential Year-Over-Year 4Q14 Third-Party Revenue Change Change Aerospace 6% 10% 29% 17% Automotive 28% 43% B&C (3%) 6% 4% Comm. Transport (1%) 19% Industrial Products (5%) 3% 6% IGT 9% (5%) 6% (11%) 10% Packaging Distribution/Other 24% 28% 16% 7% 12% 1% Alumina 15% 22% 2%
Slide 37: Special Items
Special Items Pre-tax, Before NCI After-tax, After NCI Income Statement $ Millions, except per-share amounts 3Q14 4Q14 3Q14 4Q14 Classification Segment Income from Continuing Operations $330 $234 $149 $159 Income Per Diluted Share - - $0.12 $0.11 Restructuring and Restructuring-Related ($242) ($388)
Slide 38: Alcoa Segment Bridges
Alcoa Segment Bridges EPS Sequential Quarter Bridge GRP Sequential Quarter Bridge $ Millions $ Millions $12 -$5 $103 -$13 -$32 $209 -$3 -$2 -$14 $10 $7 -$20 -$2 -$2 -$12 $71 $165 3Q14 Currency Volume Price / Mix Prod- Cost Firth Rixson 4Q14 3Q14 Metal Currency Volume Price / Mix Prod- Energy Cost 4Q
Slide 39: 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 39
Slide 40: Alcoa smelting closures and curtailments
Alcoa smelting closures and curtailments Alcoa smelting capacity closures, since Dec 2007 Alcoa smelting capacity curtailments Location Year kmt Location kmt Baie Comeau 2008 53 Rockdale 191 Eastalco 2010 195 Sao Luis 194 Badin 2010 60 Pocos 96 Warrick 2010 40 Intalco 49 Tennessee 2011 215 Wenatchee
Slide 41: Composition of Upstream Production Costs
Composition of Upstream Production Costs Refining Cost Structure Input Cost Inventory flow Pricing Annual ATOI Fuel Oil convention Sensitivity 9% Natural gas Conversion 12% Fuel oil 1 – 2 months Prior month $2m per $1/bbl 43% Caustic 9% Natural gas N/A Spot1 $13m per $1/GJ1 Spot & semi- $8m per Caus
Slide 42: 2015 growth maintains momentum from 2014
2015 growth maintains momentum from 2014 Russia 2015E Primary Aluminum Consumption (mmt), Annualized Growth (%) Brazil 1% 1.0 1.1 Other ¹ 2.1 1.5% 4% MENA 2.2 7% SE Asia 2.1 7% India 2.2 8% North Asia 4.3 1% 6.7 20152014 demand+7% demand +7% North America 5% World ex China +4% World ex China +4% 6.7
Slide 43: Alumina in surplus; Aluminum remains essentially balanced
Alumina in surplus; Aluminum remains essentially balanced Supply/Demand Analysis 2015E Alumina Supply/Demand Balance 2015E Aluminum Supply/Demand Balance 2014 2014 SURPLUS 1,996 Surplus Deficit Deficit 490 (948) 2,923 (38) ’000 mt China Rest of World ’000 mt China Rest of World 2015 Production 47,52
Slide 44: Inventory declines 7 days in 2H, lowest level since Nov 2008
Inventory declines 7 days in 2H, lowest level since Nov 2008 Global inventories vs. LME price over time $ Days of $ per metric ton Consumption Days of Days of Consumption Consumption Days of 83 days 63 days 105 Consumption 108 days LME Cash Price LME Cash Price 98 $1,913/MT $3,000 $2,663/MT 91 LME C
Slide 45: Premiums remain at record highs
Premiums remain at record highs $ per metric $ per metric Regional Premiums over time ton ton $600 $600 Region End of 4Q14 Average Europe $490/MT $500 4Q 14 vs. 4Q 13 $500 Japan $420/MT Europe 95% Midwest USA $529/MT Japan 70% $400 $400 Midwest USA 121% $300 $300 $200 $200 $100 $100 $0 $0 Source: Mo
Slide 46: Reconciliation of ATOI to Consolidated Net (Loss) Income Attributable to Alcoa
Reconciliation of ATOI to Consolidated Net (Loss) Income Attributable to Alcoa (in millions) 4Q13 2013 1Q14 2Q14 3Q14 4Q14 2014 Total segment ATOI $224 $1,217 $325 $418 $619 $681 $2,043 Unallocated amounts (net of tax): Impact of LIFO 40 52 (7) (8) (18) (21) (54) Interest expense (73) (294) (78) (69
Slide 47: Reconciliation of Adjusted Income
Reconciliation of Adjusted Income (in millions, except per- Income Diluted EPS share amounts) Quarter ended Quarter ended December 31, September 30, December 31, December 31, September 30, December 31, 2013 2014 2014 2013 2014 2014 Net (loss) income attributable to Alcoa $(2,339) $149 $159 $(2.19) $
Slide 48: Reconciliation of Adjusted Income, continued
Reconciliation of Adjusted Income, continued (in millions, except per- Income Diluted EPS share amounts) Year ended Year ended December 31, December 31, December 31, December 31, 2013 2014 2013 2014 Net (loss) income attributable to Alcoa $(2,285) $268 $(2.14) $0.21 Restructuring and other charges 5
Slide 49: Reconciliation of Alcoa Adjusted EBITDA
Reconciliation of Alcoa Adjusted EBITDA ($ in millions) 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 4Q13 3Q14 4Q14 Net income (loss) attributable to Alcoa $1,310 $1,233 $2,248 $2,564 $(74) $(1,151) $254 $611 $191 $(2,285) $268 $(2,339) $149 $159 Add: Net income (loss) attributable to nonc
Slide 50: Reconciliation of Alumina Adjusted EBITDA
Reconciliation of Alumina Adjusted EBITDA ($ in millions, except per metric ton amounts) 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 4Q13 3Q14 4Q14 After-tax operating income (ATOI) $632 $682 $1,050 $956 $727 $112 $301 $607 $90 $259 $370 $70 $62 $178 Add: Depreciation, depletion, and amor
Slide 51: Reconciliation of Primary Metals Adjusted EBITDA
Reconciliation of Primary Metals Adjusted EBITDA ($ in millions, except per metric ton amounts) 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 4Q13 3Q14 4Q14 After-tax operating income (ATOI) $808 $822 $1,760 $1,445 $931 $(612) $488 $481 $309 $(20) $594 $(35) $245 $267 Add: Depreciation, dep
Slide 52: Reconciliation of Global Rolled Products Adjusted EBITDA
Reconciliation of Global Rolled Products Adjusted EBITDA ($ in millions, except per metric ton amounts) 2004 2005 2006 2007 2008 2009 2010* 2011* 2012* 2013 2014 4Q13 3Q14 4Q14 After-tax operating income (ATOI) $290 $300 $317 $151 $(41) $(106) $241 $260 $346 $252 $312 $21 $103 $71 Add: Depreciation,
Slide 53: Reconciliation of Engineered Products and Solutions Adjusted EBITDA
Reconciliation of Engineered Products and Solutions Adjusted EBITDA ($ in millions) 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014* 4Q13 3Q14 4Q14* After-tax operating income (ATOI) $161 $276 $382 $423 $522 $311 $419 $537 $612 $726 $767 $168 $209 $165 Add: Depreciation, depletion, and amorti
Slide 54: Reconciliation of Free Cash Flow
Reconciliation of Free Cash Flow Quarter ended (in millions) March 31, June 30, September 30, December 31, March 31, June 30, September 30, December 31, March 31, June 30, September 30, December 31, 2012 2012 2012 2012 2013 2013 2013 2013 2014 2014 2014 2014 Cash from $(236) $537 $263 $933 $(70) $51
Slide 55: Reconciliation of Free Cash Flow, continued
Reconciliation of Free Cash Flow, continued Quarter ended (in millions) March 31, June 30, September 30, December 31, March 31, June 30, September 30, December 31, March 31, June 30, September 30, December 31, 2009 2009 2009 2009 2010 2010 2010 2010 2011 2011 2011 2011 Cash from $(271) $328 $184 $1,
Slide 56: Days Working Capital
Days Working Capital ($ 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 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 $1,526 $1,513 A
Slide 57: Reconciliation of Net Debt
Reconciliation of Net Debt (in millions) December 31, 2008 2009 2010 2011 2012 2013 2014 Short-term borrowings $478 $176 $92 $62 $53 $57 $54 Commercial paper 1,535 – – 224 – – – Long-term debt due within one year 56 669 231 445 465 655 29 Long-term debt, less amount due within one year 8,509 8,974 8
Slide 58: Reconciliation of Net Debt-to-Capital
Reconciliation of Net Debt-to-Capital ($ in millions) December 31, 2013* December 31, 2014 Cash and Cash Cash and Cash Debt-to-Capital Equivalents Net Debt-to-Capital Debt-to-Capital Equivalents Net Debt-to-Capital Total Debt Short-term borrowings $57 $54 Long-term debt due within one year 655 29 Lo
Slide 59: Advancing each generation. ALCOA
Advancing each generation. '¢9] ALCOA