Alcoa Corporation · NYSE:AA
Alcoa — Q3 2018 Earnings Presentation
41 slides from Alcoa's earnings presentation, Oct 17, 2018
Slide 1: 3rd Quarter Earnings
3rd Quarter Earnings Alcoa Corporation October 17, 2018
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: Roy Harvey
Roy Harvey President and Chief Executive Officer
Slide 5: Strengthening balance sheet; announcing stock repurchase
Strengthening balance sheet; announcing stock repurchase 3Q18 Financial results and business update ▪ Net loss of $41 million, or $0.22 per share; excluding special items, adjusted net 3Q18 income of $119 million, or $0.63 per share Financial ▪ Adjusted EBITDA excluding special items of $795 million
Slide 6: William Oplinger
William Oplinger Executive Vice President and Chief Financial Officer
Slide 7: Revenue down 5% sequentially on lower aluminum prices
Revenue down 5% sequentially on lower aluminum prices Quarterly income statement Prior Year Sequential M, Except realized prices and per share amounts 3Q17 2Q18 3Q18 Change Change Realized primary aluminum price ($/mt) $2,237 $2,623 $2,465 $228 $(158) Realized alumina price ($/mt) $314 $467 $493 $17
Slide 8: Special items total $160M driven by pension/OPEB actions
Special items total $160M driven by pension/OPEB actions Breakdown of special items by income statement classification – gross basis M, Except per share amounts 3Q17 2Q18 3Q18 Description of significant 3Q18 special items Net income (loss) attributable to Alcoa Corporation $113 $75 $(41) Diluted ear
Slide 9: Adjusted net earnings $119 million; adjusted EPS $0.63
Adjusted net earnings $119 million; adjusted EPS $0.63 Quarterly income statement excluding special items Prior Year Sequential M, Except realized prices and per share amounts 3Q17 2Q18 3Q18 Change Change Realized primary aluminum price ($/mt) $2,237 $2,623 $2,465 $228 $(158) Realized alumina price
Slide 10: Market prices are largest adjusted EBITDA factor in 3Q
Market prices are largest adjusted EBITDA factor in 3Q Adjusted EBITDA excluding special items sequential changes, $M $904 74 0 $795 32 1 (1) (19) (105) (21) (70) 2Q18 Metal API Currency Volume Price / Operational Energy Raw Other 3Q18 Prices Mix Impacts Materials 10
Slide 11: Metal prices, alumina costs impact Aluminum segment
Metal prices, alumina costs impact Aluminum segment Adjusted EBITDA excluding special items breakdown Segment information, $M Total Adjusted EBITDA information, $M 2Q18 3Q18 +3% 2Q18 3Q18 Change Segment total $969 $839 $(130) $638 $660 Transformation (1) 1 2 -68% Corporate inventory accounting1 (32)
Slide 12: Cash at $1 billion after pension and debt payments
Cash at $1 billion after pension and debt payments Quarterly cash comparison and cash flows, $M Quarter ending cash balance Free cash flow and change in cash +239 3Q17 2Q18 3Q18 3Q18 Notes (162) Cash from (used for) operations $384 $(430) $288 $299 of pension/OPEB payments 1,358 (107) +165 Capital e
Slide 13: Balance sheet strengthening
Balance sheet strengthening Key financial metrics as of September 30, 2018 Key metrics Days working capital comparison 3Q18 Days 3Q17 3Q18 Change Cash working capital Days sales outstanding (DSO) 26 28 2 $1,022M 26 Days plus: Days on hand of inventory (DOH) 41 45 4 2018 YTD Capital 2018 YTD expendit
Slide 14: Actions lowering net pension and OPEB liability
Actions lowering net pension and OPEB liability Net pension & OPEB liability overview Net liability bridge, $B 2018 Actions Pension OPEB ▪ January: Announced pension freeze for U.S. and Canadian salaried employees, and elimination of $3.5 contribution to U.S. salaried pre-Medicare retirees, both eff
Slide 15: Announcing $200M stock repurchase program
Announcing $200M stock repurchase program Capital allocation framework and update 2018 Framework 2018 Update Maintain liquidity ▪ Cash at $1.0 billion; ~30% attributable to Greater than noncontrolling interest $1B cash balance ▪ Sustaining capital expenditures on track ▪ Anticipating to spend approx
Slide 16: 2018 Outlook
2018 Outlook FY18 Key metrics Total shipments Adjusted EBITDA excl. special items impacts 2018 YTD FY18 2018 YTD FY18 Actual Outlook Actual Outlook Bauxite (Mdmt) 34.6 46.5 – 47.5 Adjusted EBITDA excl. special items $2.4B $3.1 – $3.2B1 Alumina (Mmt) 10.1 13.6 – 13.8 Transformation EBITDA impacts $(2
Slide 17: Roy Harvey
Roy Harvey President and Chief Executive Officer
Slide 18: Deficit still projected for alumina and aluminum
Deficit still projected for alumina and aluminum Projected 2018 market balances Bauxite Alumina Aluminum (3rd-party seaborne) (smelter grade) (primary) 2018 Outlook Surplus Deficit Deficit 2018 Supply/Demand Balance, Mmt Global 7 to 11; stockpile growth -1.2 to -0.4; deficit -1.4 to -1.0; deficit Ch
Slide 19: Very low cost position in bauxite and alumina
Very low cost position in bauxite and alumina Alcoa’s position on 2018 global production cost curves Bauxite Alumina Aluminum 20th 15th 58th percentile percentile percentile $/dmt $/mt $/mt 50 500 3,000 40 400 2,500 30 300 2,000 20 10 200 1,500 0 100 1,000 0 50 100 150 200 250 300 350 400 0 20 40 60
Slide 20: Alumina price movements change smelting cost curve
Alumina price movements change smelting cost curve Alumina prices and smelting cost curves with Alcoa percentiles Warrick Alumina $/mt $/mt restart prices 750 2,800 (2% pts.) (19% pts.) 2018 700 2,600 2017 2017 2018 650 37th 58th 2,400 If historical 600 alumina price 550 2,200 relationship returns 5
Slide 21: Focused on value creation across all parts of the business
Focused on value creation across all parts of the business Value creation levers Bauxite Business operations levers: ▪ Completed restart of two potlines at Warrick smelter to reduce complexity and improve + Alumina efficiency of integrated complex; third potline restart in process Operations Busines
Slide 22: Strengthening company; delivering on capital allocation
Strengthening company; delivering on capital allocation 3Q18 Summary Strategic priorities 3Q18 Review De-risking balance sheet; pension and OPEB actions driving down net liability FY18 adjusted EBITDA excluding special items outlook of $3.1 to $3.2B1 Announcing $200M share repurchase authorization 1
Slide 23: Questions?
Questions? Alcoa Corporation
Slide 24: Appendix
Appendix
Slide 25: 3Q18 Financial summary
3Q18 Financial summary Three months ending September 30, 2018, excluding special items Corporate $M inventory Other Alcoa Bauxite Alumina Aluminum4,5 Transformation accounting corporate Corporation Total revenue1 $291 $1,645 $2,204 $25 $(775) - $3,390 Third-party revenue $67 $1,101 $2,198 $24 - - $3
Slide 26: 3Q18 Adjusted EBITDA drivers by segment
3Q18 Adjusted EBITDA drivers by segment Adjusted EBITDA excl. special items sequential changes by segment, $M Adj. Adj. EBITDA Metal Op. Raw EBITDA Segment 2Q18 Prices API Currency Volume Price/Mix Impacts Energy Materials Other 3Q18 Bauxite $100 - - 7 - 5 3 - - (9) $106 Alumina $638 - (21) 18 (4) 6
Slide 27: Aluminum value chain
Aluminum value chain 2018 YTD Alcoa product shipments by segment, Mmt Bauxite Alumina Aluminum 2.5 32% 100% Aluminum 3rd Party 10.1 88% 68% Alumina 3rd Party 34.6 12% Bauxite 3rd Party 27
Slide 28: Composition of alumina and aluminum production costs
Composition of alumina and aluminum production costs Alcoa 3Q18 production cash costs Alumina refining Input Inventory Pricing Estimated Annual Cost Flow Convention Cost Sensitivity Bauxite Caustic Soda 5 - 6 Months Quarterly $9M per $10/dmt Conversion 30% 35% Natural Gas1 N/A N/A N/A 5% 17% Fuel Oi
Slide 29: 2018 Business information
2018 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 (3) 4 Alumina 119
Slide 30: Pension and OPEB summary
Pension and OPEB summary Net pension and OPEB liability and financial impacts Net liability as of September 30, 20181,2 Estimated financial impacts, $M Expense impact 2018 Segment pension $50 OPEB Pension Segment OPEB $5 Total U.S. U.S. Total Corporate pension & OPEB $5 $1.0 $1.0 $1.0B $1.2B Total a
Slide 31: Investments summary
Investments summary Ownership Carrying Value as of P&L Location of Investee Country Nature of Investment4 Interest September 30, 2018 Equity Earnings Elysis Limited Partnership Canada Aluminum smelting technology 48.235% Ma’aden Aluminum Company1 Saudi Arabia Aluminum smelter 25.1% Ma’aden Bauxite a
Slide 32: Production and capacity information
Production and capacity information Alcoa Corporation annual consolidated amounts Bauxite production, Mdmt Alumina refining, kmt Aluminum smelting, kmt 2017 Mine Country Production Facility Country Capacity Curtailed Facility Country Capacity Curtailed Darling Range Australia 33.2 Kwinana Australia
Slide 33: Valuation framework
Valuation framework LTM ending Valuation framework key considerations 9/30/2018 FY18 Outlook Adj. EBITDA Adj. EBITDA excl. excl. special items special items Economic value using market multiple of: + Bauxite i. AWAC joint venture, minus small portions of AWAC JV in $421M Aluminum and Transformation
Slide 34: Adjusted EBITDA reconciliation
Adjusted EBITDA reconciliation $M 3Q17 2Q18 3Q18 LTM Net income (loss) attributable to Alcoa Corporation $113 $75 $(41) $(12) Add: Net income attributable to noncontrolling interest 56 155 196 615 Provision for income taxes 119 180 251 841 Other expenses, net 48 9 2 62 Interest expense 26 32 33 118
Slide 35: Special items detail, net of tax and noncontrolling interest
Special items detail, net of tax and noncontrolling interest $M 3Q17 2Q18 3Q18 P&L classification Special items $22 $211 $160 Warrick smelter restart costs 17 2 1 Cost of goods sold Bécancour lockout related costs - 2 2 Cost of goods sold Contractor arbitration loss - 15 - Cost of goods sold Portlan
Slide 36: Free Cash Flow reconciliation
Free Cash Flow reconciliation $M 3Q17 4Q17 1Q18 2Q18 3Q18 Cash from operations $384 $455 $55 $(430)1 $288 Capital expenditures (96) (150) (74) (95) (82) Free cash flow $288 $305 $(19) $(525) $206 Free Cash Flow is a non-GAAP financial measure. Management believes that this measure is meaningful to i
Slide 37: Net Debt reconciliation
Net Debt reconciliation $M 2Q18 3Q18 Long-term debt due within one year $13 $4 Long-term debt, less amount due within one year 1,916 1,820 Total debt 1,929 1,824 Less: Cash and cash equivalents 1,089 1,022 Net debt $840 $802 Net debt is a non-GAAP financial measure. Management believes that this mea
Slide 38: Days Working Capital
Days Working Capital $M 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 Receivables from customers $708 $789 $840 $811 $814 $1,025 $1,017 Add: Inventories 1,294 1,287 1,323 1,453 1,630 1,668 1,666 Less: Accounts payable, trade 1,434 1,508 1,618 1,898 1,813 1,752 1,711 DWC working capital $568 $568 $545 $366 $631
Slide 39: Annualized Return on Capital
Annualized Return on Capital Reconciliation and calculation information $M 2017 YTD 2018 YTD (PBT + net interest3 + special items) x 4/3 x (1 – fixed tax rate4) ROC % = X 100 Numerator: ( Total assets – cash5 – current liabilities + short-term debt) Net income attributable to Alcoa Corporation 413 1
Slide 40: Glossary of terms
Glossary of terms Abbreviations listed in alphanumeric order Abbreviation Description Abbreviation Description % pts Percentage points GAAP Accounting principles generally accepted in the United States of America 1H## Six months ending June 30 GWh Gigawatt hour 1Q## Three months ending March 31 ISK
Slide 41: The Element of Possibility”
The Element of Possibility”