Alcoa Corporation · NYSE:AA
Alcoa — Investor Presentation (September 2018)
43 slides from Alcoa's investor presentation, Sep 11, 2018
Slide 1: Alcoa Corporation Investor Presentation September 2018
Alcoa Corporation Investor Presentation September 2018 Exhibit 99.1
Slide 2: 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 containing such words as “anticipates,” “believes
Slide 3: 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 the United States of America (GAAP). Certain of these data are
Slide 4: Alcoa: an aluminum industry leader
Company overview Strategic priorities Alcoa: an aluminum industry leader Keys to Alcoa Leading governance profile with management incentives aligned to stockholders’ interests Disciplined capital allocation framework; addressing legacy liabilities & strengthening the balance sheet Global network of
Slide 5: 2017 Cost curve and business position
2017 Cost curve and business position World class, low cost assets World’s second largest bauxite miner, with a first quartile cost position Long-lived assets with low-cost growth opportunities Largest alumina refiner and largest long position, outside of China Low cost, global network of refineries
Slide 6: Bauxite segment information
Bauxite segment information 2017 Production by country, Mdmt Large, globally diverse bauxite portfolio Key considerations Globally diverse, large, low-cost bauxite portfolio, advantaged in a high caustic price environment Strategically located in proximity to major Atlantic and Pacific markets Opera
Slide 7: Alumina segment information
Alumina segment information Alcoa consolidated operating capacity, kmt Premier alumina refining network Key considerations World’s largest, low-cost third-party alumina business Mid-first quartile cost curve position allows for cash flow generation through all points in the commodity cycle Highly ef
Slide 8: Aluminum segment information
Aluminum segment information Integrated aluminum value chain Transformed and integrated aluminum business Segment includes aluminum smelting, casting, and rolling operations, along with ownership interests in several hydroelectric energy assets in Brazil Key considerations Transformed the smelting p
Slide 9: Overview of Elysis
Overview of Elysis Joint venture description New R&D joint venture focused on carbon-free aluminum Alcoa, Rio Tinto, the Government of Canada, the Government of Quebec and Apple agree to provide a combined investment of $188 million (CAD) into the joint venture Patent-protected technology eliminates
Slide 10: Capital allocation strategy
Capital allocation strategy 2018 Framework Balanced capital allocation approach for 2018 Disciplined approach for 2018 Hold greater than $1 billion in cash on hand Maintain the assets by spending close to $300 million in sustaining capital expenditures Invest approximately $150 million in return-see
Slide 11: Pension & OPEB net liability overview
Pension & OPEB net liability overview Net liability bridge, $B Several actions address pension and OPEB obligations 2018 Actions January: Announced pension freeze for U.S. and Canadian salaried employees, and elimination of contribution to U.S. salaried pre-Medicare retirees, both effective 2021 Apr
Slide 12: Valuation framework key considerations
Valuation framework key considerations Operational focus driving valuation view Information is as presented on July 18, 2018 and is not being updated as of the date of this presentation; based on actual 1H18 results; outlook for unpriced sales at $2,100 LME, $465 API, $0.20 Midwest premium and updat
Slide 13: Important governance factors
Important governance factors World-class governance profile Stockholders’ owning 25% for at least one year. Independent non-executive chairman ü Annually elected directors ü Independent Board committees ü Majority vote standard in uncontested director elections ü Director retirement and resignation
Slide 14: Executive compensation overview
Executive compensation overview Example policies and practices Management incentives aligned to stockholders’ interests What we do: Pay for performance Maintain robust stock ownership guidelines Equity award grant practices promote transparency and consistency Clawback policies incorporated into pla
Slide 15: 2Q18 Financial Results and Other Information
2Q18 Financial Results and Other Information as presented on July 18, 2018
Slide 16: 2018 Outlook: projected market balances
Bauxite (3rd-party seaborne) Alumina (smelter grade) Aluminum (primary) 2018 Outlook Surplus Deficit Deficit 2018 Supply/Demand Balance, Mmt Global 3 to 11; stockpile growth -1.0 to -0.2; deficit -1.5 to -1.1; deficit China -70 to -68; deficit -1.2 to -0.8; deficit 0.7 to 0.9; surplus World ex-China
Slide 17: 2Q18 financial results
M, Except realized prices and per share amounts 2Q17 1Q18 2Q18 Prior Year Change Sequential Change Realized primary aluminum price ($/mt) $2,199 $2,483 $2,623 $424 $140 Realized alumina price ($/mt) $314 $385 $467 $153 $82 Revenue $2,859 $3,090 $3,579 $720 $489 Cost of goods sold $2,289 $2,381 $2,63
Slide 18: Description of significant 2Q18 special items
M, Except per share amounts 2Q17 1Q18 2Q18 Description of significant 2Q18 special items Net income attributable to Alcoa Corporation $75 $150 $75 Diluted earnings per share $0.40 $0.80 $0.39 Special items $41 $(5) $211 Cost of goods sold $13 $19 $30 Contractor arbitration loss Restructuring and oth
Slide 19: Results excluding special items
M, Except realized prices and per share amounts 2Q17 1Q18 2Q18 Prior Year Change Sequential Change Realized primary aluminum price ($/mt) $2,199 $2,483 $2,623 $424 $140 Realized alumina price ($/mt) $314 $385 $467 $153 $82 Revenue $2,859 $3,090 $3,579 $720 $489 Cost of goods sold $2,276 $2,362 $2,60
Slide 20: 2Q18 Financial summary by segment
$M Bauxite Alumina Aluminum4,5 Transformation Corporate inventory accounting Other corporate Alcoa Corporation Total revenue1 $303 $1,604 $2,417 $23 $(768) - $3,579 Third-party revenue $77 $1,068 $2,413 $21 - - $3,579 Adjusted EBITDA2 $100 $638 $231 $(1) $(32) $(32) $904 Adjusted EBITDA margin % 33.
Slide 21: Adjusted EBITDA drivers
Adjusted EBITDA excluding special items sequential changes, $M Adjusted EBITDA drivers $ $
Slide 22: Segment and total Adjusted EBITDA information
Segment and total Adjusted EBITDA information Adjusted EBITDA excluding special items breakdown Includes intercompany eliminations, and impact from both LIFO and metal price lag. Segment information, $M Total Adjusted EBITDA information, $M 33.0% 39.8% 9.6% -4.2% pts. 11.1% pts. 2.4% pts. 2Q18 Segme
Slide 23: Quarterly cash comparison and cash flows
Quarterly cash comparison and cash flows, $M Free cash flow and change in cash Cash summary 2Q17 3Q17 4Q17 1Q18 2Q18 Cash from (used for) operations $311 $384 $455 $55 $(430) Capital expenditures (88) (96) (150) (74) (95) Free cash flow $223 $288 $305 $(19) $(525) 2Q17 3Q17 4Q17 1Q18 2Q18 Cash from
Slide 24: Key financial metrics as of June 30, 2018
Key financial metrics as of June 30, 2018 Balance sheet summary $39M in return-seeking capital expenditures and $130M in sustaining capital expenditures U.S. salaried pension and OPEB plans remeasured as of January 31, 2018 due to retirement benefit changes. Certain Canadian pension plans remeasured
Slide 25: Pension and OPEB net liability and financial impacts
Pension and OPEB net liability and financial impacts Net liability as of June 30, 20181 Pension and OPEB summary Estimated financial impacts, $M U.S. $1.3 Total $1.5B U.S. $1.2 ROW $0.2 OPEB Total $1.2B Pension funding status as of December 31, 2017 U.S. ERISA ~83% GAAP Worldwide ~70% U.S. pension c
Slide 26: 2018 Outlook: FY18 key metrics
FY18 Key metrics 2018 Outlook Based on actual YTD 2018 results; outlook for unpriced sales at $2,100 LME, $465 API, $0.20 Midwest premium and updated regional premiums and currencies. Includes approximately $0.1B of impact from U.S. tariffs for last seven months of 2018. AWAC portion of FY18 Outlook
Slide 27: 1H18 Alcoa product shipments by segment
Bauxite 1H18 Alcoa product shipments by segment, Mmt Aluminum value chain Bauxite Alumina Aluminum 3rd Party 23.1 88% 12% 6.8 3rd Party 31% 69% Alumina 3rd Party 100% Aluminum 1.6
Slide 28: Alcoa 2Q18 production cash costs
Alcoa 2Q18 production cash costs Alumina refining Composition of alumina and aluminum production costs Aluminum smelting Australia is priced on a rolling 16 quarter average. Input Cost Inventory Flow Pricing Convention Estimated Annual Cost Sensitivity Caustic Soda 5 - 6 Months Quarterly $9M per $10
Slide 29: Estimated annual Adjusted EBITDA sensitivities
$M Segment LME + $100/mt API + $10/mt Midwest + $100/mt Europe + $100/mt Japan + $100/mt AUD + 0.01 USD/AUD BRL + 0.10 BRL/USD CAD + 0.01 CAD/USD EUR + 0.01 USD/EUR ISK + 10 ISK/USD NOK + 0.10 NOK/USD Bauxite (3) 4 Alumina 119 (16) 6 (1) Aluminum 203 (39) 106 102 24 (1) (3) 3 (4) 6 3 Total 203 80 10
Slide 30: Production and capacity information
Alcoa Corporation annual consolidated amounts Bauxite production, Mdmt Production and capacity information Alumina refining, kmt The Company’s proportionate share of earnings from its equity investment in the Saudi Arabian joint venture does not impact adjusted EBITDA. In second quarter 2018, Alcoa
Slide 31: Investments summary
Investments summary Alcoa Corporation has an investment in a joint venture related to the ownership and operation of an integrated aluminum complex (bauxite mine, alumina refinery, aluminum smelter, and rolling mill) in Saudi Arabia. The joint venture is owned 74.9% by the Saudi Arabian Mining Compa
Slide 32: Adjusted EBITDA reconciliation
Adjusted EBITDA reconciliation Alcoa Corporation’s definition of Adjusted EBITDA is net margin plus an add-back for depreciation, depletion, and amortization. Net margin is equivalent to Sales minus the following items: Cost of goods sold; Selling, general administrative, and other expenses; Researc
Slide 33: Special items detail
$M 2Q17 1Q18 2Q18 P&L classification Special items $41 $(5) $211 Contractor arbitration loss - - 15 Cost of goods sold Warrick smelter restart costs - 16 2 Cost of goods sold Bécancour lockout related costs - 2 2 Cost of goods sold Portland restart power exposure 6 - - Cost of goods sold Contractor
Slide 34: Free Cash Flow reconciliation
Free Cash Flow reconciliation Free Cash Flow is a non-GAAP financial measure. Management believes that this measure is meaningful to investors because management reviews cash flows generated from operations after taking into consideration capital expenditures, which are both considered necessary to
Slide 35: Net Debt reconciliation
Net Debt reconciliation Net debt is a non-GAAP financial measure. Management believes that this measure is meaningful to investors because management assesses Alcoa Corporation’s leverage position after considering available cash that could be used to repay outstanding debt. Total debt as of June 30
Slide 36: Days Working Capital
Days Working Capital Days Working Capital = DWC working capital divided by (sales / number of days in the quarter). $M 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 Receivables from customers $708 $789 $840 $811 $814 $1,025 Add: Inventories 1,294 1,287 1,323 1,453 1,630 1,668 Less: Accounts payable, trade 1,434 1,5
Slide 37: Reconciliation and calculation information: Annualized Return on Capital
Reconciliation and calculation information Annualized Return on Capital Special items are before taxes and noncontrolling interest. Denominator calculated using quarter ending balances. Interest expense less interest income. Fixed tax rate of 35%. Defined as cash, cash equivalents, restricted cash a
Slide 38: Appendix
Appendix
Slide 39: Bauxite mines
Bauxite mines This table shows only the AWAC and/or Alcoa Corporation share (proportion) of reserve and annual production tonnage. Reserves are in place for all mines other than Juruti and Trombetas, where the ore is beneficiated and a wash recovery factor is applied. This entity is part of the AWAC
Slide 40: Alumina refineries
Alumina refineries Nameplate Capacity is an estimate based on design capacity and normal operating efficiencies and does not necessarily represent maximum possible production. The figures in this column reflect Alcoa’s share of production from these facilities. For facilities wholly-owned by AWAC en
Slide 41: Aluminum smelters
Aluminum smelters Nameplate Capacity is an estimate based on design capacity and normal operating efficiencies and does not necessarily represent maximum possible production. The figures in this column reflect Alcoa’s share of production based on Nameplate Capacity from the smelter facilities. The n
Slide 42: Glossary of terms
Abbreviation Description % pts Percentage points 1H## Six months ending June 30 1Q## Three months ending March 31 2H## Six months ending December 31 2Q## Three months ending June 30 3Q## Three months ending September 30 4Q## Three months ending December 31 Adj. Adjusted API Alumina Price Index ARO A
Slide 43: The Element of Possibility
The Element of Possibility”