Slide 1: Fourth Quarter 2017 Earnings Call
Fourth Quarter 2017 Earnings Call Chip Blankenship – Chief Executive Officer Ken Giacobbe – Chief Financial Officer February 5, 2018
Slide 2: Important Information
Important Information 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
Slide 3: Important Information (continued)
Important Information (continued) Non-GAAP Financial Measures Some of the information included in this presentation is derived from Arconic’s consolidated financial information but is not presented in Arconic’s financial statements prepared in accordance with accounting principles generally accepted
Slide 4: Priorities
Priorities ▪ Customers ▪ People ▪ Operational Excellence ‒ Free Cash Flow ▪ Technology ▪ Strategic and Portfolio Review ▪ Capital Allocation 4
Slide 5: Highlights – 4Q and FY 2017
Highlights – 4Q and FY 2017 ▪ Revenue up 10% 4Q year-over-year (YoY) and 5% FY 2017 - Organic Revenue up 6% 4Q YoY and up 5% FY 2017 ▪ Arconic EBITDA1 up 54% 4Q YoY and up 17% FY 2017 - Arconic EBITDA, excl. special items, up 24% 4Q YoY and up 9% FY 2017 ▪ Negative YoY impact of higher aluminum (Al)
Slide 6: FY 2017 Arconic Results vs. Guidance
FY 2017 Arconic Results vs. Guidance Variance to 3Q YoY Al Price 2017 Actual Guidance1 Impact $13.0B Revenue +$0.3B +$0.4B +5% YoY EBITDA $1,854M2 +$19M ($84M) +9% YoY EBITDA % 14.3%2 (20 bps) (110 bps) +60 bps YoY Adj. EPS $1.22 +$0.04 ($0.12) +24% YoY Free Cash Flow $105M3 ($245M) (~$100M) 8.3% RO
Slide 7: FY 2017 Segment Results vs. Guidance
FY 2017 Segment Results vs. Guidance Variance to 3Q YoY Al Price 2017 Actual Guidance1 Impact Revenue growth +4% +200 bps N/A EP&S EBITDA % expansion (30 bps) (30 bps) N/A Revenue growth +3% +100 bps +760 bps Organic +5% GRP EBITDA % expansion +10 bps At guidance (140 bps) Revenue growth +10% +200 b
Slide 8: Income Statement and Special Items
Income Statement and Special Items Income Statement and Special Items Overview Income Statement Special Items $ Millions, except per-share amounts 4Q 2017 FY 2017 $ Millions 4Q 2017 Revenue $3,271 $12,960 Net Loss ($727) Cost of Goods Sold $2,656 $10,357 Restructuring-Related ($47) Selling, General
Slide 9: Cash Flow Statement
Cash Flow Statement 4Q 2017 and FY 2017 Free Cash Flow ($M) 4Q 2017 FY 2017 FCF Underperformance $596M FY 2017 Net Loss ($727) ($74) Capex Spend Driven by - Cash from Operations $612 $701 • Maintaining higher Cash used for Financing inventory levels Cash on Hand: $2.15B Activities ($45) ($963) suppo
Slide 10: EP&S: FY 2017 EBITDA up 2% driven by volume and Net Cost Savings
EP&S: FY 2017 EBITDA up 2% driven by volume and Net Cost Savings of 1.6% Engineered Products and Solutions (EP&S) 4Q 2017 and FY 2017 Results 4Q 2017 FY 2017 Actual YoY change Actual YoY change Revenue ($M) $1,490 +6% Revenue ($M) $5,935 +4% EBITDA ($M) $296 +12% EBITDA ($M) $1,224 +2% EBITDA % 19.9
Slide 11: GRP: FY 2017 EBITDA +4% driven by volume and Net Cost Savings
GRP: FY 2017 EBITDA +4% driven by volume and Net Cost Savings of 1.9% Global Rolled Products (GRP) 4Q 2017 and FY 2017 Results 4Q 2017 FY 2017 Actual YoY change Actual YoY change Revenue ($M) $1,241 +15% Revenue ($M) $4,992 +3% -Organic Revenue $1,078 +7% -Organic Revenue $4,355 +5% EBITDA ($M) $124
Slide 12: TCS: FY 2017 EBITDA +10% driven by volume and Net Cost Savings
TCS: FY 2017 EBITDA +10% driven by volume and Net Cost Savings of 1.9% Transportation and Construction Solutions (TCS) 4Q 2017 and FY 2017 Results 4Q 2017 FY 2017 Actual YoY change Actual YoY change Revenue ($M) $518 +14% Revenue ($M) $1,985 +10% -Organic Revenue $492 +8% -Organic Revenue $1,935 +7%
Slide 13: Delivered on Overhead Reduction
Delivered on Overhead Reduction SG&A as a % of Revenue (excl. Special items) $111M reduction 6.1% 5.1% 4.9% FY 2016 3Q Guidance for FY 2017 FY 2017 See appendix for reconciliations 13
Slide 14: FY 2017 Revenue by End-Market
FY 2017 Revenue by End-Market Industrial Gas Turbines (IGT) Packaging Commercial 3% 8% Airframes 23% Industrial & Other 12% FY 2017 Revenue: $13.0B 10% Building and Commercial 15% Construction FY 2017 EBITDA: $1.854B2 Aero Engines 4% 12% Defense Aero 13% Commercial Transportation Automotive1 1) Incl
Slide 15: End-Market Growth Rates
End-Market Growth Rates 2017 2018 Aerospace 2% 4% - 6% & Defense Automotive1 22% 15% -20% Commercial 6% - 6% Transportation2 10% Building and 3% 2% - 3% Construction Down at IGT / Power (7)% least (40)% 1) North American Automotive Sheet Shipments 2) North America and Europe 15
Slide 16: Arconic 2018 Guidance
Arconic 2018 Guidance + Aerospace and Military Aircraft deliveries ‒ IGT / Power + Next Gen Engine ramp ‒ Aerospace pricing + Auto Aluminization ‒ Wide Body / Narrow Body mix + Commercial Transportation ‒ Airbus inventory burn down + Building and Construction ‒ NA Packaging ramp down + Net Cost Savi
Slide 17: 2018 Capital Allocation
2018 Capital Allocation Returning Cash to Shareholders • $500M share repurchase authorization • Quarterly Dividends of $0.06 per share Capital Efficiency • Increased focus on Working Capital and Free Cash Flow De-Leveraging • $500M 1Q’18 repayment of Feb 2019 bond 17
Slide 18: ARCONIC
ARCONIC Innovation, engineered.
Slide 19: Appendix
Appendix SD ARCONIC
Slide 20: Key assumptions in 2018 guidance
Key assumptions in 2018 guidance 2018 Assumed LME Cash = $2,200/MT • $100/MT increase = Al Price1 Midwest Premiums = $194/MT • ~$115M Revenue impact / ~($10M) EBITDA impact2 • YoY increase associated with increasing Capex ~$700M manufacturing velocity Tax Rate Operational tax % = 27% - 29% • Midpoin
Slide 21: Pension and OPEB Summary
Pension and OPEB Summary Obligations Expense and Cash Flow Unfunded pension and OPEB liability (12/31/2017) Expense ($M) FY 2017 FY 2018 Segments $166M ~$50M $3.4B Total Liability OPEB Corporate $85M ~$10M $0.9B (25%) New Employer Contributions to DC Plan1 N/A ~$30M Total EBITDA $251M ~$90M Pension
Slide 22: EP&S: 4Q EBITDA up $31M, Volume +$21M, Price / Mix -$29M
EP&S: 4Q EBITDA up $31M, Volume +$21M, Price / Mix -$29M, Net Cost Savings 3.0%1 EP&S 4Q 2017 Results EBITDA Bridge: 4Q 2017 $M % EBITDA margin Net Cost Savings: $45M $101 19.9% 18.8% $296 $21 -$56 -$6 $265 -$17 -$12 4Q 16 Volume Price Mix Gross Cost Cost Headwinds Other 4Q 17 Reduction Savings 1) G
Slide 23: GRP: 4Q EBITDA up 7% driven by strong Auto volume
GRP: 4Q EBITDA up 7% driven by strong Auto volume and Net Cost Savings 1.2%1 GRP 4Q 2017 Results EBITDA Bridge: 4Q 2017 $M % EBITDA margin Net Cost Savings: $15M 10.8% 10.0% $45 $14 $3 $124 $116 -$23 -$9 -$7 -$15 4Q 16 Volume Price Mix Gross Cost Cost Al Prices Other 4Q 17 Reduction Headwinds Saving
Slide 24: TCS: 4Q EBITDA up 12%, Heavy Duty Truck up
TCS: 4Q EBITDA up 12%, Heavy Duty Truck up, Construction up, Net Cost Savings +1.5%1 TCS 4Q 2017 Results EBITDA Bridge: 4Q 2017 $M % EBITDA margin Net Cost Savings: $8M 16.2% 16.4% $27 $8 $3 $84 $75 -$12 -$5 -$7 -$5 4Q 16 Volume Price Mix Gross Cost Cost Al Prices Other 4Q 17 Reduction Headwinds Sav
Slide 25: Aluminum price impacts on 4Q 2017 and FY 2017
Aluminum price impacts on 4Q 2017 and FY 2017 Year-over-Year Impact from Al Price Changes 4Q 2017 FY 2017 Revenue ($M) EBITDA ($M) EBITDA % Revenue ($M) EBITDA ($M) EBITDA % GRP $113 ($7) -160 bps $372 ($18) -140 bps TCS $11 ($7) -170 bps $35 ($19) -120 bps Subtotal – Segments $124 ($14) $407 ($37)
Slide 26: Organic Revenue Growth for 4Q 2017 and FY 2017
Organic Revenue1 Growth for 4Q 2017 and FY 2017 Year-over-Year Organic Revenue Growth ($M) 4Q 2016 4Q 2017 % Change FY 2016 FY 2017 % Change Arconic Revenue $2,967 $3,271 10.2% $12,394 $12,960 4.6% less TN Packaging $37 $40 $552 $190 less Fusina $37 - $165 $54 less Remmele - - $23 - less Aluminum Pr
Slide 27: Capital Structure: $4.7B in Net Debt
Capital Structure: $4.7B in Net Debt Capital Structure as of December 31, 2017 Net Debt to EBITDA1 -31% Capitalization at December 31, 2017 3.66x ($B) Amount 2.53x Cash $2.15 Net Debt $6,221M Gross Debt $6.84 $4,694M Net Debt $4.69 Net Debt-to-LTM EBITDA1 2.53x EBITDA1 $1,702M $1,854M FY 2016 FY 201
Slide 28: Geographic Breakdown of Revenues – 4Q 2017
Geographic Breakdown of Revenues – 4Q 2017 4Q 2017 Revenue by Region Year-over-Year Change 6% 2% 6% North America 12% Continental Europe 10% Asia 5% 20% United Kingdom 7% 66% Other 12% 28
Slide 29: Revenue Change by Market – 4Q 2017
Revenue Change by Market – 4Q 2017 4Q 2017 Revenue by Market Year-over-Year Change 7% 4% Aerospace - Defense 16% 13% Aerospace - Commercial Airframe (0%) 22% Aerospace - Commercial Engine 9% 3% Automotive 1 23% Building & Construction 3% 12% Commercial Transportation 22% IGT (19%) 15% Industrial & O
Slide 30: Arconic Revenue and EBITDA Sensitivities
Arconic Revenue and EBITDA Sensitivities 2018 Arconic Run Rate Revenue and EBITDA Sensitivities Benchmark moves Impact to From (‘18 plan) To Revenue EBITDA LME Al1 $2,200/MT + $100/MT $2,300/MT ~$115M ~($10M) EUR 1.00 EUR = 1.20 USD + 0.10 USD/EUR 1.00 EUR = 1.30 USD ~$120M ~$20M GBP 1.00 GBP = 1.33
Slide 31: Reconciliation of Adjusted Income
Reconciliation of Adjusted Income ($ in millions, except Adjusted Income Diluted EPS per-share amounts) Quarter ended Quarter ended December 31, December 31, December 31, December 31, 2017 2016 2017 2016 Net loss attributable to Arconic $(727) $(1,258) $(1.51) $(2.91) Discontinued operations(1) - (3
Slide 32: Reconciliation of Adjusted Income, continued
Reconciliation of Adjusted Income, continued (2) Discrete tax items for each period included the following: • for the quarter ended December 31, 2017, a charge resulting from the enactment of the US Tax Cuts and Jobs Acts of 2017 that principally relates to the revaluation of US deferred tax assets
Slide 33: Reconciliation of Adjusted Income
Reconciliation of Adjusted Income ($ in millions, except Adjusted Income Diluted EPS per-share amounts) Year ended Year ended December 31, December 31, December 31, December 31, 2017 2016 2017 2016 Net loss attributable to Arconic $(74) $(941) $(0.28) $(2.31) Discontinued operations(1) - (121) Speci
Slide 34: Reconciliation of Adjusted Income, continued
Reconciliation of Adjusted Income, continued (2) Discrete tax items for each period included the following: • for the year ended December 31, 2017, a charge resulting from the enactment of the US Tax Cuts and Jobs Acts of 2017 that principally relates to the revaluation of US deferred tax assets and
Slide 35: Reconciliation of Operational Tax Rate
Reconciliation of Operational Tax Rate ($ in millions) Quarter ended December 31, 2017 Year ended December 31, 2017 As Special As As Special As reported items(1) adjusted reported items(1) adjusted (Loss) income from continuing operations before income taxes $(455) $671 $216 $470 $430 $900 Provision
Slide 36: Calculation of Engineered Products and Solutions Adjusted EBITDA Margin
Calculation of Engineered Products and Solutions Adjusted EBITDA Margin ($ in millions) 1Q16 2Q16 3Q16 4Q16 2016 1Q17 2Q17 3Q17 4Q17 2017 Adjusted EBITDA $305 $329 $296 $265 $1,195 $306 $310 $312 $296 $1,224 Third-party sales $1,449 $1,465 $1,406 $1,408 $5,728 $1,485 $1,484 $1,476 $1,490 $5,935 Adju
Slide 37: Calculation of Global Rolled Products Adjusted EBITDA Margin
Calculation of Global Rolled Products Adjusted EBITDA Margin(1) ($ in millions, except per metric ton amounts) 1Q16 2Q16 3Q16 4Q16 2016 1Q17 2Q17 3Q17 4Q17 2017 Adjusted EBITDA $155 $163 $143 $116 $577 $171 $164 $140 $124 $599 Total shipments (thousand metric tons) (kmt)(2) 385 429 422 353 1,587 414
Slide 38: Calculation of Transportation and Construction Solutions Adjusted EBITDA Margin
Calculation of Transportation and Construction Solutions Adjusted EBITDA Margin ($ in millions) 1Q16 2Q16 3Q16 4Q16 2016 1Q17 2Q17 3Q17 4Q17 2017 Adjusted EBITDA $64 $76 $76 $75 $291 $72 $82 $83 $84 $321 Third-party sales $429 $467 $450 $456 $1,802 $449 $501 $517 $518 $1,985 Adjusted EBITDA Margin 1
Slide 39: Calculation of Combined Segment Adjusted EBITDA Margin
Calculation of Combined Segment Adjusted EBITDA Margin ($ in millions) 1Q16 2Q16 3Q16 4Q16 2016 1Q17 2Q17 3Q17 4Q17 2017 Sales – Engineered Products and Solutions $1,449 $1,465 $1,406 $1,408 $5,728 $1,485 $1,484 $1,476 $1,490 $5,935 Sales – Global Rolled Products 1,184 1,316 1,285 1,079 4,864 1,249
Slide 40: Reconciliation of Combined Segment Adjusted EBITDA to Consolidated Net Income
Reconciliation of Combined Segment Adjusted EBITDA to Consolidated Net Income (Loss) Attributable to Arconic(1) ($ in millions) 1Q16 2Q16 3Q16 4Q16 2016 1Q17 2Q17 3Q17 4Q17 2017 Combined segment adjusted EBITDA $524 $568 $515 $456 $2,063 $549 $556 $535 $504 $2,144 Unallocated amounts: Depreciation a
Slide 41: Reconciliation of Arconic Adjusted EBITDA Excluding Special Items
Reconciliation of Arconic Adjusted EBITDA and Adjusted EBITDA Excluding Special Items ($ in millions) 1Q16 2Q16 3Q16 4Q16 2016 1Q17 2Q17 3Q17 4Q17 2017 Net income (loss) attributable to Arconic $16 $135 $166 $(1,258) $(941) $322 $212 $119 $(727) $(74) Discontinued operations (1) 94 (82) (100) (33) (
Slide 42: Reconciliation of Adjusted SG&A Excluding Special Items
Reconciliation of Adjusted SG&A Excluding Special Items (1) (1) (1) (1) (1) ($ in millions) 1Q16 2Q16 3Q16 4Q16 2016 1Q17 2Q17 3Q17 4Q17 2017 Sales $3,055 $3,234 $3,138 $2,967 $12,394 $3,192 $3,261 $3,236 $3,271 $12,960 Selling, general administrative, and other expenses (SG&A) 205 239 229 269 942 2
Slide 43: Reconciliation of Free Cash Flow
Reconciliation of Free Cash Flow(1) (1) (1) (1) (1) (1) ($ in millions) 1Q16 2Q16 3Q16 4Q16 2016 1Q17 2Q17 3Q17 4Q17 2017 Cash from operations $(430) $332 $306 $662 $870 $(300) $217 $172 $612 $701 Capital expenditures (251) (277) (286) (311) (1,125) (103) (126) (131) (236) (596) Free cash flow $(681
Slide 44: Reconciliation of Net Debt and Net Debt/Adjusted EBITDA
Reconciliation of Net Debt and Net Debt/Adjusted EBITDA December September December 31, 30, June 30, March 31, 31, ($ in millions) 2017 2017 2017 2017 2016 Short-term borrowings $37 $54 $48 $47 $36 Long-term debt due within one year 1 1 – – 4 Long-term debt, less amount due within one year 6,806 6,8
Slide 45: Reconciliation of Organic Revenue
Reconciliation of Organic Revenue Quarter ended Year ended December December 31, 31, ($ in millions) 2017 2016 2017 2016 Arconic Sales – Arconic $3,271 $2,967 $12,960 $12,394 Less: Sales – Tennessee packaging 40 37 190 552 Sales – Fusina rolling mill - 37 54 165 Sales – Remmele Medical - - - 23 Alum
Slide 46: Reconciliation of Return on Net Assets (RONA)
Reconciliation of Return on Net Assets (RONA) Quarter ended Year ended December 31, December 31, ($ in millions) 2017 2016 2017 2016 Net loss attributable to Arconic $(727) $(1,258) $(74) $(941) (1) Discontinued operations - (33) - (121) (2) Special items 879 1,362 692 1,567 Net income attributable
Slide 47: ARCONIC
ARCONIC Innovation, engineered.