Alcoa Corporation · NYSE:AA
Alcoa — Q1 2020 Earnings Presentation
44 slides from Alcoa's earnings presentation, Apr 22, 2020
Slide 1: 1st Quarter Earnings
1st Quarter Earnings Alcoa Corporation April 22, 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: Roy Harvey
Roy Harvey President and Chief Executive Officer
Slide 5: Our values are our guide, even in uncertain times
Our values are our guide, even in uncertain times 1Q20 earnings conference call ▪ Safety update ▪ COVID-19 − People and operations − Aluminum market impacts ▪ Alcoa actions ▪ 1Q20 earnings and FY20 outlook 5
Slide 6: Taking actions to maintain safe and stable operations
Taking actions to maintain safe and stable operations COVID-19 Alcoa impacts and actions Care and safety Operations ▪ Prioritizing health and safety of employees ▪ All of Alcoa’s bauxite mines, alumina in alignment with public health regulations refineries, and aluminum manufacturing facilities rema
Slide 7: Operations, shipments continue, though with COVID-19 impacts
Operations, shipments continue, though with COVID-19 impacts Alcoa segment dynamics and COVID-19 impacts Bauxite Alumina Aluminum ▪ Largely long-term contracts ▪ 95% of sales priced on index ▪ Priced at LME plus regional with some annual adjustments or fixed price basis premium, sold delivered Segme
Slide 8: Rising stocks; lower prices increase cash negative %
Rising stocks; lower prices increase cash negative % 2020 market dynamics Alumina Aluminum FOB WA alumina price ($/t) LME aluminum cash price ($/t) Global total aluminum stocks1 (Mt) China World ex-China 320 1,900 1,772 at 1 13.3 Inventory 300 1,800 11.9 12.3 275 at 1/1 11.0 10.7 10.8 & 280 1,700 4.
Slide 9: Acted early, ~$900 million of FY20 cash levers
Acted early, ~$900 million of FY20 cash levers Key strategic actions, 2020 programs, COVID-19 response New operating model: Creating a leaner, more integrated, operator-centric Alcoa Non-core asset sales: Generating additional cash through non-core asset sales Key strategic ▪ Gum Springs treatment f
Slide 10: William Oplinger
William Oplinger Executive Vice President and Chief Financial Officer
Slide 11: Revenues, Adjusted EBITDA, reflect softer market
Revenues, Adjusted EBITDA, reflect softer market Quarterly income statement highlights Prior year Sequential M, Except realized prices and per share amounts 1Q19 4Q19 1Q20 change change Income statement highlights Revenue $2,719 $2,436 $2,381 $(338) $(55) Restructuring and other charges, net $113 $3
Slide 12: Seasonality and market prices impact Adjusted EBITDA
Seasonality and market prices impact Adjusted EBITDA Adjusted EBITDA excluding special items sequential changes, $M 64 12 12 4Q19 1Q20 Change (29) 346 (14) (18) Bauxite $132 $120 $(12) (17) 321 (21) (14) Alumina 133 193 60 Aluminum 75 62 (13) Segment total 340 375 35 Transformation (6) (16) (10) Int
Slide 13: Maintaining focus on balance sheet, cash balance $0.8B
Maintaining focus on balance sheet, cash balance $0.8B Key financial metrics and YTD cash flow information Key financial metrics YTD Cash flow information, $B $0.57 1Q20 Days 1Q20 $0.52 $0.03 Environmental/ARO working capital Return on equity $0.03 Net distributions to NCI $0.04 Restructuring 31 Day
Slide 14: Pension/OPEB impacts mixed, cash funding flexibility
Pension/OPEB impacts mixed, cash funding flexibility Pension/OPEB balance sheet and cash funding considerations as of March 31, 2020 Pension/OPEB balance sheet impact Pension/OPEB cash funding impact ▪ Remeasurement of assets and liabilities occurs at ▪ U.S. pension cash funding requirements are bas
Slide 15: Strong debt profile and cash position; significant levers
Strong debt profile and cash position; significant levers Liquidity, cash, and financial strengthening during COVID-19 pandemic Debt maturities and available credit Cash position and levers Debt maturities ($M) ▪ Cash on hand at March 31, 2020 of $829 million $800 750 ▪ Targeting additional cash fro
Slide 16: Cash actions total ~$900 million
Cash actions total ~$900 million Impacts of announced FY20 actions, before tax and noncontrolling interest, $M Cash actions Run rate One time Deferral FY20 Key strategic actions New operating model 60 45 Non-core asset sales 200 200 Portfolio review 35-100 (25) 10-75 2020 programs Leaner working cap
Slide 17: 2020 Outlook
2020 Outlook FY20 Key metrics Income statement excl. special items impacts Cash flow impacts 1Q20 Actual FY20 Outlook 1Q20 Actual FY20 Outlook Bauxite shipments (Mdmt) 11.9 48.0 – 49.0 Minimum required pension/all OPEB funding $72M ~ $180M Alumina shipments (Mmt) 3.4 13.6 – 13.7 Additional pension f
Slide 18: Roy Harvey
Roy Harvey President and Chief Executive Officer
Slide 19: Market resilience through early action and shared values
Market resilience through early action and shared values Key takeaways • Care and safety Protecting our employees and our operations throughout the COVID-19 pandemic Drive results and • Early action Prepared and well positioned through deliver returns to strengthened balance sheet and stockholders o
Slide 20: Appendix
Appendix
Slide 21: Continuing improvement actions during uncertain times
Continuing improvement actions during uncertain times 1Q20 Financial results and business review ▪ Net income of $80 million, or $0.43 per share; excluding special items, 1Q20 adjusted net loss of $42 million, or $0.23 per share Financial results ▪ Adjusted EBITDA excluding special items of $321 mil
Slide 22: Quarterly income statement
Quarterly income statement Quarterly income statement Prior Year Sequential M, Except realized prices and per share amounts 1Q19 4Q19 1Q20 Change Change Realized primary aluminum price ($/mt) $2,219 $2,042 $1,988 $(231) $(54) Realized alumina price ($/mt) $385 $291 $299 $(86) $8 Revenue $2,719 $2,43
Slide 23: Special items
Special items Breakdown of special items by income statement classification – gross basis M, Except per share amounts 1Q19 4Q19 1Q20 Description of significant 1Q20 special items Net (loss) income attributable to Alcoa Corporation $(199) $(303) $80 Diluted (loss) earnings per share $(1.07) $(1.63) $
Slide 24: Quarterly income statement excluding special items
Quarterly income statement excluding special items Quarterly income statement excluding special items Prior Year Sequential M, Except realized prices and per share amounts 1Q19 4Q19 1Q20 Change Change Realized primary aluminum price ($/mt) $2,219 $2,042 $1,988 $(231) $(54) Realized alumina price ($/
Slide 25: Strengthening the Company, 2017-2019
Strengthening the Company, 2017-2019 Key actions 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 business un
Slide 26: 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 ~$350 million, return seeking capital of ~$25 Capital expenditures to sustain and improve operations
Slide 27: 1Q20 Financial summary
1Q20 Financial summary Three months ending March 31, 2020, excluding special items Intersegment Other Alcoa $M Bauxite Alumina Aluminum3,4 Transformation eliminations corporate Corporation Total revenue $306 $1,043 $1,601 $5 $(574) - $2,381 Third-party revenue $71 $707 $1,598 $5 - - $2,381 Adjusted
Slide 28: 1Q20 Adjusted EBITDA drivers by segment
1Q20 Adjusted EBITDA drivers by segment Adjusted EBITDA excl. special items sequential changes by segment, $M Adj. Adj. EBITDA Metal Raw Production EBITDA Segment 4Q19 Currency prices API materials Energy Price/mix Volume costs Other 1Q20 Bauxite $132 7 0 0 0 0 (5) (4) (2) (8) $120 Alumina $133 48 0
Slide 29: Aluminum value chain
Aluminum value chain 1Q20 Alcoa product shipments by segment, Mmt Bauxite Alumina Aluminum 11.9 Mdmt shipments 3.4 Mmt shipments 0.7 Mmt shipments Third Party Intercompany 0% 12% Intercompany 31% 69% Third Party 88% 100% Intercompany Third Party 29
Slide 30: Composition of alumina and aluminum production costs
Composition of alumina and aluminum production costs Alcoa 1Q20 production cash costs Alumina refining Input Inventory Pricing FY20 Annual Cost Cost Flow Convention Sensitivity Bauxite Caustic Soda 5 - 6 Months Quarterly, Spot $10M per $10/dmt Conversion 36% 34% Natural Gas1 N/A N/A N/A 5% 12% Fuel
Slide 31: 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 0.661 4.441 1.341 1.101 127.781 9.441 Bauxite (4) 3 Alumina 119 (18) 8 (1)
Slide 32: Additional business considerations
Additional business considerations Items expected to impact adjusted EBITDA for 2Q20 ▪ In the Bauxite segment, Adjusted EBITDA is expected to be ~$10 million lower, primarily due to non-recurrence of an annual sales contract true up ▪ In the Alumina segment, we are expecting lower raw material costs
Slide 33: Pension and OPEB summary
Pension and OPEB summary Net pension and OPEB liability and financial impacts Net liability as of March 31, 20201 Estimated financial impacts, $M OPEB Expense impact 2020 Total Segment pension $50 $0.8B U.S. Segment OPEB 5 $0.8 Pension U.S. Corporate pension & OPEB 5 Total $1.1 Total adj. EBITDA imp
Slide 34: 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 March 31, 2020 Equity Earnings ELYSISTM Limited Partnership Canada Aluminum smelting technology 48.235% Ma’aden Aluminium
Slide 35: Rigorous standard in place to manage tailings and residue
Rigorous standard in place to manage tailings and residue Tailings and residue impoundments management process and inventory Robust and ongoing management process Inventory of tailings dams & residue storage1 ▪ Established industry-leading standards over 25 years ago, ▪ No Alcoa operated upstream ba
Slide 36: Production and capacity information
Production and capacity information Alcoa Corporation annual consolidated amounts as of March 31, 2020 Bauxite production, Mdmt Alumina refining, kmt Aluminum smelting, kmt 2019 Mine Country Production Facility Country Capacity Curtailed Facility Country Capacity Curtailed Darling Range Australia 34
Slide 37: Valuation framework considerations
Valuation framework LTM ending Valuation framework key considerations 3/31/2020 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 $498M Transformation + Alumina ii. Ownership in certain mines and
Slide 38: Adjusted EBITDA reconciliation
Adjusted EBITDA reconciliation $M 1Q19 2Q19 3Q19 4Q19 FY19 1Q20 Net (loss) income attributable to Alcoa $(199) $(402) $(221) $(303) $(1,125) $80 Add: Net income (loss) attributable to noncontrolling interest 141 109 74 (52) 272 59 Provision for income taxes 150 116 95 54 415 80 Other expenses (incom
Slide 39: Free Cash Flow reconciliation
Free Cash Flow reconciliation $M 1Q19 2Q19 3Q19 4Q19 1Q20 Cash from (used in) operations $168 $82 $174 $262 $(90) Capital expenditures (69) (89) (87) (134) (91) Free cash flow 99 (7) 87 128 (181) Contributions from noncontrolling interest 20 1 20 10 - Distributions to noncontrolling interest (214) (
Slide 40: Net Debt reconciliation
Net Debt reconciliation 1Q19 4Q19 1Q20 Alcoa Alcoa Alcoa $M Cons. NCI Prop. Cons. NCI Prop. Cons. NCI Prop. Short-term borrowings $- $- $- $- $- $- $- $- $- Long-term debt due within one year 1 - 1 1 - 1 1 - 1 Long-term debt, less amount due within one year 1,802 34 1,768 1,799 31 1,768 1,801 31 1,7
Slide 41: Days Working Capital
Days Working Capital $M 1Q19 2Q19 3Q19 4Q19 1Q20 Receivables from customers $758 $684 $596 $546 $570 Add: Inventories 1,799 1,767 1,649 1,644 1,509 Less: Accounts payable, trade 1,503 1,523 1,418 1,484 1,276 DWC working capital $1,054 $928 $827 $706 $803 Sales $2,719 $2,711 $2,567 $2,436 $2,381 Numb
Slide 42: Annualized Return on Equity (ROE)
Annualized Return on Equity (ROE) Reconciliation and calculation information $M 1Q19 1Q20 (Net Loss/Income Attributable to Alcoa + Special Items) ROE % = X 100 Numerator: (Total Assets – Total Liabilities – Noncontrolling Interest)2 Net (loss) income attributable to Alcoa Corporation $(199) $80 Add:
Slide 43: Annualized Return on Capital (ROC)
Annualized Return on Capital (ROC) Reconciliation and calculation information $M 1Q19 1Q20 (PBT + net interest3 + special items1) x 4 x (1 – fixed tax rate4) ROC % = X 100 Numerator: (Total assets – cash5 – current liabilities + short-term debt) Net (loss) income attributable to Alcoa Corporation $(
Slide 44: 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