Slide 1: Fourth Quarter 2020 Earnings Call
Fourth Quarter 2020 Earnings Call John Plant: Executive Chairman and Co-Chief Executive Officer Tolga Oal: Co-Chief Executive Officer Ken Giacobbe: EVP and Chief Financial Officer February 3, 2021
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) On April 1, 2020, Arconic Inc. completed the separation of its businesses into two independent, publicly-traded companies: Howmet Aerospace Inc. (the new name for Arconic Inc.) and Arconic Corporation. The historical results of the businesses that comprise Arconic C
Slide 4: 4Q and Full Year 2020 Highlights
4Q and Full Year 2020 Highlights Revenue and Profitability 4Q 2020 FY 20206 Revenue $1.238B $5.257B Adjusted EBITDA Excluding Special Items1 $282M $1,083M Adjusted EBITDA Margin Excluding Special Items1 22.8% 20.6% Operating Income Excluding Special Items2 $215M $814M Earnings Per Share from Continu
Slide 5: Focus on Safety, Cost Containment and Cash Preservation
Focus on Safety, Cost Containment and Cash Preservation ▪ Increased COVID cases worldwide in 4Q. Safety of our people is a top priority Markets / Operations ▪ Secured continuity of operations and protected customer deliveries successfully ▪ Structural cost reductions exceeded outlook ▪ Focus on vari
Slide 6: Healthy Incremental Margins in All Segments versus 3Q 2020
Healthy Incremental Margins in All Segments versus 3Q 2020 ▪ Sequential commercial aerospace revenue increase with 3Q 2020 seasonal shut-downs behind us Engine ▪ Strong Defense Aerospace & Industrial Gas Turbine growth continues Products ▪ Permanent cost reductions ahead of plan; Strong incremental
Slide 7: 4Q 2020 Above Expectations; Strong Margins and Cash Generation
4Q 2020 Above Expectations; Strong Margins and Cash Generation -29% – Declines in Commercial Aerospace (51%). Sequential improvement of 5% $1.7B $1.2B – Commercial Transportation down (10%). Sequential improvement of 15% Revenue + Growth in Defense Aerospace of 24%. Sequential improvement of 10% 4Q1
Slide 8: 4Q 2020 Adjusted EBITDA Margin 22.8%
4Q 2020 Adjusted EBITDA Margin 22.8%2; Same as 4Q 2019 on 29% Less Revenue 4Q193 20193 1Q203 2Q20 3Q20 4Q20 20203 2020 YoY Adjusted EBITDA2 3rd Party Revenue1 $1,734M $7,106M $1,632M $1,253M $1,134M $1,238M $5,257M ▪ Price increase YoY: • 4Q 2020 of $11M • FY 2020 of $39M Adjusted EBITDA2 $395M $1,5
Slide 9: 4Q20 Revenue Down (29%) YoY, Commercial Aero ~40% of Revenue
4Q20 Revenue Down (29%) YoY, Commercial Aero ~40% of Revenue Revenue by Market Revenue by Market YoY (% of total) (% change) 18% Aerospace - Commercial (51%) Aerospace - Defense 24% 40% Subtotal - Aerospace (37%) 19% Commercial Transportation (10%) Industrial & Other 1 Flat Total Revenue (29%) 23% 1
Slide 10: FY20 Revenue Down (26%) YoY, Commercial Aero ~50% of Revenue
FY20 Revenue Down (26%) YoY, Commercial Aero ~50% of Revenue Revenue by Market Revenue by Market YoY (% of total) (% change) 16% Aerospace - Commercial (38%) Aerospace - Defense 14% Subtotal - Aerospace (29%) 16% 49% Commercial Transportation (31%) Industrial & Other 1 1% 19% Total Revenue (26%) 1)
Slide 11: Engine Products: Commercial Aero Inventory Correction; Cost Reductions
Engine Products: Commercial Aero Inventory Correction; Cost Reductions Revenue by Market -33% (% of total) Aerospace - Commercial $813M $835M $844M $828M $781M Aerospace - Defense $585M $555M 30% Industrial & Other 3rd Party $485M Revenue 41% 29% 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20 4Q 2020 YoY -
Slide 12: Fastening Systems: Commercial Aero Inventory Correction; Cost Reductions
Fastening Systems: Commercial Aero Inventory Correction; Cost Reductions Revenue by Market (% of total) -30% $395M $399M $391M $376M $385M 12% Aerospace - Commercial $326M Aerospace - Defense 3rd Party $271M $263M Commercial Transportation Industrial & Other 14% Revenue 60% 14% 1Q19 2Q19 3Q19 4Q19 1
Slide 13: Engineered Structures: Commercial Aero Inventory Correction; Cost Reductions
Engineered Structures: Commercial Aero Inventory Correction; Cost Reductions Revenue by Market (% of total) -30% $331M $318M $312M 9% Aerospace - Commercial $294M $275M Aerospace - Defense 3rd Party $229M $206M $217M Industrial & Other Revenue 51% 40% 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20 4Q 2020
Slide 14: Forged Wheels: Market Recovery; Q4 Profitability Exceeds 2019 Levels
Forged Wheels: Market Recovery; Q4 Profitability Exceeds 2019 Levels on Less Revenue Revenue by Market $254M $257M $241M -6% (% of total) $217M $203M $191M Commercial Transportation $172M 3rd Party $113M Revenue 100% 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20 4Q 2020 YoY +3% + Cost Reductions Segment $
Slide 15: $14M of Favorable Special Items Driven By Plant Fire Proceeds and Tax
$14M of Favorable Special Items Driven By Plant Fire Proceeds and Tax Income (Loss) Income (Loss) from Earnings per 4Q 2020 Special Items ($M, except per share amounts) before income taxes Continuing Ops diluted share AS REPORTED $71 $106 $0.24 Severance costs $9 $6 St. Cosme Fasteners/Barberton Whe
Slide 16: Next Significant Maturity October 2024
Next Significant Maturity October 2024 Oct 5.125% May $1,250 6.875% • All debt unsecured $1,200 $1,200M • $1B 5-Year Undrawn Revolving Credit Facility • Reduced FY 2020 A/R Securitization from $350M to $250M $1,000M Paid on January 15th $800M with Cash on Hand at Par Feb Feb 5.9% 5.95% $625 $625 $60
Slide 17: Summary: 4Q 2020 and FY 2020 Results
Summary: 4Q 2020 and FY 20201 Results ▪ Revenue in line with outlook; profit and margin exceeded outlook Revenue / ▪ Price increases in line with expectations Profit ▪ Cost Reductions accelerated and above outlook ▪ 4Q 2020 Adj EBITDA Margin Exit rate of 22.8% and at the same rate as 4Q 20192 ▪ Adju
Slide 18: 2021 Outlook
2021 Outlook 1Q 21 Outlook FY 2021 Outlook What we expect in 2021 ▪ Commercial Aerospace Markets Low Baseline High Low Baseline High Continue to be Uncertain ▪ Cost Reduction Carryover of ~$100M+ Revenue $1.15B $1.2B $1.25B $5.05B $5.1B $5.25B ▪ Price Increases greater than 2020 Adj EBITDA1 $245M $2
Slide 19: rr) HOWMET
rr) HOWMET Lw.J AEROSPACE
Slide 20: Appendix
Appendix fri HOWMET UELJ AEROSPACE
Slide 21: 2020 Results
2020 Results Full Year 20201 2020 Comments • Adj Operating Income excluding special items Corporate Overhead $76M • 1Q 2020 reflects estimate of Howmet Corporate costs Depreciation & Amortization $269M • Excludes special items Interest Expense $317M • Excludes debt issuance, breakage and tender fees
Slide 22: Historical Combined Segment Results
Historical Combined Segment Results 1 1Q19 2Q19 3Q19 4Q19 2019 1Q20 2Q20 3Q20 4Q20 2020 Engine Products $813M $835M $844M $828M $3,320M $781M $585M $485M $555M $2,406M Fastening Systems $395M $399M $391M $376M $1,561M $385M $326M $271M $263M $1,245M Engineered Structures $294M $331M $318M $312M $1,2
Slide 23: Historical Combined Segment Results (continued)
Historical Combined Segment Results 1 (continued) 1Q19 2Q19 3Q19 4Q19 2019 1Q20 2Q20 3Q20 4Q20 2020 Engine Products $34M $35M $31M $31M $131M $30M $31M $31M $31M $123M Fastening Systems $12M $12M $12M $12M $48M $12M $12M $12M $12M $48M Engineered Structures $17M $14M $15M $12M $58M $13M $14M $13M $1
Slide 24: Combined Segment Decremental Margins
Combined Segment Decremental Margins 1 3Q19 3Q20 3Q20 YoY 4Q19 4Q20 4Q20 YoY 2019 2020 2020 YoY Engine Products $844M $485M ($359M) $828M $555M ($273M) $3,320M $2,406M ($914M) Fastening Systems $391M $271M ($120M) $376M $263M ($113M) $1,561M $1,245M ($316M) Engineered Structures $318M $206M ($112M)
Slide 25: Reconciliation of income from continuing operations excluding Special items
Reconciliation of income from continuing operations excluding Special items ($ in millions, except per-share amounts) Income from continuing operations Diluted EPS excluding Special Income from continuing operations Diluted EPS excluding Special excluding Special items items excluding Special items
Slide 26: Reconciliation of Operational Tax Rate
Reconciliation of Operational Tax Rate ($ in millions) Quarter ended December 31, 2020 Year ended December 31, 2020 As reported Special items (1)( 2) As adjusted As reported Special items (1)( 2) As adjusted Income from continuing operations before income taxes $71 $56 $127 $171 $317 $488 Provision
Slide 27: Calculation of Segment Operating Profit Margin
Calculation of Segment Operating Profit Margin 1Q19 2Q19 3Q19 4Q19 2019 1Q20 2Q20 3Q20 4Q20 2020 Engine Products Third-party sales $ 813 $ 835 $ 844 $ 828 $ 3,320 $ 781 $ 585 $ 485 $ 555 $ 2,406 Inter-segment sales $ 5 $ 3 $ 1 $ 2 $ 11 $ 2 $ 1 $ 1 $ 1 $ 5 Segment operating profit $ 141 $ 163 $ 161 $
Slide 28: Calculation of Segment Operating Profit Margin (continued)
Calculation of Segment Operating Profit Margin (continued) 1Q19 2Q19 3Q19 4Q19 2019 1Q20 2Q20 3Q20 4Q20 2020 Engineered Structures Third-party sales $ 294 $ 331 $ 318 $ 312 $ 1,255 $ 275 $ 229 $ 206 $ 217 $ 927 Inter-segment sales $ 3 $ 3 $ 4 $ 3 $ 13 $ 3 $ 2 $ 1 $ 1 $ 7 Segment operating profit $ 1
Slide 29: Calculation of Total Segment Operating Profit Margin (continued)
Calculation of Total Segment Operating Profit Margin (continued) ($ in millions) 1Q19 2Q19 3Q19 4Q19 2019 1Q20 2Q20 3Q20 4Q20 2020 Sales – Engine Products $813 $835 $844 $828 $3,320 $781 $585 $485 $555 $2,406 Sales – Fastening Systems $395 $399 $391 $376 $1,561 $385 $326 $271 $263 $1,245 Sales – Eng
Slide 30: Reconciliation of Total Segment to Consolidated Totals
Reconciliation of Total Segment to Consolidated Totals Reconciliation of Total segment operating profit to Consolidated income before income taxes ($ in millions) 1Q19 2Q19 3Q19 4Q19 2019 1Q20 2Q20 3Q20 4Q20 2020 Total segment operating profit $313 $360 $363 $354 $1,390 $339 $200 $117 $234 $890 Unal
Slide 31: Reconciliation of Operating Income Excluding Special Items
Reconciliation of Operating Income Excluding Special Items and Operating Income Margin, Excluding Special Items ($ in millions) 1Q19 2Q19 3Q19 4Q19 2019 1Q20 2Q20 3Q20 4Q20 2020 Operating income (loss) $214 $(176) $256 $285 $579 $258 $74 $73 $221 $626 Special items: Restructuring and other charges 4
Slide 32: Reconciliation of Adjusted EBITDA excluding Special Items
Reconciliation of Adjusted EBITDA excluding Special Items ($ in millions) Quarter ended Year ended Quarter ended Quarter ended Year ended December 31, December 31, Quarter ended Quarter ended September 30, December 31, December 31, 2019 2019 March 31, 2020 Juner 30, 2020 2020 2020 2020 Income (loss)
Slide 33: Reconciliation of Adjusted Free Cash Flow
Reconciliation of Adjusted Free Cash Flow ($ in millions) 1Q20 2Q20 3Q20 4Q20 2020 Cash (used for) provided from operations $(208) $31 $35 $151 $9 Cash receipts from sold receivables $48 $66 $144 $164 $422 Capital expenditures (152) (32) (36) (47) (267) Adjusted free cash flow (312) 65 143 268 164 C
Slide 34: Reconciliation of Net Debt
Reconciliation of Net Debt ($ in millions) December 31, September 30, December 31, 2019 March 31, 2020 June 30, 2020 2020 2020 Short-term debt $1,034 $1,336 $391 $384 $376 Long-term debt, less amount due within one year 4,906 4,608 4,695 4,697 4,699 Total debt 5,940 5,944 5,086 5,081 5,075 Less: Cas
Slide 35: Reconciliation of Net debt to Adjusted EBITDA Excluding Special Items
Reconciliation of Net debt to Adjusted EBITDA Excluding Special Items ($ in millions) Trailing-12 months ended September 30, 2020 December 31, 2020 Income from continuing operations after income taxes $ 223 $ 211 Add: Provision for income taxes 75 (40) Other expense, net 5 74 Interest expense 387 38
Slide 36: Reconciliation of Corporate Expense Excluding Special Items
Reconciliation of Corporate Expense Excluding Special Items ($ in millions) 1Q19 2Q19 3Q19 4Q19 2019 1Q20 2Q20 3Q20 4Q20 2020 Corporate expense $55 $64 $51 $59 $229 $42 $21 $22 $(3) $82 Special items: Costs associated with the Arconic Inc. Separation Transaction 1 1 1 2 5 4 3 — — 7 Legal and other a
Slide 37: Reconciliation of Segment End Markets Revenue
Reconciliation of Segment End Markets Revenue Engineered ($ in millions) Engine Products Fastening Systems Structures Forged Wheels Total Segment Fourth quarter ended December 31, 2019 Aerospace - Commercial $540 $257 $225 $— $1,022 Aerospace - Defense $125 $43 $62 $— $230 Commercial Transportation
Slide 38: Reconciliation of Segment Adjusted EBITDA
Reconciliation of Segment Adjusted EBITDA ($ in millions) 1Q19 2Q19 3Q19 4Q19 2019 1Q20 2Q20 3Q20 4Q20 2020 Engines Products Segment operating profit $141 $163 $161 $156 $621 $165 $105 $39 $108 $417 Provision for depreciation and amortization 34 35 31 31 131 30 31 31 31 123 Adjusted EBITDA $175 $198
Slide 39: Reconciliation of Adjusted Free Cash Flow including Pre-Separation Allocations
Reconciliation of Adjusted Free Cash Flow including Pre-Separation Allocations as a Percentage of Adjusted Income from Continuing Operations ($ in millions) Year ended December 31, 2020 Cash provided from operations $9 Cash receipts from sold receivables 422 Capital expenditures (267) Adjusted free