Howmet Aerospace Inc. · NYSE:HWM
Howmet Aerospace — Q1 2014 Earnings Presentation
54 slides from Howmet Aerospace's earnings presentation, Apr 8, 2014
Slide 1: 1st Quarter Earnings Conference
1st Quarter Earnings Conference April 8, 2014 1
Slide 2: Cautionary Statement
Cautionary Statement Forward-Looking Statements This presentation contains statements that relate to future events and expectations and as such constitute forward-looking statements. Forward-looking statements include those containing such words as “anticipates,” “estimates,” “expects,” “forecasts,”
Slide 3: Solid results in the first quarter – Transformation accelerates
Solid results in the first quarter – Transformation accelerates 1Q 2014 Overview ▪ Strong earnings (excluding special items) increase sequentially – Downstream: Record performance - ATOI up 9% YoY Strong – Midstream: Earnings rebound - ATOI nearly triples QoQ; record auto revenue Operational Perform
Slide 4: William Oplinger
William Oplinger Executive Vice President and Chief Financial Officer April 8, 2014 4
Slide 5: Income Statement Summary
Income Statement Summary Prior Year Sequential $ Millions, except aluminum prices and per-share amounts 1Q13 4Q13 1Q14 Change Change Realized Aluminum Price ($/MT) $2,398 $2,157 $2,205 ($193) $48 Revenue $5,833 $5,585 $5,454 ($379) ($131) Cost of Goods Sold $4,847 $4,708 $4,495 ($352) ($213) COGS %
Slide 6: Special Items
Special Items Income Statement $ Millions, except per-share amounts 4Q13 1Q14 Segment Classification Net Loss from Continuing Operations ($2,339) ($178) Net Loss Per Diluted Share ($2.19) ($0.16) Corporate / Restructuring/COGS/ Restructuring-Related1 ($302) ($296) Primary Metals/ Other Expenses (Inc
Slide 7: Performance more than offsets cost headwinds and market impacts
Performance more than offsets cost headwinds and market impacts Net Income excluding Special Items ($ Millions) 20 4 33 32 98 71 40 24 8 4 4Q 13 LME Currency Volume Price Productivity Energy Raw Cost 1Q 14 / Mix Materials Increases / Other Market Performance Cost Headwinds -$32 +$99 -$9 See appendix
Slide 8: LME drives Y-O-Y earnings decline; net productivity is positive
LME drives Y-O-Y earnings decline; net productivity is positive Net Income excluding Special Items ($ Millions) 160 9 11 96 121 218 98 50 16 63 1Q 13 LME Currency Volume Price Productivity Energy Raw Cost 1Q 14 / Mix Materials Increases / Other Market Performance Cost Headwinds -$155 +$226 -$94 See
Slide 9: EPS generates record 1Q ATOI and EBITDA Margin
EPS generates record 1Q ATOI and EBITDA Margin 1Q14 Actual and 2Q14 Outlook – Engineered Products and Solutions 1st Quarter Results 1st Quarter Business Highlights 1Q 13 4Q 13 1Q 14 Revenue up 3% sequentially driven by share gains across all markets Record 1Q ATOI and EBITDA margin 3rd Party Rev
Slide 10: GRP nearly triples profitability from productivity and higher mill utilization
GRP nearly triples profitability from productivity and higher mill utilization 1Q14 Actual and 2Q14 Outlook – Global Rolled Products 1st Quarter Results 1st Quarter Business Highlights 1Q 13 4Q 13 1Q 14 Record automotive sheet revenue – continued high shipments Pricing and volume pressures in Pa
Slide 11: Alumina pricing and productivity drive highest 1Q ATOI since 2011
Alumina pricing and productivity drive highest 1Q ATOI since 2011 1Q14 Actual and 2Q14 Outlook – Alumina 1st Quarter Results 1st Quarter Business Highlights 1Q 13 4Q 13 1Q 14 Sixth straight quarter of increased profits; highest 1Q ATOI since 2011, $74M before Surgold sale gain Production (kmt) 3,9
Slide 12: Primary Metals aggressively executing portfolio actions
Primary Metals aggressively executing portfolio actions 1Q14 Actual and 2Q14 Outlook – Primary Metals 1st Quarter Results 1st Quarter Business Highlights 1Q 13 4Q 13 1Q 14 Two fewer days in the quarter reduce volume by $8M sequentially Production (kmt) 891 866 839 3rd Party Shipments (kmt) 705 717
Slide 13: Two day year-over-year improvement in average DWC
Two day year-over-year improvement in average DWC Average Days Working Capital since First Quarter 2009 55 51 25 days; 47 44 $1.6 Billion 42 43 40 40 40 37 37 36 36 34 35 32 31 30 29 28 30 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 13 day
Slide 14: 1st Quarter Cash Flow Overview
1st Quarter Cash Flow Overview 1Q13, 4Q13 & 1Q14 Cash Flow ($ Millions) 1Q13 4Q13 1Q14 Net Income before Noncontrolling Interests $170 ($2,310) ($197) DD&A $361 $350 $340 Change in Working Capital ($323) $522 ($687) Pension Contributions ($83) ($108) ($91) Other Adjustments ($195) $2,466 $84 Cash fr
Slide 15: Lowest debt since 3Q 2007; Debt-to-Cap down to target range
Lowest debt since 3Q 2007; Debt-to-Cap down to target range Debt, Net Debt, and Debt-to-Capital % (millions) Cash Net Debt Debt to Cap 10,578 762 9,819 9,165 9,371 1,481 8,829 8,319 1,543 1,939 7,747 1,861 1,437 665 42.5% 9,816 38.7% 38.1% 34.9% 35.3% 35.0% 8,338 34.8% 7,622 7,432 6,882 7,082 6,968
Slide 16: Aggressive targets drive growth and operational performance in 2014
Aggressive targets drive growth and operational performance in 2014 2014 Annual Financial Targets Drive Productivity Gains of $850M Deliver Process productivity Operational Procurement savings Performance Overhead cost reductions Invest in the Build Value-Add with Growth Capital of $500M Futur
Slide 17: Robust demand continues; regional premiums at record levels
Robust demand continues; regional premiums at record levels Global Aluminum Demand Growth at 7% Aluminum Deficit Emerging Russia 2014 Primary Aluminum Consumption (mmt), Annualized Growth (%) Supply/Demand Analysis Brazil 1.0 4% 2014E Alumina Supply/Demand Balance 2014E Aluminum Supply/Demand Balanc
Slide 18: Klaus Kleinfeld
Klaus Kleinfeld Chairman and Chief Executive Officer April 8, 2014 18
Slide 19: 2014 Market Conditions remain solid
2014 Market Conditions remain solid Alcoa End Markets: Current Assessment of 2014 vs. 2013 North America Europe China Global Aerospace 8% to 9% sales growth Automotive 2% to 5% 0% to 4% 6% to 10% 1% to 4% prod growth prod growth prod growth prod growth Heavy Truck & 5% to 9% 1% to 5% -1% to 3% -1% t
Slide 20: More to Alcoa than meets the eye, exciting Value-Add Portfolio
More to Alcoa than meets the eye, exciting Value-Add Portfolio 2013 Alcoa value-add revenue by market ($B) Aerospace Revenues: $13.1B 7.5% End Market CAGR (2013-2016) Commercial Building and Other ~8 year production backlog for large commercial aircraft Construction 0.6 Automotive 1.5 Aerospace
Slide 21: $4B Aerospace Portfolio; Multi-material Innovation Leader
$4B Aerospace Portfolio; Multi-material Innovation Leader Innovative Fastening Systems Advanced Aerospace Structures 31% $1.23 43% Global leader in aerospace $1.74 Aluminum sheet, plate and fastening systems extrusions Both airframe and engine Aluminum and titanium forgings applications 26%
Slide 22: Re-Inventing the Wheel: Lighter & Brighter
Re-Inventing the Wheel: Lighter & Brighter Most innovative solutions for improved truck fuel efficiency and lowered maintenance cost Customer needs Alcoa’s Innovation Leadership is on a roll Heavy duty without the “Heavy”: Ultra ONE™ Improved fuel efficiency New 17% Stronger Proprietary MagnaForce
Slide 23: Growth for the long haul, winning out of the gate with Ultra ONE
Growth for the long haul, winning out of the gate with Ultra ONE™ Global commercial vehicle wheel market and customer conversion to Ultra ONE™ Al gaining ground in a growing market Undisputed market leader, deep customer reach Global Commercial Vehicle Wheel Market ($B) and Penetration Rates1 Over
Slide 24: Auto going aluminum: From Audi A100 in 1985…
Auto going aluminum: From Audi A100 in 1985… 1994 to Today: ~700,000 Aluminum Space Frame Audi’s Source: Audi 24
Slide 25: …to 2015: going Mass-Market with the Ford F-150
…to 2015: going Mass-Market with the Ford F-150 2013: ~700,000 F-150s Military-grade aluminum alloys in body and bed Produced As much as 700 lbs. lighter than its predecessor Accelerates, brakes, tows and resists corrosion “With my background in aerospace and like never before Source: Ford Mot
Slide 26: Capitalizing on our Leading Position as Auto goes Lightweight
Capitalizing on our Leading Position as Auto goes Lightweight Projected aluminum content per vehicle, Alcoa automotive growth projects and Alcoa auto sheet revenue Increasing Aluminum Intensity Positioned to Capture Growth 6X Revenue Increase by 2018 North America Aluminum Body Sheet Completed Proje
Slide 27: Re-Packaging Midstream Portfolio: Shifting mix to Grow Value-Add
Re-Packaging Midstream Portfolio: Shifting mix to Grow Value-Add Bud Light re-closable aluminum bottle, investment in aseptic foil packaging and closure of Australia RM facilities Alcoa puts a cool twist on a cold one… …And adds more differentiation to the mix… $40 million Specialty Packaging Inne
Slide 28: Upstream Restructuring advances Transformation
Upstream Restructuring advances Transformation Bridge of Total Smelting Operating Capacity(1) 2007 to 1Q 2014, kmt -28% =1,157kmt 4,121 -344 +234 -239 -198 Rockdale: -267 +61 Baie Comeau: -53 Portovesme: -150 -253 Portland: -15 Fusina: -32 Spanish system: -90 Tennessee: -215 Other: -9 Other: +93 Mas
Slide 29: Saudi Arabia JV Progressing as Planned - World's Lowest Cost
Saudi Arabia JV Progressing as Planned - World’s Lowest Cost Saudi Arabia JV construction update Phase 1 Phase 2 Smelter Rolling Mill Refinery Mine 190 kmt production in 2013 First hot coil in 4Q 2013 First alumina 4Q 2014 On track to provide 550 kmt production in 2014 First auto coil in
Slide 30: Alcoa's Transformation Accelerates
Alcoa’s Transformation Accelerates Accelerating launch of Innovative Products; Applying the Alcoa Advantage Building out Alcoa’s Value-Add Businesses; Capturing growing Demand Lowering Upstream Cost Base 30
Slide 31: Advancing each generation. ALCOA
Advancing each generation. ALCOA
Slide 32: Additional Information
Additional Information Kelly Pasterick Director, Investor Relations Alcoa 390 Park Avenue New York, NY 10022-4608 Telephone: (212) 836-2674 www.alcoa.com 32
Slide 33: Annual Sensitivity Summary
Annual Sensitivity Summary LME Aluminum Annual Net Income Sensitivity +/- $100/MT = +/- $240 million Currency Annual Net Income Sensitivity Australian $ +/- $11 million per 0.01 change in USD / AUD Brazilian $ +/- $ 3 million per 0.01 change in BRL / USD Euro € +/- $ 2 million per 0.01 change in USD
Slide 34: Revenue Change by Market
Revenue Change by Market Sequential Year-Over-Year 1Q’14 Third-Party Revenue Change Change Aerospace 2% 1% 26% 19% Automotive 3% 5% B&C (1%) 2% Comm. Transport 7% 9% 4% Industrial Products 11% (6%) 7% IGT (14%) (23%) 6% Packaging (0%) (9%) 15% Distribution/Other (29%) (5%) 8% 1% 12% Alumina 2% 2% 2%
Slide 35: Special Items
Special Items Pre-tax, Before NCI After-tax, After NCI Income Statement $ Millions, except per-share amounts 4Q13 1Q14 4Q13 1Q14 Classification Segment Net Loss from Continuing Operations ($1,998) ($274) ($2,339) ($178) Net Loss Per Diluted Share ($1.87) ($0.25) ($2.19) ($0.16) Restructuring/COGS/ C
Slide 36: Composition of Regional Premium Pricing Convention
Composition of Regional Premium Pricing Convention 2014E Shipments Regional Premiums Estimated Pricing Convention 55% Midwest – Platts 15-day lag 30% Rotterdam DDP – Metal Bulletin 45-day lag 10% CIF Japan – Platts Month prior to Quarter start 5% Negotiated Annual 36
Slide 37: Alcoa smelting closures and curtailments when announced actions are complete
Alcoa smelting closures and curtailments when announced actions are complete Alcoa smelting capacity closures, since Dec 2007 Alcoa smelting capacity curtailments Location Year kmt Location kmt Baie Comeau 2008 53 Rockdale 191 Eastalco 2010 195 Sao Luis(1) 182 Badin 2010 60 Portovesme 150 Warrick 20
Slide 38: Reconciliation of ATOI to Consolidated Net Income (Loss) Attributable to Alcoa
Reconciliation of ATOI to Consolidated Net Income (Loss) Attributable to Alcoa (in millions) 1Q13 2Q13 3Q13 4Q13 2013 1Q14 Total segment ATOI $ 351 $ 304 $ 338 $ 224 $ 1,217 $ 325 Unallocated amounts (net of tax): Impact of LIFO (2) 5 9 40 52 (7) Interest expense (75) (76) (70) (73) (294) (78) Nonco
Slide 39: Reconciliation of Adjusted Income
Reconciliation of Adjusted Income (in millions, except per- Income (Loss) Diluted EPS share amounts) Quarter ended Quarter ended March 31, December 31, March 31, March 31, December 31, March 31, 2013 2013 2014 2013 2013 2014 Net income (loss) attributable to Alcoa $ 149 $ (2,339) $ (178) $ 0.13 $ (2
Slide 40: Reconciliation of Alcoa Adjusted EBITDA
Reconciliation of Alcoa Adjusted EBITDA ($ in millions) 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 1Q13 4Q13 1Q14 Net income (loss) attributable to Alcoa $ 938 $ 1,310 $ 1,233 $ 2,248 $ 2,564 $ (74) $ (1,151) $ 254 $ 611 $ 191 $ (2,285) $ 149 $ (2,339) $ (178) Add: Net income (loss) attr
Slide 41: Reconciliation of Alumina Adjusted EBITDA
Reconciliation of Alumina Adjusted EBITDA ($ in millions, except 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 1Q13 4Q13 1Q14 per metric ton amounts) After-tax operating income (ATOI) $ 415 $ 632 $ 682 $ 1,050 $ 956 $ 727 $ 112 $ 301 $ 607 $ 90 $ 259 $ 58 $ 70 $ 92 Add: Depreciation, deplet
Slide 42: Reconciliation of Primary Metals Adjusted EBITDA
Reconciliation of Primary Metals Adjusted EBITDA ($ in millions, except 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 1Q13 4Q13 1Q14 per metric ton amounts) After-tax operating income (ATOI) $ 657 $ 808 $ 822 $ 1,760 $ 1,445 $ 931 $ (612) $ 488 $ 481 $ 309 $ (20) $ 39 $ (35) $ (15) Add: Dep
Slide 43: Reconciliation of Global Rolled Products Adjusted EBITDA
Reconciliation of Global Rolled Products Adjusted EBITDA ($ in millions, except 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 1Q13 4Q13 1Q14 per metric ton amounts) After-tax operating income (ATOI) $ 232 $ 223 $ 232 $ 290 $ 300 $ 317 $ 151 $ (41) $ (106) $ 241 $ 260 $ 346 $ 252 $
Slide 44: Reconciliation of Engineered Products and Solutions Adjusted EBITDA
Reconciliation of Engineered Products and Solutions Adjusted EBITDA ($ in millions) 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 1Q13 4Q13 1Q14 After-tax operating income (ATOI) $ 126 $ 161 $ 276 $ 382 $ 423 $ 522 $ 311 $ 419 $ 537 $ 612 $ 726 $ 173 $ 168 $ 189 Add: Depreciation, depletion
Slide 45: Reconciliation of Free Cash Flow
Reconciliation of Free Cash Flow (in millions) Quarter ended September 30, December 31, March 31, June 30, September 30, December 31, March 31, June 30, September 30, December 31, March 31, 2011 2011 2012 2012 2012 2012 2013 2013 2013 2013 2014 Cash from $ 489 $ 1,142 $ (236) $ 537 $ 263 $ 933 $ (70
Slide 46: Reconciliation of Free Cash Flow, con't
Reconciliation of Free Cash Flow, con’t (in millions) Quarter ended December 31, March 31, June 30, September 30, December 31, March 31, June 30, September 30, December 31, March 31, June 30, 2008 2009 2009 2009 2009 2010 2010 2010 2010 2011 2011 Cash from $ 608 $ (271) $ 328 $ 184 $ 1,124 $ 199 $ 3
Slide 47: Days Working Capital
Days Working Capital ($ in millions) Quarter ended March 31, June 30, September 30, December 31, March 31, June 30, September 30, December 31, March 31, 2012 2012 2012 2012 2013 2013 2013 2013 2014 Receivables from customers, less $ 1,709 $ 1,650 $ 1,600 $ 1,573 $ 1,704 $ 1,483 $ 1,427 $ 1,383 $ 1,3
Slide 48: Reconciliation of Net Debt
Reconciliation of Net Debt (in millions) December 31, March 31, 2008 2009 2010 2011 2012 2013 2014 Short-term borrowings $ 478 $ 176 $ 92 $ 62 $ 53 $ 57 $ 53 Commercial paper 1,535 – – 224 – – – Long-term debt due within one year 56 669 231 445 465 655 85 Long-term debt, less amount due within one y
Slide 49: Reconciliation of Net Debt-to-Capital
Reconciliation of Net Debt-to-Capital ($ in millions) December 31, 2013 March 31, 2014 Cash and Cash Net Debt-to- Cash and Cash Net Debt-to- Debt-to-Capital Equivalents Capital Debt-to-Capital Equivalents Capital Total Debt Short-term borrowings $ 57 $ 53 Long-term debt due within one year 655 85 Lo
Slide 50: Composition of Upstream Production Costs
Composition of Upstream Production Costs Refining Cost Structure Input Cost Inventory flow Pricing Annual ATOI Fuel Oil convention Sensitivity 14% Conversion Fuel oil 1 – 2 months Prior month $4m per $1/bbl 40% Natural gas 11% Natural gas N/A Spot1 $16m per $1/GJ1 Spot & semi- $9m per Caustic Causti
Slide 51: 2014 global aluminum demand growth continues
2014 global aluminum demand growth continues Russia 2014 Primary Aluminum Consumption (mmt), Annualized Growth (%) Brazil 4% Other * 1.1 1.0 5% 2.0 4% MENA 2.0 8% SE Asia 2.0 8% India 2.1 5% North Asia 4.2 3% 2014 demand +7% North America 6.4 5% World ex China +4% Europe 6.6 2% China 25.2 10% 2014E
Slide 52: Alumina surplus persists, global metal deficit emerging
Alumina surplus persists, global metal deficit emerging Supply/Demand Analysis 2014E Alumina Supply/Demand Balance 2014E Aluminum Supply/Demand Balance 4Q13 4Q13 SURPLUS 1,996 Surplus DEFICIT Surplus 1,996 2,257 (730) 106 ’000 mt China Rest of World ’000 mt China Rest of World 2014 Production 42,200
Slide 53: Global inventories increase as China stocks rise, ROW declining
Global inventories increase as China stocks rise, ROW declining Global Inventories vs. LME Price Over Time $ Days of $ per metric ton Consumption Days of Days of Consumption Consumption Days of 83 days 76 days 105 Consumption 108 days LME Price LME Price 98 $1,746/MT $3,000 $2,686/MT 91 LME Price $2
Slide 54: Regional premiums move higher
Regional premiums move higher $ per metric $ per metric Regional Premiums over time ton ton $500 $500 Region End of 1Q 14 $450 $450 Europe $360/MT $400 Japan $371/MT $400 $350 Midwest USA $409/MT $350 $300 $300 $250 $250 $200 1Q 14 vs. 1Q 13 $200 $150 Change $150 Europe 20% $100 $100 Japan 33% $50 M