Alcoa Corporation · NYSE:AA
Alcoa — Q3 2013 Earnings Presentation
50 slides from Alcoa's earnings presentation, Oct 8, 2013
Slide 1: 3rd Quarter Earnings Conference
3rd Quarter Earnings Conference October 8, 2013 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: 3Q 2013 Overview
Strong third quarter driven by performance – Repositioning working 3Q 2013 Overview ▪ Increased earnings sequentially and YoY – Downstream: Strong Profitability - ATOI up 22% YoY – Upstream: Improved performance 8 consecutive quarters Strong Operational – Productivity: $825 million across all segmen
Slide 4: William Oplinger
William Oplinger Executive Vice President and Chief Financial Officer October 8, 2013 4
Slide 5: Income Statement Summary
Income Statement Summary Prior Year Sequential $ Millions, except aluminum prices and per-share amounts 3Q12 2Q13 3Q13 Change Change 3rd Party Realized Aluminum Price ($/MT) $2,222 $2,237 $2,180 ($42) ($57) Revenue $5,833 $5,849 $5,765 ($68) ($84) Cost of Goods Sold $5,266 $4,933 $4,798 ($468) ($135
Slide 6: Restructuring and Other Special Items
Restructuring and Other Special Items Income Statement $ Millions, except per-share amounts 2Q13 3Q13 Segment Classification Net (Loss) Income ($119) $24 Net (Loss) Income Per Diluted Share ($0.11) $0.02 Corporate / Restructuring-Related ($113) ($109) Restructuring and COGS Primary Metals Government
Slide 7: Strong performance drives 58% sequential earnings improvement
Strong performance drives 58% sequential earnings improvement Net Income excluding Restructuring & Other Special Items ($ Millions) +58% 120 23 22 41 1 76 11 3 38 21 2Q 13 LME Currency Volume Price Productivity Energy Raw Cost 3Q 13 / Mix Materials Decreases / Other Market Performance Cost Headwinds
Slide 8: Earnings rise $88M year-over-year despite LME and cost headwinds
Earnings rise $88M year-over-year despite LME and cost headwinds Net Income excluding Restructuring & Other Special Items ($ Millions) +275% 19 9 108 160 120 11 32 35 62 62 3Q 12 LME Currency Volume Price Productivity Energy Raw Cost 3Q 13 / Mix Materials Increases / Other Market Performance Cost He
Slide 9: Engineered Products & Solutions year-over-year ATOI increase of 22%
Engineered Products & Solutions year-over- year ATOI increase of 22% 3Q13 Actual and 4Q13 Outlook - EPS 3rd Quarter Results 3rd Quarter Business Highlights $ Millions 3Q 12 2Q 13 3Q 13 Revenue up 5% year-over-year driven by strong share gains across all markets 3rd Party Revenue 1,367 1,468 1,437
Slide 10: Volume and price headwinds impact Global Rolled Products
Volume and price headwinds impact Global Rolled Products 3Q13 Actual and 4Q13 Outlook - GRP 3rd Quarter Results 3rd Quarter Business Highlights Auto and Packaging demand remained strong $ Millions 3Q 12 2Q 13 3Q 13 Unfavorable volume/price impacts from: 3rd Party Revenue 1,849 1,877 1,805 • Aero
Slide 11: Alumina delivers performance improvement
Alumina delivers performance improvement 3Q13 Actual and 4Q13 Outlook - Alumina 3rd Quarter Results 3rd Quarter Business Highlights 3Q 12 2Q 13 3Q 13 Production increase due to additional day Higher 3rd party shipment volume offsets lower Production (kmt) 4,077 4,161 4,214 Alumina prices 3rd Par
Slide 12: Primary Metals drives productivity gains to the bottom line
Primary Metals drives productivity gains to the bottom line 3Q13 Actual and 4Q13 Outlook – Primary Metals 3rd Quarter Results 3rd Quarter Business Highlights 3Q 12 2Q 13 3Q 13 Curtailments safely executed, taking 274kmt offline Production (kmt) 938 896 897 Productivity improvements continued; re
Slide 13: Record third quarter days working capital level
Record third quarter days working capital level Days Working Capital since Fourth Quarter 2008 55 20 days; 50 48 43 44 43 $1.3 Billion 41 39 38 38 33 32 33 33 30 27 28 27 28 24 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 5 days 5 days 5 days 5
Slide 14: 3rd Quarter Cash Flow overview
3rd Quarter Cash Flow overview 3rd Quarter 2013 Cash Flow Overview Free Cash Flow near breakeven target in 3Q ($ millions) 1,005 ($ Millions) 3Q12 2Q13 3Q13 761 656 Net (Loss) Income before Noncontrolling 526 535 Interests ($175) ($148) $44 246 176 164 228 87 DD&A $366 $363 $348 Change in Working Ca
Slide 15: On track to meet all of our targets
On track to meet all of our targets Key Actions to Execute 2013 Cash Sustainability Program and year-to-date results Taking the right actions Overarching 2013 Financial Target YTD: Generate Productivity Gains of $825M $750M Manage Growth Capital of $289M $550M Positive Control Sustaining Capit
Slide 16: Market Fundamentals are stable; pricing pressure continues
Market Fundamentals are stable; pricing pressure continues Global Aluminum Demand Growth at 7% Market Essentially Balanced 2013 Primary Aluminum Consumption (mmt), Annualized Growth (%) Supply/Demand Analysis Russia Brazil 1.0 6% Other ¹ 1.9 1.0 6% 2013E Alumina Supply/Demand Balance 2013E Aluminum
Slide 17: Klaus Kleinfeld
Klaus Kleinfeld Chairman and Chief Executive Officer October 8, 2013 17
Slide 18: Growth continues in global end markets
Growth continues in global end markets Alcoa end markets: Current assessment of 2013 vs. 2012 North America Europe China Global Aerospace 9% - 10% sales growth Automotive 2% - 5% 2% - 5% 9% - 11% 1% - 4% prod growth prod decline prod growth prod growth Heavy Truck & 9% - 13% 2% - 5% 17% - 20% 5% - 9
Slide 19: Contributions from Value-Add businesses continue to grow
Contributions from Value-Add businesses continue to grow Value-add 3rd Party Revenue, Adjusted EBITDA and Adjusted EBITDA margin – 2003, 2012 and 2013 Annualized 2013 2003(1) 2012 Annualized(2) 13,156 13,324 Revenue 8,785 ($M) 1,799 1,955 Adjusted EBITDA(3) 855 ($M) Adjusted 13.7% 14.7% 9.7% EBITDA
Slide 20: Aero, Auto and Commercial B&C account for $5.9B of value-add revenue
Aero, Auto and Commercial B&C account for $5.9B of value-add revenue Breakdown of 2012 Alcoa value-add revenue by market ($B) Revenues: $13.2B Aerospace Other 8% End Market CAGR (2012 - 2015) ~8 year production backlog (’12 rates) 0.8 for large commercial aircraft segment Industrial Products Aer
Slide 21: New A330 strengthens Alcoa's metallic aero opportunity
New A330 strengthens Alcoa’s metallic aero opportunity Airbus A330 Updates and Alcoa Solutions Airbus tailors new A330 for Asian markets Opportunities to apply Alcoa solutions Advanced alloys Aerospace hard alloys Aluminum Lithium - Weight / - Corrosion Value-add products September 2013: New
Slide 22: Alcoa technology powers next generation jet engine performance
Alcoa technology powers next generation jet engine performance Customer needs and Alcoa solutions in the aerospace airfoils market Customer needs Alcoa provides high temperature airfoil solutions Advanced Single Crystal Technology Nickel-based superalloys Engine Fuel Burn Reduction Increases bla
Slide 23: Aluminum Intensive Vehicles have the competitive edge
Aluminum Intensive Vehicles have the competitive edge Comparison between baseline steel and aluminum intensive vehicles Safe and Durable Reduces CO2 emissions Improves fuel efficiency Safer – can reduce stopping “Aluminum offers the most promise Steel Toyota Venza: 3% Al content distances from 45
Slide 24: Aluminum intensity is accelerating auto sheet demand
Aluminum intensity is accelerating auto sheet demand Projected aluminum content per vehicle (lbs) and auto sheet demand (kMT) Increasing Aluminum Intensity Drives Auto Sheet Demand North America Aluminum Body Sheet North America Market Demand – Content Per Vehicle (in lbs) Auto Aluminum (kMT) Auto S
Slide 25: Alcoa's auto triple play: smart investments to capitalize on AIV growth
Alcoa’s auto triple play: 3 smart investments to capitalize on AIV growth Automotive growth projects Phase 1 Auto Expansion Phase 2 Auto Expansion Positioning for growth in MENA Davenport Tennessee Saudi Arabia JV $300M investment $275M investment $380M total investment* Supported by secured
Slide 26: Alcoa delivers in a world demanding greener buildings
Alcoa delivers in a world demanding greener buildings Alcoa solutions for U.S. commercial building and construction requirements U.S. vs. EU Building Facts(1,2) Thermal Performance Annual Electricity Consumption by Buildings (%) Triple + 40% Thermal Perform. 15% 15% pts reduction Insulating Glass
Slide 27: Enhancing competitiveness in the upstream business
Enhancing competitiveness in the upstream business Actions taken by upstream Alumina Aluminum Mining Refining Smelting Energy Largest low-cost global bauxite producer, 651 kMT or 16% of capacity curtailed; including 274 kMT and world leader in refining (60%) of the 460 kMT under review in 2013
Slide 28: Construction progressing as planned; world's lowest cost facility
Construction progressing as planned; world’s lowest cost facility Saudi Arabia JV construction update Phase 1 Phase 2 Smelter Rolling Mill Refinery Mine 250kMT production in 2013 First hot coil in 4Q 2013 First alumina 4Q 2014 On track to provide At full capacity in 2014 First auto coil
Slide 29: Creating value by executing our strategy
Creating value by executing our strategy Leveraging the Alcoa Advantage to deliver Value-Add products Investing to capture growth and improve cost position Focusing on controllable items to increase upstream profitability 29
Slide 30: Advancing each generation. ALCOA
Advancing each generation. ALCOA
Slide 31: 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 31
Slide 32: 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 33: Revenue Change by Market
Revenue Change by Market Sequential Year-Over-Year 3Q’13 Third-Party Revenue Change Change Aerospace (3%) 5% 28% 17% Automotive (6%) 7% B&C 3% 9% 3% Comm. Transport 2% 7% Industrial Products (9%) (9%) 7% IGT (9%) (5%) 6% Packaging (3%) (3%) 15% Distribution/Other 22% (1%) 7% 1% 2% Alumina 3% 11% 14%
Slide 34: Reconciliation of ATOI to Consolidated Net Income (Loss) Attributable to Alcoa
Reconciliation of ATOI to Consolidated Net Income (Loss) Attributable to Alcoa (in millions) 1Q12 2Q12 3Q12 4Q12 2012 1Q13 2Q13 3Q13 Total segment ATOI* $ 304 $ 255 $ 224 $ 574 $ 1,357 $ 351 $ 304 $ 338 Unallocated amounts (net of tax): Impact of LIFO – 19 (7) 8 20 (2) 5 9 Interest expense (80) (80)
Slide 35: Reconciliation of Adjusted Income
Reconciliation of Adjusted Income (in millions, except per- (Loss) Income Diluted EPS share amounts) Quarter ended Quarter ended September 30, June 30, September 30, September 30, June 30, September 30, 2012 2013 2013 2012 2013 2013 Net (loss) income attributable to Alcoa $ (143) $ (119) $ 24 $ (0.1
Slide 36: Reconciliation of Alcoa Adjusted EBITDA
Reconciliation of Alcoa Adjusted EBITDA ($ in millions) 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 3Q12 2Q13 3Q13 Net income (loss) attributable to Alcoa $ 938 $ 1,310 $ 1,233 $ 2,248 $ 2,564 $ (74) $ (1,151) $ 254 $ 611 $ 191 $ (143) $ (119) $ 24 Add: Net income (loss) attributable to noncon
Slide 37: Reconciliation of Alumina Adjusted EBITDA
Reconciliation of Alumina Adjusted EBITDA ($ in millions, 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 3Q12 2Q13 3Q13 except per metric ton amounts) After-tax operating income (ATOI) $ 415 $ 632 $ 682 $ 1,050 $ 956 $ 727 $ 112 $ 301 $ 607 $ 90 $ (9) $ 64 $ 67 Add: Depreciation, depletion, and a
Slide 38: 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 3Q12 2Q13 3Q13 per metric ton amounts) After-tax operating income (ATOI) $ 657 $ 808 $ 822 $ 1,760 $ 1,445 $ 931 $ (612) $ 488 $ 481 $ 309 $ (14) $ (32) $ 8 Add: Depreciation, de
Slide 39: Reconciliation of Global Rolled Products Adjusted EBITDA
Reconciliation of Global Rolled Products Adjusted EBITDA ($ in millions, except 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 3Q12 2Q13 3Q13 per metric ton amounts) After-tax operating income (ATOI)* $ 232 $ 290 $ 300 $ 317 $ 151 $ (41) $ (106) $ 241 $ 260 $ 346 $ 89 $ 79 $ 71 Add: Depreciation,
Slide 40: 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 3Q12 2Q13 3Q13 After-tax operating income (ATOI)* $ 126 $ 161 $ 276 $ 382 $ 423 $ 522 $ 311 $ 419 $ 537 $ 612 $ 158 $ 193 $ 192 Add: Depreciation, depletion, and amor
Slide 41: Reconciliation of Free Cash Flow
Reconciliation of Free Cash Flow (in millions) Quarter ended June 30, September 30, December 31, March 31, June 30, September 30, December 31, March 31, June 30, September 30, 2011 2011 2011 2012 2012 2012 2012 2013 2013 2013 Cash from $ 798 $ 489 $ 1,142 $ (236) $ 537 $ 263 $ 933 $ (70) $ 514 $ 214
Slide 42: 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, 2008 2009 2009 2009 2009 2010 2010 2010 2010 2011 Cash from $ 608 $ (271) $ 328 $ 184 $ 1,124 $ 199 $ 300 $ 392 $ 1,3
Slide 43: Days Working Capital
Days Working Capital ($ in millions) Quarter ended March 31, June 30, September 30, December 31, March 31, June 30, September 30, 2012 2012 2012 2012 2013 2013 2013 Receivables from customers, less $ 1,526 $ 1,575 $ 1,619 $ 1,399 $ 1,680 $ 1,354 $ 1,422 allowances * Add: Deferred purchase price rece
Slide 44: Reconciliation of Net Debt
Reconciliation of Net Debt (in millions) December 31, March 31, June 30, September 30, 2008 2009 2010 2011 2012 2013 2013 2013 Short-term borrowings $ 478 $ 176 $ 92 $ 62 $ 53 $ 51 $ 55 $ 59 Commercial paper 1,535 – – 224 – 104 – – Long-term debt due within one year 56 669 231 445 465 1,025 604 655
Slide 45: Reconciliation of Net Debt-to-Capital
Reconciliation of Net Debt-to-Capital ($ in millions) June 30, 2013 September 30, 2013 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 $ 55 $ 59 Commercial paper – – Long-term debt due with
Slide 46: 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 41% Natural gas 10% Natural gas N/A Spot1 $16m per $1/GJ1 Spot & semi- $9m per Caustic Causti
Slide 47: Global aluminum demand growth at 7%
Global aluminum demand growth at 7% Russia 2013 Primary Aluminum Consumption (mmt), Annualized Growth (%) Brazil 1.0 6% Other ¹ 1.9 1.0 5% 6% MENA 8% SE Asia 1.9 1.9 9% India 2.0 7% North Asia 4.0 4% 6.2 4% 2013 Demand +7% North America Rest of World +4% Europe 6.5 -1% China 23.1 12% 2013E 49.5 mmt
Slide 48: Market essentially balanced
Market essentially balanced Supply/Demand Analysis 2013E Alumina Supply/Demand Balance 2013E Aluminum Supply/Demand Balance 2Q2013 2Q2013 Surplus Deficit 130 (315) Surplus Deficit 636 (400) Supply Demand Supply Demand ‘000 mt China Rest of World ‘000 mt China Rest of World 2013 Production (August an
Slide 49: Inventory is Stable
Inventory is Stable Global Inventories vs. LME Price Over Time $ Days of Days of $ per metric ton Consumption Consumption Days of Days of 108 days Consumption Consumption 83 days 74.5 days 105 LME Price LME Price LME Price 98 $2,214/MT $1,808/MT $3,000 $2,686/MT 91 84 77 $2,500 70 63 56 49 $2,000 42
Slide 50: Lower regional premiums
Lower regional premiums $ per metric $ per metric ton Regional Premiums over time ton $300 $300 Region End of 3Q 13 Europe $240/MT $250 $250 Japan $246/MT Midwest USA $216/MT $200 $200 $150 $150 $100 Year on Year Change $100 Europe -17% Japan -4% $50 Midwest USA -11% $50 $0 $0 Source: Month end pric