Alcoa Corporation · NYSE:AA
Alcoa — Q4 2011 Earnings Presentation
57 slides from Alcoa's earnings presentation, Jan 9, 2012
Slide 1: 4th Quarter Earnings Conference
4th Quarter Earnings Conference January 9th, 2012
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: Chuck McLane, Executive Vice President and Chief Financial Officer
Chuck McLane Executive Vice President and Chief Financial Officer
Slide 4: 4th Quarter 2011 Financial Overview
4th Quarter 2011 Financial Overview Loss from Continuing Operations of $193 million, or $0.18 per share; Excluding impact of restructuring and other special items: Loss from continuing operations of $34 million, or $0.03 per share Revenue down 7% sequentially and up 6% versus fourth quarter 20
Slide 5: Income Statement Summary
Income Statement Summary Year Sequential $ Millions, except per-share amounts 4Q’10 3Q’11 4Q’11 Change Change Sales $5,652 $6,419 $5,989 $337 ($430) Cost of Goods Sold $4,538 $5,290 $5,228 $690 ($62) COGS % Sales 80.3% 82.4% 87.3% 7.0 % pts. 4.9 % pts. Selling, General Administrative, Other $282 $26
Slide 6: Restructuring and Other Special Items
Restructuring and Other Special Items $ Millions, except for per-share amounts 4Q’10 3Q’11 4Q’11 Income (Loss) from Continuing Operations $258 $172 ($193) Income (Loss) Per Diluted Share $0.24 $0.15 ($0.18) Restructuring Related $8 ($5) ($159) Discrete Tax Items $18 $10 ($12) Mark-to-Market Energy C
Slide 7: 4th Quarter 2011 vs. 3rd Quarter 2011 Earnings Bridge
4th Quarter 2011 vs. 3rd Quarter 2011 Earnings Bridge Income (Loss) from Continuing Operations Excluding Restructuring & Other Special Items ($ millions) $165 ($176) ($40) $53 ($5) $51 ($17) ($57) ($8) ($34) 3Q11 LME Currency Volume Price / Productivity Energy Raw Cost 4Q11 Mix Materials Increases -
Slide 8: Alumina
Alumina 4th Quarter Results 4th Quarter Business Highlights 4Q 10 3Q 11 4Q 11 Days working capital down 3 days from 3Q 2011 and 4Q 2010 Production (kmt) 4,119 4,140 4,178 Performance gains more than offset cost 3rd Party Shipments (kmt) 2,433 2,256 2,378 increases Caustic inflation continued 3
Slide 9: Primary Metals
Primary Metals 4th Quarter Results 4th Quarter Business Highlights 4Q 10 3Q 11 4Q 11 Realized pricing down 12% sequentially Production (kmt) 913 964 962 Higher raw materials cost, principally alumina 3rd Party Shipments (kmt) 743 754 805 Record days working capital, down 7 days from 3rd Party
Slide 10: Global Rolled Products
Global Rolled Products 4th Quarter Results 4th Quarter Business Highlights ATOI $ Millions 4Q 10 3Q 11 4Q 11 Seasonal decline in beverage can volumes in Flat-Rolled Products, North America and Russia (NA -12%, RUS -23%) 55 57 32 excl Russia, China & Other European market declined 16% Russia, Chi
Slide 11: Engineered Products and Solutions
Engineered Products and Solutions 4th Quarter Results 4th Quarter Business Highlights 12% revenue growth year-over-year and down 1% $ Millions 4Q 10 3Q 11 4Q 11 sequentially 3rd Party Revenue 1,215 1,373 1,355 8% improvement in ATOI year-over-year and down 12% sequentially ATOI 113 138 122 Fav
Slide 12: 4th Quarter 2011 Cash Flow Overview
4th Quarter 2011 Cash Flow Overview ($ Millions) 4Q’10 3Q’11 4Q’11 Net Income $292 $225 ($163) DD&A $371 $377 $368 4Q’11 FCF $656 million Change in Working Capital $569 ($93) $797 Pension Contributions ($43) ($114) ($119) Taxes / Other Adjustments $181 $94 $259 $1.9 billion Cash from Operations $1,3
Slide 13: Solid Performance in a Turbulent Year
Solid Performance in a Turbulent Year Alumina: Remains Strong Global Rolled Products: Continued Strength Adjusted EBITDA/MT LME Adjusted EBITDA/MT 10 Yr Average ~ $66/MT 2,570 2,641 2,572 10 Yr Average ~ $231/MT 2,398 1,900 2,173 314 327 1,664 290 1,719 273 276 1,447 1,433 253 249 1,350 110 226 201
Slide 14: 2011 Actions Compensate for Significant Headwinds
2011 Actions Compensate for Significant Headwinds Income from Continuing Operations excluding Restructuring & Other Special Items ($ millions) $632 ($182) ($373) ($496) $194 $518 ($251) $211 $812 $559 +$267m +$1,037m -$1,051m 2010 LME Currency Volume Price / Mix Productivity Energy Raw Cost 2011 Mat
Slide 15: Full Year 2011 Cash Flow Overview
Full Year 2011 Cash Flow Overview ($ Millions) 2010 2011 Net Income $392 $805 DD&A $1,451 $1,481 2011 Cash Change in Working Capital $9 ($60) from Ops $2.2 billion Pension Contributions ($113) ($336) Taxes / Other Adjustments $522 $303 2011 Cash Cash from Operations $2,261 $2,193 on Hand Dividends t
Slide 16: Sustainable Reductions Maintained in Days Working Capital
Sustainable Reductions Maintained in Days Working Capital Days Working Capital: Sustained Improvements 16 Days Working Capital 43 Reduction Generates $1.1B Cash 33 30 27 4Q 4Q 4Q 4Q 2008 2009 2010 2011 Alcoa 16
Slide 17: Alcoa Continues to Meet Our Financial Targets
Alcoa Continues to Meet Our Financial Targets 2011 Cash Sustainability Financial Targets and Actual Performance Sustaining Capital Growth Capital Saudi Arabia JV Debt-to-Cap Free Cash Flow $ Millions $ Millions $ Millions % $ Millions $1,000 $924 35% 35% 35% $570 $1,246 $500 $445 $400 $906
Slide 18: Balance Sheet Is Strong: Alcoa Enters 2012 Managing for Cash
Balance Sheet Is Strong: Alcoa Enters 2012 Managing for Cash Improved Free Cash Flow Generation Disciplined Capital Spending ($ Millions) Sustaining Capital Growth Capital 1,246 906 $ Millions $ Millions $2,007 $1,431 (257) $924 $1,105 $516 $570 $445 $363 (2,204) 2008 2009 2010 2011 2008 2009 2010 2
Slide 19: Alcoa Meets Required Funding Status With Cash and Equity
Alcoa Meets Required Funding Status With Cash and Equity Return on Assets Solid Contributions Meet Funding Requirements US Actual Return on Assets ERISA Funding Status 12.2% 11.2% 12.0% 12.1% 8.0% 7.7% 9.0% 91% 91% 91% 87% 84% 85% 2004 2005 2006 2007 2008 2009 2010 2011 81% 80% 80% -19.5% 2004 2005
Slide 20: Alcoa Enters 2012 Managing for Cash: Cash Sustainability
Alcoa Enters 2012 Managing for Cash: Cash Sustainability 3 Strategic Priorities & Key Levers of Cash Sustainability Program 2012 Cost and Capacity Profitable Growth Alcoa Advantage productivity Optimization in every business creating value for all businesses gains – Talent Closure and Business Pro
Slide 21: New Aggressive Targets to Maximize Cash Through 2012
New Aggressive Targets to Maximize Cash Through 2012 Swift Action Taken: Improved Cost Structure and Balance Sheet Operational Targets Financial Targets Positive Free Cash Flow Capacity Optimization 531 kmt closed or curtailed Productivity Gains Disciplined Capital Spend Cost savings in 2012 $800M
Slide 22: Klaus Kleinfeld, Chairman and Chief Executive Officer
Klaus Kleinfeld Chairman and Chief Executive Officer
Slide 23: 2011 Year in Review
2011 YEAR IN REVIEW 23
Slide 24: Global Demand Remains Strong, 2H11 Experienced Slowdown
Global Demand Remains Strong, 2H11 Experienced Slowdown 2011 Projected Primary Aluminum Consumption (mmt) and Growth Rates (%) by Region Russia 0.9 4% 3% Brazil 1.0 1.8 10% India 3.3 15% Other Asia ex. China 5.3 10% 2010 Global Demand Growth Rate: 13 % North America 5.7 6% 2011 Global Demand Growth
Slide 25: Overall Supply/Demand Balance Meets Projections
Overall Supply/Demand Balance Meets Projections 2011 Supply/Demand Balance (in kmt) Primary Aluminum Alumina Surplus 150 Balanced Supply Demand Supply Demand (000 mt) China Rest of World (000 mt) China Rest of World Supply 17,800 26,000 Supply 34,100 52,200 Demand (19,000) (24,650) Demand (34,100) (
Slide 26: Solid Performance in a Turbulent Year
Solid Performance in a Turbulent Year Alumina: Remains Strong Global Rolled Products: Continued Strength Adjusted EBITDA/MT LME Adjusted EBITDA/MT 10 Yr Average ~ $66/MT 2,570 2,641 2,572 10 Yr Average ~ $231/MT 2,398 1,900 2,173 314 327 1,664 290 1,719 273 276 1,447 1,433 253 249 1,350 110 226 201
Slide 27: Leveraging Our Strategic Growth Investments
Leveraging Our Strategic Growth Investments Strategic Investments: Driving Profitable Growth Juruti, Brazil – Bauxite Mine Sao Luis – Refinery Estreito – Hydro Dam 30% Cash Cost At Nameplate 277 MW Reduction Capacity by 2012 Saudi Arabia Joint Venture Lowest Cost On Time Integrated Facility On Budge
Slide 28: GRP Growth Projects Capturing Global Opportunity
GRP Growth Projects Capturing Global Opportunity Russia Grows Profitably China Positioned For Growth Davenport Growth Improving cost position Capacity utilization will reach $300M investment to meet rising 70% by 2012 US auto demand Improving mix of products Key domestic supplier into Capturing 7.5x
Slide 29: Innovation and Acquisitions Drive EPS Profitable Growth
Innovation and Acquisitions Drive EPS Profitable Growth Innovative Solutions Bolt On Acquisitions >90% of fastening solutions are specialty Fastener Acquisitions fasteners; 55% patented or proprietary Expand global aerospace fastener footprint Product designs that provide solutions: 3D Multi-wall ai
Slide 30: Met Aggressive Targets for Third Consecutive Year
Met Aggressive Targets for Third Consecutive Year Achieved 2011 Financial Targets Meeting Aggressive Targets Upstream Cost Curve Position by 2015 • Sustaining Capex Target: $1.0b Refining Cost Curve Position Smelting Cost Curve Position Actual: $924m 30th 30th 50th 50th Percentile Percentile 25th
Slide 31: 2012 Outlook
2012 OUTLOOK 31
Slide 32: 2012 Market Conditions
2012 Market Conditions Alcoa End Markets: Current Assessment of 2012 vs. 2011 Market Conditions in 2011 Continue Strong 10-11% sales growth 5%-10% 0%-5% 3%-8% 3%-8% prod growth prod decline prod growth prod growth 2%-7% 8%-13% 3%-8% 2%-5% prod growth prod decline prod growth prod growth 2%-3% 4%-5%
Slide 33: 2012 Demand Growth Continues, But at a Slower Pace
2012 Demand Growth Continues, But at a Slower Pace 2012 Projected Primary Aluminum Consumption (mmt) Growth Rates (%) by Region Russia 4% 0.9 4% 5% Brazil 1.0 3% 1.9 10% 10% India 3.4 15% 15% 5% Other Asia ex. China 5.8 10% 9% 2011 Global Demand Growth Rate: 10 % North America 5.9 6% 3% 2012 Global
Slide 34: Premiums Decline But Remain Strong, Inventory Increases
Premiums Decline But Remain Strong, Inventory Increases Regional Premiums and Aluminum Inventories Premiums Off Highs But Strong Historically Inventories 4 Days Higher Year-on-Year Midwest 10 Japan 9 Europe 8 7 57 days of 6 $170 /MT consumption Global 5 LME at 40 days Inventories 4 Rose 4 days vs. 3
Slide 35: Demand Slowdown, Shift in Ownership Increases LME Inventories
Demand Slowdown,Shift in Ownership Increases LME Inventories Total Global Inventories (mmt) LME Stock Dynamics 9.8 9.4 LME Al Canceled Warrants (mt) LME Al Cash to 3 Month Spread 2.3 Off-warrant Contango 2.5 700,000 wider: off- $40 warrant Cash to 3 Month Contango ($/mt) 600,000 $35 0.8 China 0.2 Ca
Slide 36: 2012 Primary Aluminum Moves into Deficit, Alumina Balanced
2012 Primary Aluminum Moves into Deficit, Alumina Balanced 2012E Supply/Demand Balance (in kmt) Primary Aluminum Alumina Deficit Balanced (600) Supply Demand Supply Demand (000 mt) China Rest of World (000 mt) China Rest of World 2011 Production Run Rate 17,800 26,000 Supply 36,700 57,200 2012 Produ
Slide 37: Estimate More Than 1/3 of Chinese Smelters Operating Under Water
Estimate More Than 1/3 of Chinese Smelters Operating Under Water at End of 2011 Chinese Primary Metal Production by Unprofitable Smelter Production by Full Operating Cost (million, tonnes) Province (million, tonnes) Henan 1.7 Guizhou 0.8 Unprofitable Yunnan 0.8 Costs At Or Above SHFE $2,400 Sichuan
Slide 38: Aluminum Continues to Be an Attractive Asset Class
Aluminum Continues to Be an Attractive Asset Class Asset Allocation By Commodity Sector Composition of Base Metal Sector Dow UBS Commodity Index $90B Nickel 12.8% +1.1% 13.9% Base Metals 17.8% +0.8% 18.6% Zinc 16.2% +.5% 16.7% Precious 13.7% -1.1% 12.6% Aluminum 29.0% +2.7% 31.7% Energy 33.0% -0.4%
Slide 39: Macro Environment Putting Downward Pressure on Prices
Macro Environment Putting Downward Pressure on Prices Liquidity and Solvency Issues in Europe… …Weaker Consumer Confidence* 5-Year Bond Yields 17.0% Ireland 110 15.0% Spain 105 China2 Italy 13.0% 100 Portugal 11.0% 95 Eurozone1 9.0% 90 US3 7.0% 85 5.0% 80 3.0% …and a Decline in Manufacturing …Drove
Slide 40: Combination of Factors Signals Likely Pricing Rebound
Combination of Factors Signals Likely Pricing Rebound 7% global aluminum demand growth in 2012 Primary aluminum balance moves to deficit Aluminum continues to be an attractive asset class Macro economic indicators showing positive signals 40
Slide 41: Taking Decisive Action With Cash Sustainability Program
Taking Decisive Action With Cash Sustainability Program 3 Strategic Priorities & Key Levers of Cash Sustainability Program 2012 Cost and Capacity Profitable Growth Alcoa Advantage productivity Optimization in every business creating value for all businesses gains – Talent Closure and Business Prog
Slide 42: Curtailments Improve Cost Position and Competitiveness
Curtailments Improve Cost Position and Competitiveness Production Curtailments: Tiered Approach Curtailment Steps Guiding Principle Permanent shutdowns of Maximize cash position selected plants for ramp down and ramp up, considering: Full curtailment of selected plants • Operational flexibility Targ
Slide 43: New Aggressive Targets to Maximize Cash Through 2012
New Aggressive Targets to Maximize Cash Through 2012 Swift Action Taken: Improved Cost Structure and Balance Sheet Operational Targets Financial Targets Positive Free Cash Flow Capacity Optimization 531 kmt closed or curtailed Productivity Gains Disciplined Capital Spend Cost savings in 2012 $800M
Slide 44: Alcoa
ALCOA
Slide 45: 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 45
Slide 46: Annual Sensitivity Summary
Annual Sensitivity Summary LME Aluminum Annual Net Income Sensitivity +/- $100/MT = +/- $220 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 47: Reconciliation of Effective Tax Rate
Reconciliation of Effective Tax Rate ($ in millions) 4Q’11 2011 (Loss) income from continuing operations before income taxes ($239) $1,063 (Benefit) provision for income taxes ($74) $255 Effective tax rate as reported 31.0% 24.0% Discrete tax charges (benefits) $11 ($2) (Benefit) provision for incom
Slide 48: Revenue Change by Market
Revenue Change by Market Sequential Year-Over-Year 4Q’11 Third-Party Revenue Change Change Aerospace 5% 21% 33% 15% Automotive (2%) 22% B&C (15%) (7%) 3% Comm. Transport (8%) 30% 6% Industrial Products (15%) 2% 6% IGT 1% (6%) 4% Packaging (17%) 2% 2% Distribution/Other (7%) (8%) 14% 12% Alumina (4%)
Slide 49: Reconciliation of ATOI to Consolidated Net Income Attributable to Alcoa
Reconciliation of ATOI to Consolidated Net Income (Loss) Attributable to Alcoa (in millions) 4Q10 2010 1Q11 2Q11 3Q11 4Q11 2011 Total segment ATOI $ 409 $ 1,424 $ 555 $ 635 $ 462 $ 241 $ 1,893 Unallocated amounts (net of tax): Impact of LIFO 3 (16) (24) (27) 2 11 (38) Interest expense (76) (321) (72
Slide 50: Reconciliation of Adjusted Income
Reconciliation of Adjusted Income (in millions, except per- Income (Loss) Diluted EPS share amounts) Quarter ended Year ended Quarter ended Year ended December 31, September 30, December 31, December 31, December 31, December 31, September 30, December 31, December 31, December 31, 2010 2011 2011 20
Slide 51: Reconciliation of Free Cash Flow
Reconciliation of Free Cash Flow (in millions) Quarter ended Year ended December 31, September 30, December 31, December 31, December 31, December 31, December 31, 2010 2011 2011 2008 2009 2010 2011 Cash provided from $ 1,370 $ 489 $ 1,142 $ 1,234 $ 1,365 $ 2,261 $ 2,193 operations Capital expenditu
Slide 52: Reconciliation of Alcoa Adjusted EBITDA
Reconciliation of Alcoa Adjusted EBITDA ($ in millions) 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 4Q11 Net income (loss) attributable to Alcoa $ 908 $ 420 $ 938 $ 1,310 $ 1,233 $ 2,248 $ 2,564 $ (74) $ (1,151) $ 254 $ 611 $ (191) Add: Net income attributable to noncontrolling interests
Slide 53: Reconciliation of Alumina Adjusted EBITDA
Reconciliation of Alumina Adjusted EBITDA ($ in millions, except 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 4Q10 3Q11 4Q11 per metric ton amounts) After-tax operating income (ATOI) $ 471 $ 315 $ 415 $ 632 $ 682 $ 1,050 $ 956 $ 727 $ 112 $ 301 $ 607 $ 65 $ 154 $ 125 Add: Depreciation, dep
Slide 54: Reconciliation of Primary Metals Adjusted EBITDA
Reconciliation of Primary Metals Adjusted EBITDA ($ in millions, except 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 4Q10 3Q11 4Q11 per metric ton amounts) After-tax operating income (ATOI) $ 905 $ 650 $ 657 $ 808 $ 822 $ 1,760 $ 1,445 $ 931 $ (612) $ 488 $ 481 $ 178 $ 110 $ (32) Add: Depr
Slide 55: Reconciliation of Flat-Rolled Products Adjusted EBITDA
Reconciliation of Flat-Rolled Products Adjusted EBITDA ($ in millions, except 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 4Q10 3Q11 4Q11 per metric ton amounts) After-tax operating income (ATOI) $ 253 $ 225 $ 222 $ 254 $ 278 $ 233 $ 178 $ (3) $ (49) $ 220 $ 266 $ 53 $ 60 $ 26 Add: Depreci
Slide 56: Reconciliation of Engineered Products and Solutions Adjusted EBITDA
Reconciliation of Engineered Products and Solutions Adjusted EBITDA ($ in millions) 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 4Q10 3Q11 4Q11 After-tax operating income (ATOI) $ 189 $ 63 $ 124 $ 156 $ 271 $ 365 $ 435 $ 533 $ 315 $ 415 $ 539 $ 113 $ 138 $ 122 Add: Depreciation, depletion,
Slide 57: Reconciliation of Net Debt
Reconciliation of Net Debt (in millions) Quarter ended December 31, September 30, December 31, 2008 2011 2011 Short-term borrowings $ 478 $ 57 $ 62 Commercial paper 1,535 107 224 Long-term debt due within one year 56 489 445 Long-term debt, less amount due within one year 8,509 8,658 8,640 Total deb