UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): April 11, 2013 (April 8, 2013)
ALCOA INC.
(Exact name of Registrant as specified in its charter)
Pennsylvania | 1-3610 | 25-0317820 | ||
(State or Other Jurisdiction of Incorporation) |
(Commission File Number) |
(I.R.S. Employer Identification Number) | ||
390 Park Avenue, New York, New York | 10022-4608 | |||
(Address of Principal Executive Offices) | (Zip Code) |
Office of Investor Relations 212-836-2674
Office of the Secretary 212-836-2732
(Registrants telephone number, including area code)
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the Registrant under any of the following provisions:
¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 2.02. Results | of Operations and Financial Condition. |
On April 8, 2013, Alcoa Inc. held its first quarter 2013 earnings conference call, broadcast live by webcast. A transcript of the call and a copy of the slides presented during the call are attached hereto as Exhibits 99.1 and 99.2, respectively, and are hereby incorporated by reference.
** * * *
The information in this Current Report on Form 8-K, including Exhibits 99.1 and 99.2, is being furnished in accordance with the provisions of General Instruction B.2 of Form 8-K.
Forward-Looking Statements
Certain statements in this report 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 also include those containing such words as anticipates, estimates, expects, forecasts, intends, outlook, plans, projects, should, targets, will, or other words of similar meaning. All statements that reflect Alcoas expectations, assumptions, or projections about the future other than statements of historical fact are forward-looking statements, including, without limitation, forecasts concerning global demand growth for aluminum, end-market conditions, supply/demand balances, and growth opportunities for aluminum in automotive, aerospace and other applications, trend projections, targeted financial results or operating performance, and statements about Alcoas strategies, outlook, and business and financial prospects. Forward-looking statements are subject to a number of known and unknown risks, uncertainties, and other factors and are not guarantees of future performance. Important factors that could cause actual results to differ materially from those in the forward-looking statements include: (a) material adverse changes in aluminum industry conditions, including global supply and demand conditions and fluctuations in London Metal Exchange-based prices for primary aluminum, alumina, and other products, and fluctuations in indexed-based and spot prices for alumina; (b) deterioration in global economic and financial market conditions generally; (c) unfavorable changes in the markets served by Alcoa, including automotive and commercial transportation, aerospace, building and construction, distribution, packaging, defense, and industrial gas turbine; (d) the impact of changes in foreign currency exchange rates on costs and results, particularly the Australian dollar, Brazilian real, Canadian dollar, euro, and Norwegian kroner; (e) increases in energy costs, including electricity, natural gas, and fuel oil, or the unavailability or interruption of energy supplies; (f) increases in the costs of other raw materials, including calcined petroleum coke, caustic soda, and liquid pitch; (g) Alcoas inability to achieve the level of revenue growth, cash generation, cost savings, improvement in profitability and margins, fiscal discipline, or strengthening of competitiveness and operations (including moving its alumina refining and aluminum smelting businesses down on the industry cost curves and increasing revenues in its Global Rolled Products and Engineered Products and Solutions segments) anticipated from its restructuring programs and productivity improvement, cash sustainability, and other initiatives; (h) Alcoas inability to realize expected benefits, in each case as planned and by targeted completion dates, from sales of non-core assets, or from newly constructed, expanded, or acquired facilities, such as the upstream operations in Brazil and the investments in hydropower projects in Brazil, or from international joint ventures, including the joint venture in Saudi Arabia; (i) political, economic, and regulatory risks in the countries in which Alcoa operates or sells products, including unfavorable changes in laws and governmental policies, civil unrest, or other events beyond Alcoas control; (j) the outcome of contingencies, including legal proceedings, government investigations, and environmental remediation; (k) the business or financial condition of key customers, suppliers, and business partners; (l) adverse changes in tax rates or benefits; (m) adverse changes in discount rates or investment returns on
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pension assets; (n) the impact of cyber attacks and potential information technology or data security breaches; and (o) the other risk factors summarized in Alcoas Form 10-K for the year ended December 31, 2012 and other reports filed with the Securities and Exchange Commission. Alcoa disclaims any obligation to update publicly any forward-looking statements, whether in response to new information, future events or otherwise, except as required by applicable law.
Item 9.01. Financial | Statements and Exhibits. |
(d) | Exhibits. |
The following are furnished as exhibits to this report:
99.1 |
Transcript of Alcoa Inc. first quarter 2013 earnings call. | |||
99.2 |
Slides presented during Alcoa Inc. first quarter 2013 earnings call. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
ALCOA INC. | ||
By: | /s/ Audrey Strauss | |
Name: | Audrey Strauss | |
Title: | Executive Vice President, | |
Chief Legal and Compliance Officer and Secretary |
Dated: April 11, 2013
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EXHIBIT INDEX
Exhibit |
Description | |
99.1 | Transcript of Alcoa Inc. first quarter 2013 earnings call. | |
99.2 | Slides presented during Alcoa Inc. first quarter 2013 earnings call. |
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Exhibit 99.1
THOMSON REUTERS STREETEVENTS
EDITED TRANSCRIPT
AA - Q1 2013 Alcoa Inc. Earnings Conference Call
EVENT DATE/TIME: APRIL 08, 2013 / 09:00PM GMT
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APRIL 08, 2013 / 09:00PM GMT, AA - Q1 2013 Alcoa Inc. Earnings Conference Call
CORPORATE PARTICIPANTS
Kelly Pasterick Alcoa Inc. - Director of IR
Klaus Kleinfeld Alcoa Inc. - Chairman & CEO
William Oplinger Alcoa Inc. - EVP, CFO
CONFERENCE CALL PARTICIPANTS
Brian Yu Citigroup - Analyst
Michael Gambardella JPMorgan Chase & Co. - Analyst
Sal Tharani Goldman Sachs - Analyst
Timna Tanners BofA Merrill Lynch - Analyst
David Gagliano Barclays Capital - Analyst
Tony Rizzuto Cowen and Company - Analyst
Aldo Mazzaferro Macquarie Research Equities - Analyst
Paretosh Misra Morgan Stanley - Analyst
Charles Bradford Bradford Research - Analyst
Harry Mateer Barclays Capital - Analyst
PRESENTATION
Operator
Good day, ladies and gentlemen, and welcome to the first quarter 2013 Alcoa earnings conference call. My name is Celia, and I will be your operator for today. At this time all participants are in listen-only mode.
(Operator Instructions)
As a reminder, this call is being recorded for replay purposes. At this time now, Id like to turn the call over to Kelly Pasterick, Director of Investor Relations. Please proceed.
Kelly Pasterick - Alcoa Inc. - Director of IR
Thank you, Celia. Good afternoon and welcome to Alcoas first quarter 2013 earnings conference call. Im joined by Klaus Kleinfeld, Chairman and Chief Executive Officer, and William Oplinger, Executive Vice President and Chief Financial Officer. After comments by Klaus and William we will take your questions.
Before we begin, I would like to remind you that todays discussion will contain forward-looking statements relating to future events and expectations. You can find factors that could cause the Companys actual results to differ materially from these projections listed in todays press release and presentation and in our most recent SEC filings. In addition, we have included some non-GAAP financial measures in our discussion. Reconciliations to the most directly comparable GAAP financial measures can be found in todays press release, in the appendix to todays presentation and on our website at www.alcoa.com under the Invest section. Any reference in our discussion today to EBITDA means adjusted EBITDA for which weve provided calculations and reconciliations in the appendix. And with that, Id like to hand it over to Mr. Klaus Kleinfeld.
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APRIL 08, 2013 / 09:00PM GMT, AA - Q1 2013 Alcoa Inc. Earnings Conference Call
Klaus Kleinfeld - Alcoa Inc. - Chairman & CEO
Thank you very much, Kelly. Good afternoon to everybody and before we go through all of the details let me give you a summary on how I see this quarter. I think its been a great start into the year. Were delivering a strong number of results here, all segments are profitable. Net income is the best net income since the third quarter of 11, EBITDA 16% up sequentially, 11% year-over-year, record profitability on the downstream, 20% EBIT margin, 20.9% EBIT [Alcoa Correction: EBITDA in each reference] margin to be precise. We have improved performance also on the upstream side despite year-on-year lower metal prices, strong liquidity, $1.6 billion cash on hand and a solid global end market growth. And we are reaffirming our aluminum demand growth of 7% for 2013. So with that let me hand it over to Bill Oplinger, our new CFO. Welcome.
William Oplinger - Alcoa Inc. - EVP, CFO
Thanks Klaus. As Klaus just highlighted we had a very strong first quarter. Ill start the financial review with a quick summary of the income statement. As you can see, revenue of $5.8 billion was down slightly on a sequential quarter basis based on two fewer production days in Q1 versus Q4. Compared to last year revenues down 3% on lower LME prices which were down 8% and the impact of primary production curtailments in Europe, however due to strong productivity, which you will see more details on later, cost of goods sold percentage actually improved sequentially by 110 basis points. Overhead costs were also down sequentially from the highs we saw in Q4 12. Looking at other income, recall we had a large gain of $320 million in the fourth quarter associated with the sale of the Tapoco power assets. From a tax perspective our tax rate for the quarter was 27.4% which was favorably impacted by a $19 million discrete tax item which will be discussed on the following slide, so overall, results for the quarter are net income of $0.13 per share.
Now lets move to the special items for the quarter. Included in the net income of $149 million was a net benefit of $28 million or $0.02 per share associated with special items. Stripping that benefit out, we made $0.11 per share which is $0.05 higher than last quarter. There are four noteworthy special items in the quarter, restructuring costs of $5 million related to the exit of the litho business in China, which was announced in the fourth quarter, and additional severance related costs of $2 million from a prior lay off program. In addition, we booked a $19 million positive impact in discrete tax credits primarily due to the American Taxpayer Relief Act. Lastly theres a $9 million favorable non-cash mark-to-market adjustments on energy contracts and a small gain associated with external insurance proceeds from the Massena fire. So in aggregate, this results in net income excluding special items of $121 million or $0.11 per share, a nearly 90% sequential improvement in net income excluding special items and $0.05 higher on an earnings per share basis.
Lets move on to the sequential bridge. As I said, net income excluding special items nearly doubled on a sequential quarter basis increasing $57 million. This is especially noteworthy given the fact that metal prices were flat during that period. Ill address a couple of the drivers of the overall performance. Volumes were up in aerospace, automotive and packaging markets and our mid and downstream businesses resulting in a $15 million benefit. Price in mix was positive by $21 million driven by favorable regional premiums, primarily in the US and favorable mix in Europe and Latin America.
One key point to really note is overall productivity for the quarter was very strong contributing $44 million after-tax savings on a sequential quarter basis. The gains werent limited to a particular segment. Were seeing productivity improvements across-the-board. Lastly, some of the upstream operating changes are showing positive contributions reflected in the portfolio actions column thats worth $11 million. The sum of these actions overcame the higher costs in the quarter by over threefold. Cost increases were driven primarily by higher pension costs of $19 million and the $15 million negative impact from planned maintenance outages which we noted in our last earnings call.
Now let me move on to the segment results starting with EPS. EPS continues its string of strong quarters with the best ever quarterly ATOI of $173 million and adjusted EBITDA margin of 20.9%. Third party revenues was $1.42 billion up 6% sequentially and up 2% versus Q1 2012. ATOI was up sequentially by $33 million and higher than Q1 2012 by $16 million. Aerospace volume increases and productivity gains across all businesses more than offset weak non-residential construction and commercial transportation markets.
Just a word about EPS productivity. In addition to the volume gains, EPS drove $19 million of after-tax productivity gains versus the fourth quarter. This is coming from every area of the business, overhead, process improvements, procurement and overall utilization. As I look forward to the second quarter we expect the aerospace market to continue to remain strong. Our non-residential building construction business will continue to decline in Europe but is expected to recover slightly in North America. As is the norm in the EPS segment, we anticipate continued share gains through innovation and productivity improvement. So in aggregate, EPS had an excellent first quarter, and better still were projecting profitability to continue to grow by roughly 5% in Q2.
If I turn to GRP, the rolled products segment, Ill start by addressing a change in our portrayal of the segment results. Weve made a slight change in the inventory accounting in GRP from a modified LIFO basis in this segment to a moving average basis. This results in no change for the Company overall, but youll see that GRP in the corporate segments have been revised to reflect this accounting change. This change also had a very minor impact to the EPS segment. ATOI of $81 million was a $4 million sequential improvement in the segment, as strong productivity gains from higher utilization and favorable volume offset cost increases in energy and maintenance. The negative impact from pricing is a result of weaker prices in North America and European industrial markets. Demand in these markets was relatively flat, however there is still some inventory overhang from Q4 which is driving pricing pressures. Prices continued to be under pressure in China as well.
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APRIL 08, 2013 / 09:00PM GMT, AA - Q1 2013 Alcoa Inc. Earnings Conference Call
On a year-over-year basis, ATOI was down $21 million driven by less favorable mix in aerospace and weaker demand from the industrial and commercial transportation markets. One important note in this segment was our focus on cash, days working capital has improved year-over-year by 6.7 days representing $132 million of cash generation. I transition to the second quarter outlook. The aero and auto markets are expected to be strong with seasonal demand increases in packaging. Well continue to experience pricing pressures in North America and China, and lastly well continue to deliver productivity gains. With that said, the overall view of this segment is for profitability to increase by 15% to 20% on a sequential quarter basis.
Now let me go to the upstream. Overall profitability in the refining segment improved by 41% over Q4 driven largely by higher prices. As weve indicated in the past, LME pricing tends to flow through this segment on a lag and you can clearly see it this quarter, as we recorded $27 million of after-tax gains associated with higher pricing while overall LME prices were flat. From an operational perspective, overall performance was down in the segment due to two fewer days of production in the quarter and the initial impacts from the Myara crusher move which we had noted already in January. On the positive side we continue to get the benefit from API pricing, and consistent with the other segments we continue to see productivity improvements, in this case $5 million on a sequential quarter basis. As we look out to the second quarter, 52% of third party shipments will either be spot or API in 2013 which typically follows a 30 day lag and the remainder of pricing follows a 60 day lag. We expect production to increase by 150,000 metric tons in the second quarter. Mining costs associated with the Myara crusher move and Suriname are expected to negatively impact Q2 by $20 million and we do expect continued productivity gains to continue. Before I give a further outlook for this segment let me cover Primary Metals.
As you can see on the bridge on Primary Metals weve adjusted for the impact of the Tapoco sale which occurred in the fourth quarter. After that adjustment the segment profitability is flat compared to Q4 with overall performance offsetting the negative impact from higher alumina costs which are LME driven on a lagged basis. Some of the biggest drivers in the quarter, we saw better premiums and product mix resulting in $13 million of profitability improvement, continued productivity in the areas of strategic raw material usage, transportation savings and crewing, and favorable energy costs, predominantly in Europe. We did, however see higher pension costs and as we had indicated, we had outage costs associated with the Rockdale and Anglesea Power Plants. As I look forward to the second quarter the pricing will continue to follow a 15 day lag to LME.
One key point to note, every four years we have a significant maintenance outage at the Anglesea Power Plant. We will have that maintenance outage in the second quarter and combined with a smaller outage at the Warrick Power Plant well have a negative impact of $25 million in Q2. Impacts from Saudi Arabia, the Saudi Arabia joint venture are expected to remain flat and we as with all of the other segments continue to expect productivity gains. As you can see there are quite a few moving parts in the upstream, but in aggregate we expect the performance improvements to offset the headwinds so excluding LME and Forex, we expect the combined upstream to be flat in total.
Before I move on to the balance sheet let me summarize our second quarter guidance. Starting from a very strong first quarter, we expect EPS segment to be up 5%. We expect the GRP segment to be up 15% to 20%, and we expect the combined upstream to be flat. All of those are excluding any changes in metal price and Forex which cant be forecasted.
Turning to the balance sheet and cash. We continue to achieve extraordinary sustainable improvement in our days working capital, in Q1 13 we attained a first quarter low of 28 days and this is the 14th successive quarter of year-over-year improvement. Weve been able to reduce days working capital by 27 days since the first quarter of 09, and just to put that in perspective thats worth around $1.8 billion of cash freed up. And the four day improvement from last years level equates to approximately $260 million in cash. This is a testament to the operational excellence of our businesses.
Let me go on to cash flow. Many of you have heard us talk about the normal cash outflow for Q1. This is based on a number of factors. In Q1 we make annual incentive comp payments and semiannual interest payments. In addition we rebuild working capital for the typically strong second and third quarters. This year that normal cash out flow was significantly better than prior years even in the face of lower LME prices. Versus Q1 12 cash from ops was $166 million better than last year due to stronger earnings and lower pension contributions. Combined with lower capital expenditures this resulted in a $201 million improvement in free cash flow versus last year. From a liquidity perspective debt-to-cap stands at 34.7%, 10 basis points lower than the fourth quarter of last year. Net debt-to-cap is higher by 80 basis points to 30.5% due to the cash outflow in Q1. And to be clear, cash on hand stands at $1.6 billion at the end of the first quarter.
Before moving on, Ill end the review of the first quarter by reiterating our 2013 targets. Productivity of $750 million, growth capital of $550 million, sustaining capital of $1 billion, $350 million investment in Saudi, and a debt-to-cap of 30% to 35%. Were committed to being free cash flow positive regardless of the metal price. That means well be deploying against more aggressive operational targets to offset the current lower metal prices.
Now let me transition to the aluminum market fundamentals. From this next section there are a series of key takeaways. As many of you are aware, money has been flowing into equities and out of commodities, driving commodity prices lower overall and aluminum has been no exception. However, while I cant speak for the other metals the decline in aluminum prices is not reflective of the overall current market fundamentals. We continue to project 7% annual consumption growth and coupled with recent curtailments in China weve actually tightened our supply/demand projections. This chart illustrates my points before. As the perceived risk in the world has
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APRIL 08, 2013 / 09:00PM GMT, AA - Q1 2013 Alcoa Inc. Earnings Conference Call
decreased from last years levels, capital flows into equity markets have been strong and you can see that reflected in the overall price levels, this is shown in the left hand chart which shows the increases in equity markets since the beginning of the year. On the right hand side, however theres been a significant decline in net managed money positions and commodities as reported by the CFTC starting in early February, from their highs positions are down roughly 50%. So weve seen lower prices across the commodity spectrum. Aluminum is down 10%, copper is down 6%, zinc is down 10% and lead is down 12%. However in the case of aluminum this isnt reflective of the underlying market dynamics.
Market fundamentals tell a different story. Weve not changed our view that aluminum demand will grow at 7% this year but due to recent curtailments in China weve actually tightened our view of the supply/demand picture as shown in the upper right hand corner. In alumina we see a slightly lower deficit, 100,000 metric tons than our fourth quarter projection of 200,000 metric tons, and in aluminum we have tightened our forecast by nearly 400,000 tons driven by curtailments in China. At the same time global inventories are rather stable and have decreased 28 days from the 2009 peak. We acknowledge that theres been a sequential increase in Chinese inventories. This is a result of the typical slowdown driven by the Chinese New Year. Regional premiums as shown in the bottom right hand corner have remained at high levels reflecting the strength of the physical demand for metal. So at this point Im going to turn it back over to Klaus who will address the end markets and how were creating long term value by capturing growth opportunities in those markets
Klaus Kleinfeld - Alcoa Inc. - Chairman & CEO
Well thank you very much, Bill, so lets continue and go to the end market slide here, thank you very much. So if you look at that slide and compare it to what you saw the last time and the last quarter, this has not changed very much, so we continue to forecast basically what growth in all of our end markets and there are substantial, as you can see, your sector as well as regional differences. So lets go through this in the usual way.
Aerospace we see and project a 9% to 10% growth in 2013. In large commercial aircraft, the larger segment in this we see this growth even higher than that with 12%. In this segment the backlog is now 9,400 aircraft, thats more than eight years of production and we are also seeing that gradually the deliveries are increasing in single aisles like the Boeing 737 or the A320 and on the twin aisles we are actually seeing higher realized prices. And on top of it the underlying fundamentals here, improved air travel demand on the passenger side, the expectation are up 5.4% for this year and cargo up 2.7%. So this is all good and people are projecting that airline profitability will also point up $10.6 billion is the number that people expect for this year. Also interesting is that other than the large commercial aircraft segment which is doing as I just said very well we do see a rebound on the regional jets, plus 40% as well as business jets, plus 16%. The only uncertainty in this larger Aerospace segments is the defense sector, but overall its a very attractive and very stably growing end market.
Lets move on to the next segment, US Automotive. US lets start with that, on the automotive side new vehicle sales continued to improve through the month of March. It has reached a new level of 1.45 million. This is up 3.4% versus last years March numbers and if you look at it at the seasonally adjusted annual rate you see that this marks the 22nd consecutive month of positive year-on-year growth.
Now the seasonally adjusted annual rate is at 15.2 million, this is the fifth month in which this is above the 50 [Alcoa Correction: 15] million mark. Light vehicle inventories are up in March too, 17.6%, but were taking the increased demand here, if you take that into account you see that the days of supply are down by 7.2% and this equals 5 days. So its down to 60 days inventory and if you compare that with the 10 year average you actually see that the norm is 65 days so this is below the norm already. And if you then add into this the average age of the fleet, this is still high with 10.8 years compared to the average of about 17 years of 9.4.
In Europe, on Automotive we see the European market continues to struggle. We now expect a 2% to 5% decline and this is exceeding our previous forecast of a decline of 1% to 4%. This picture is really a composite of very different regional markets. On the Western Europe side with the exception of UK, its down 10% is the expectation. Eastern Europe continues to grow much driven by a strong market in Russia, 6% up. Interestingly other than expected, the exports from the European manufacturers are pretty much holding on last years levels and they are not really declining as most people expected and this is giving good support to the production volumes in Europe. China Automotive we maintain our forecast at 7% to 10% growth this year even though February sales were down, but thats much impacted by the Chinese New Year holidays and the year-to-date production is up by 14%, so this is going in line with what we expect.
Next segment, Heavy Trucks and Trailer, North America overall we continue to forecast a production decline of 15% to 19% this year as we believe the OEMs are trying to work on reducing their inventories. In July last year the inventory was at 65,300, in March this year its down to 51,200 but historically the level was lower than that was 42,000. The good news is orders are rebounding in fourth quarter of 43%, sequentially in the first quarter, 4.5%. And the fundamentals are also looking good. Freight demand is up 2.6%, freight prices are up 3% and the freight profitability is pointing up 4.5% and on top of it the average age of the fleet today is 6.7 years and if you compare that with a 20 year average of 5.8 years you actually see that theres quite a bit of pent-up demand sitting in this segment in North America which gives us confidence here. Europe, the outlook is basically unchanged, we see a decline of 6% to 10% and in China our forecast is a plus between 12% to 16%. We narrowed the range a little bit from previously 12% to 19% increase.
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APRIL 08, 2013 / 09:00PM GMT, AA - Q1 2013 Alcoa Inc. Earnings Conference Call
So next segment, Beverage Can Packaging we continue to project a global growth of 2% to 3%. Also, we see a positive trend in China to convert steel cans into aluminum, thats accelerating in the two major segments, beer as well as herbal teas, and thats translating as we see into 3 billion more aluminum cans so we see in China an 8% to 12% growth for this year.
Commercial Building and Construction, good news story in North America, because finally the market is coming back. We expect a growth of 1% to 2% this year. The non-residential contracts awarded are up 7%, the architectural building index stands at 54.9, above 50 is positive and the new housing starts is plus 18, thats all good. In Europe we expect the market to decline roughly 4% to 6% so no change compared to before. In China we also continue to believe its 8% to 10% growth, also no change to our view before.
Last but not least, Industrial Gas Turbines we expect 3% to 5% growth this year, and given the increased attractiveness of natural gas in the US, the market share of gas fired electricity generation has moved up again from a record of 24.6% in 2011 to a new record of 30.4% in 2012, so 30.4% of the energy production today in the US is done by gas fired engines basically. Thats very good news. For us its not just the new builds that count, but its also the higher utilization because keep in mind our strength in this segment is basically the air foil so this increases the spare part demand. So lets wrap this all up. On the end market side, all-in all the end markets show a solid growth environment.
So lets now move over and focus on our businesses. So if you first take a look at the left-hand side of this chart and you see here a break down of our profits by business segment. And this is the 2012 overview, so in 2012 you actually see that 70% of our profits have been generated by our value add groups, the Engineered Products and Solutions Group and the Global Rolled Products. As you see on the left-hand side of that slide which is the comparison to 2003, this is a substantial increase to 2003 where that number was 25% and it really shows you that were massively shifting the focus of our portfolio into the value add side and were doing it through the profitable growth in these value add businesses. And as Im saying profitable growth and therefore we have on the right hand side a 10-year overview on the profit situation that we have in our value add businesses. So, GRP our rolled business is generating record margins. Its 1.5 times the average that we see there, the 10 year average. EPS continues to grow profitably so its 2.3 times the 2003 levels. If you look at how much revenues are we generating with value add products, in Alcoa, the number is for 2012, $13.2 billion so this is about 56% of the overall Alcoa revenues. $3.8 billion of this come out of the aerospace sector so its close to a third of the total.
So let me focus because of that importance onto this segment a little bit more. The good news is that this segment is not only important to us today but it will be even more important tomorrow and tomorrow happens very soon and why is that? So you see here on this slide, two kind of numbers. One is the unit growth, aircraft units and the other one is the value growth and no matter what number you look at you see good growth in there. On the unit growth side 5.2% average growth per annum until 2019 basically and on the value side the number is even more attractive, 9.3% average growth that we see there. So where does that come from? We actually had in mind on this slide that we are going to highlight in Alcoa blue all of the parts that Alcoa provides in the plane and thats what you see here. Its a pretty blue plane, the dark blue is the ones that weve currently been doing and light blue ones are the ones that we are doing in the future. You see the structures of the plane here on the left side and on the upper right side you see the cut open engine. Well what does that basically say? Its basically saying Alcoa blue flies from nose to tail and let me give you some nice factoids.
More than 90% of all aluminum aerospace alloys have been developed by Alcoa. Every western commercial aircraft flying today uses Alcoa fasteners and every western commercial and military aircraft engine uses Alcoa castings. Now the most important thing here is that we are on every one of those platforms but not every aircraft uses all of the Alcoa capabilities and thats obviously where the potential comes from. So let me be more specific on where that comes from and that chart gives you a lot more color. What you see here is for the large aircraft platforms for Airbus and Boeing you see all of the platforms that Boeing as well as Airbus have are listed here on the left-hand side, right? Then the column next to it is the number of units that get delivered. The deliveries for 2013 as well as for 2019 so you can get a feel for how big the segment is and how its growing. And on the very right, you actually see the Alcoa revenues we have in each one of those platforms and they are indexed to the volume that we have. The value that we have in the Boeing 737 platform.
So when you look at that there is a couple of things that I think jump to your mind immediately. We are on every platform, right? With varying sizes, but for those that are more knowledgeable about this business, I think that the thing that jumps into your face right away is that on the composite intense platforms, the two ones that exist as the A350 as well as the Boeing 787, its actually an even higher volume than what you see on the Boeing 737. Its actually more than three times the value that we are able to provide on composite intense aircraft. So if you take for example, the 787, for every aircraft we basically have a value, a ship set for every plane that has a value of between $3.3 million to $3.8 million, and the lions share $2.2 million to $2.7 million is fasteners, and then we have another $400,000 in engine air foils, so obviously when you look at the comparable A350, you get the similar indication so its a similar story. So you can clearly see that we are well positioned in that and we will continue to grow in that, but what I want you to understand, to build and grow such a position in every platform requires constant innovation.
So lets talk about one of those very exciting recent innovations for the aerospace market. Our world class metallurgists came up with this very unique combination so they took aluminum and they added lithium in a very unique combination. Why did they do that? Because we saw and understood very well what does the customer need, what does the customer want? And then we combined it with how can we get there and this is when these things click and you see that aluminum lithium for
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APRIL 08, 2013 / 09:00PM GMT, AA - Q1 2013 Alcoa Inc. Earnings Conference Call
instance has a 5% to 7% lower density. What does that mean? Its lighter. It has a 7% higher stiffness, what does it mean? Its stronger. Therefore, it very much supports the goal of 20% fuel efficiency improvement. It has improved corrosion and fatigue properties that allow the inspection interval to be doubled so it reduces the inspection costs. It actually has, it meets the 787 humidity and pressure benchmarks and allows for 30% to 50% larger windows so improved comfort. And as we can use the existing aluminum manufacturing infrastructure, it lowers capital costs. Thats why you see on the right-hand side that, and that I get excited about, that our aluminum lithium revenues are quadrupling by 2019 and the even better news is the major share of this is already committed today.
So lets go to another segment that you probably picked up in this slide earlier which is automotive. Exciting market, it makes today $700 million of our revenues of our $13 billion revenues in the value add business, and the growth prospects are excellent. So when we also here do the same thing with a car and basically cut it open and color code what is Alcoa in some cars providing today and what is Alcoa providing in the future, the Alcoa content already today runs from bumper to bumper and we are adding innovations and more and more applications as we speak. So the most exciting thing in this market is not that we are in all of this but it is that its now going from what used to be the high end application where these things happen, it goes into platforms for the mainstream. It goes into volume platforms and that is exciting, particularly exciting because here on this slide you see on the left-hand side the projections for the automotive market worldwide broken down by regions. Thats good; its a growing market. But if you look at the right-hand side, this is what makes it super attractive because this is amplified for us by the increased aluminum intensity. This is the North American example basically quadrupling by 2015 and a tenfold increase by 2025. Very, very interesting.
What drives this? What drives this? Why is this a pretty stable growth projection? Its a number of factors. One is consumer preference. And the second one is regulation so on the regulation side to start with, that is the so-called CAFE regulation that asks for higher fuel efficiency. But in reality the stronger driver is the consumer preference because that is changing very drastically and has changed. 37% of consumers today say that fuel economy is their number one buying factor and thats independent of size or category of car. And if you then look and ask for, are you willing to pay up for better fuel efficiency that number has gone up to 83% from 54% in 2008. And then if you add to it the benefit of improved safety through lighter weight which allows for reduced stopping distance from 45 miles per hour to zero of up to seven feet and as you well know, this can be the difference between a serious collision and a near miss. This has actually led the National Highway Safety Administration to come out and endorse this.
What is the conclusion of that? And you see that here on the right hand side. The conclusion is that the consumers are really buying into this and the consumers are the bigger driver, even ahead of the market regulation and we are capturing these opportunities. We are seeing that theres a four times, a quadrupling of the auto sheet demand here in North America. We are positioned to capture this demand. We are investing in it with our all treatment line that we are building today in Davenport. Its on time. Its on budget. The first car will roll off end of this year in December 2013 and if you look at the right hand side, we believe that we are going to see 3.6 times growth from today to 2015 and most of this is already locked in because these things are already built into the 2015 models, so that is extremely exciting.
Talking about exciting, I also want to mention our upstream business. There are major initiatives under way to get us substantially down the cost curve. As you know, we are committed to come down 7 percentage point on the cost curve on the alumina segment and 10% on the aluminum segment. On the aluminum actually weve already come down four percentage points with the improvements last year. Our project in Saudi Arabia plays a very important role in that because its going to be the lowest cost in each one of the segments so that alone improves the cost position in refining as well as in smelting by two percentage points each. So where do we stand with this project? The project is structured in two phases. Phase one is the smelter and the rolling mill, its currently 74% complete. Phase II is the refinery at the mine and its currently 46% complete. And let me just give you an interesting factoid. Beginning of March we did the concrete pour for the tank farm and the pour took over 600 concrete trucks over three days continuously pouring metal there. Just imagine the amazing logistical execution that was behind that. You get a feel through these pictures that we attached where this project stands in addition to the dry 74 and 46 completeness. So to sum this up, this project is nicely progressing as we planned.
So let me come to a close here. So let me summarize. We are executing on our targets to deliver long term value. All segments achieved a solid financial performance. We have a strong commitment to generate cash. We are capturing the opportunities also on the growing markets. And with that, let me open for questions.
QUESTION AND ANSWER
Operator
(Operator Instructions)
Brian Yu, Citigroup.
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APRIL 08, 2013 / 09:00PM GMT, AA - Q1 2013 Alcoa Inc. Earnings Conference Call
Brian Yu - Citigroup - Analyst
Bill, I think youd mentioned in your prepared remarks that with the free cash flow target that you are looking to deploy more aggressive operational. If you could kind of list those out for us in order that they would be deployed. And then along those same lines, it looks like on the credit rating side, its still under review. How important is that maintaining investment grade rating in conjunction with the free cash flow objective? Thanks.
Klaus Kleinfeld - Alcoa Inc. - Chairman & CEO
Well Brian, we have said all along that we are very committed to it and Bill had that in his presentation there. We are very committed to be free cash flow positive this year and we are operating against that. You see in this quarter again in spite of all of the headwinds on the primary side, they are showing really really good performance. You can see were coming down on the cost curve and then you see a very very good and strong performance also on the mid and even more so on the downstream side. Thats the strategy; were executing against the strategy but were very committed to being cash flow positive this year and we use basically every lever for that. You can go from days working capital and to be able to get another four days out honestly, I mean we ourselves were surprised that we were able to do that. That has been very very good performance from everybody and requires a lot of care for the details to the productivity that you saw in there. A lot of work going into that.
William Oplinger - Alcoa Inc. - EVP, CFO
And specifically, Brian when we talk about improving on the operational targets, last year we delivered over $1.2 billion in gross productivity. Were looking at further deployment against the current productivity target. Well be aggressively managing capital, both sustaining and growth, and our upstream business clearly understands that at the current metal price, cash is very important, so as Klaus said, it will be productivity, it will be overhead, it will be working capital and it will be CapEx. As far as the ratings go, I think Klaus alluded to it. It is important for us to maintain investment grade. We, I think, had a very strong cash generation quarter in relation to where weve been historically and we are working with the ratings agencies to insure that they understand what all of the good things that were doing within the Company to meet their metrics.
Klaus Kleinfeld - Alcoa Inc. - Chairman & CEO
Okay, next question?
Operator
Michael Gambardella, JP Morgan.
Michael Gambardella - JPMorgan Chase & Co. - Analyst
Hi, Klaus and congratulations.
Klaus Kleinfeld - Alcoa Inc. - Chairman & CEO
Can you speak up a little bit, Mike, we can almost not hear you.
Michael Gambardella - JPMorgan Chase & Co. - Analyst
Yes, congratulations on the quarter, Klaus, and I just wanted to say a couple of charts here are very positive. This Aerospace chart on slide 25 I think is great in terms of getting people to understand.
Klaus Kleinfeld - Alcoa Inc. - Chairman & CEO
Mike, we cannot hear you.
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8
APRIL 08, 2013 / 09:00PM GMT, AA - Q1 2013 Alcoa Inc. Earnings Conference Call
William Oplinger - Alcoa Inc. - EVP, CFO
We cannot hear you.
Michael Gambardella - JPMorgan Chase & Co. - Analyst
Can you hear me now?
Klaus Kleinfeld - Alcoa Inc. - Chairman & CEO
A little better, but can we bring up the volume here on the
Michael Gambardella - JPMorgan Chase & Co. - Analyst
I can hear you fine.
Klaus Kleinfeld - Alcoa Inc. - Chairman & CEO
Now we can hear you better. I hope thats true for everybody.
Michael Gambardella - JPMorgan Chase & Co. - Analyst
I just wanted to say I thought some of the charts were very good and that you included on this go around the aerospace chart in 25, giving people a sense of where your exposures are I think is a great slide, and some of the other slides are very good too and I appreciate the extra guidance on some of the segments. On the debt side, I think on one of the slides you said your target to maintain the debt-to-capital for the year is 30% to 35% and I think you said youre at 35% in the first quarter, so youre basically saying youre going down in terms of leverage from this point on for the year; is that correct?
William Oplinger - Alcoa Inc. - EVP, CFO
Yes, Mike, this is Bill. Our target is 30% to 35%. Were sitting currently at 34.7% and net debt-to-cap is 30.5%.
Michael Gambardella - JPMorgan Chase & Co. - Analyst
Okay, and one last question. On the automotive exposure, are you planning more capacity for the auto sheet body, the body and white?
Klaus Kleinfeld - Alcoa Inc. - Chairman & CEO
Yes, thats what the expansion that we have under way in Davenport is targeted at, absolutely.
Michael Gambardella - JPMorgan Chase & Co. - Analyst
But above and beyond the Ford pickup?
Klaus Kleinfeld - Alcoa Inc. - Chairman & CEO
We have not mentioned what customers we are catering to and will not do that, but I did mention that the capacity that we are bringing online is pretty much already committed.
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9
APRIL 08, 2013 / 09:00PM GMT, AA - Q1 2013 Alcoa Inc. Earnings Conference Call
Michael Gambardella - JPMorgan Chase & Co. - Analyst
Right. Okay, thanks.
Operator
Sal Tharani, Goldman Sachs.
Sal Tharani - Goldman Sachs - Analyst
Thank you. Hi, Klaus, hi, Bill. Couple of quick questions on free cash flow. Do you include the Maaden investment in your free cash flow calculation?
William Oplinger - Alcoa Inc. - EVP, CFO
Free cash flow, the Maaden investment is post the free cash flow calculation, so it actually goes into cash for investments, so it is not, the free cash flow calculation is simply cash from ops less sustaining capital [Alcoa Correction: capital expenditures] and since this is an investment, its not covered there.
Sal Tharani - Goldman Sachs - Analyst
Okay, and on that line, this new development happened in Massena where youre going to spend $50 million plus in CapEx and plus the clean up, is that included in your CapEx budget or is it on top of that?
William Oplinger - Alcoa Inc. - EVP, CFO
It is included in our CapEx budget and just to be clear on the Massena record of decision that has already been reserved so thats in there already.
Sal Tharani - Goldman Sachs - Analyst
And is $52 million takes you to the full spending you need or there will be several phases beyond this?
William Oplinger - Alcoa Inc. - EVP, CFO
There will be several phases.
Sal Tharani - Goldman Sachs - Analyst
Do you know what the total will be over the next couple of years?
William Oplinger - Alcoa Inc. - EVP, CFO
The $52 million is spent over the next few years and as we get closer, well announce the size of the project in the future.
Sal Tharani - Goldman Sachs - Analyst
Great. Thank you very much.
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10
APRIL 08, 2013 / 09:00PM GMT, AA - Q1 2013 Alcoa Inc. Earnings Conference Call
Operator
Timna Tanners, Bank of America Merrill Lynch.
Timna Tanners - BofA Merrill Lynch - Analyst
Hi, good afternoon. How are you? Not a sir. Just wanted to ask you a little bit about some of the overhead on cost savings so in your corporate expenses line and your SG&A line, thats where at least on our estimates where the out performance was so just wondered if you could give us a little bit of help on the run rate for the first quarter and if thats sustainable throughout the year or if we might see the seasonal trend of higher costs as the year moves on.
William Oplinger - Alcoa Inc. - EVP, CFO
The comparison that youre drawing is against the fourth quarter and typically we see a higher spend in the fourth quarter and so we did not see that recur in the first quarter and it came from a series of initiatives. I dont anticipate that we will see significantly higher SG&A during the course of the year.
Klaus Kleinfeld - Alcoa Inc. - Chairman & CEO
I would actually go even a little further, Bill that the most likely scenario is that we will continue to bring the SG&A down.
William Oplinger - Alcoa Inc. - EVP, CFO
Okay.
Klaus Kleinfeld - Alcoa Inc. - Chairman & CEO
Wouldnt you agree with that?
William Oplinger - Alcoa Inc. - EVP, CFO
We have, Klaus is alluding to the fact that we have a series of internal initiatives to lower overhead expenses.
Timna Tanners - BofA Merrill Lynch - Analyst
So in addition to the productivity gains, focus on the SG&A and corporate expenses is something we can expect this year?
William Oplinger - Alcoa Inc. - EVP, CFO
Yes.
Timna Tanners - BofA Merrill Lynch - Analyst
Okay, great. Thank you very much.
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11
APRIL 08, 2013 / 09:00PM GMT, AA - Q1 2013 Alcoa Inc. Earnings Conference Call
Klaus Kleinfeld - Alcoa Inc. - Chairman & CEO
Thank you, Timna. Okay, next question, please?
Operator
David Gagliano, Barclays.
David Gagliano - Barclays Capital - Analyst
Hi, thanks very much. My first question is along the same lines as Sals question earlier. Do or does the free cash flow target for the year or being free cash flow positive target for the year, does that include or exclude the EUR200 million payment in Italy and the $450 million to $500 million pension funding requirement?
William Oplinger - Alcoa Inc. - EVP, CFO
It is after those, so yes, it includes the effect of those, so yes thats the case, Dave.
David Gagliano - Barclays Capital - Analyst
Okay, perfect and then my follow-up, just on the primary metal segment, it looks to us like the third party realized price worked out to about a $0.17 per pound premium when you do it on a per pound basis over the LME average, if you lag the LME average by about two weeks. My question is if we assume regional premiums dont change is that magnitude of a premium over the LME a reasonable assumption moving forward?
Klaus Kleinfeld - Alcoa Inc. - Chairman & CEO
Well, look. I think that you see where the regional premiums are and the rest I think you will be able to figure out yourself.
David Gagliano - Barclays Capital - Analyst
I guess the question in the past there have been some timing issues. I just want to make sure theres no timing issues with regards to this quarter after.
Klaus Kleinfeld - Alcoa Inc. - Chairman & CEO
The timing issue is the same that youve always seen and that Bill referred to as 15 days.
William Oplinger - Alcoa Inc. - EVP, CFO
15 day lag on the LME.
Klaus Kleinfeld - Alcoa Inc. - Chairman & CEO
15 days lag on the LME.
David Gagliano - Barclays Capital - Analyst
Okay, Ill take it offline. Thanks.
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12
APRIL 08, 2013 / 09:00PM GMT, AA - Q1 2013 Alcoa Inc. Earnings Conference Call
Klaus Kleinfeld - Alcoa Inc. - Chairman & CEO
Thank you.
Operator
Tony Rizzuto, Cowen Security.
Tony Rizzuto - Cowen and Company - Analyst
Thank you. Im speaking from South America. I hope you guys can hear me all right, and Bill
Klaus Kleinfeld - Alcoa Inc. - Chairman & CEO
Yes, we can hear you very well. Tony, we can hear you well.
Tony Rizzuto - Cowen and Company - Analyst
Thank you. Congratulations on your promotion too, Bill.
William Oplinger - Alcoa Inc. - EVP, CFO
Thank you.
Tony Rizzuto - Cowen and Company - Analyst
My question is, youre welcome, my question is how should we think about EBITDA margins in the EPS division or segment in the remainder of this year and if you could give us a vision for 2014. Obviously youre knocking the cover off the ball, just want to get a better feel for that as we go forward.
Klaus Kleinfeld - Alcoa Inc. - Chairman & CEO
Well Tony as you are well aware we have targets out for every one of the businesses and also targets for our EPS business and the target for the EPS business is broken down in a growth target which we basically put out at the end of 2010 for 11, 12 and 13, so this is the last year. And we said we wanted to achieve $1.6 billion additional revenues and we broke that down into various buckets. And the second thing we said was a profitability target and we said we want to make sure that the performance is above historic norms. And as you can see in this one slide that I provided when you see the 10 year performance here in EPS, you see that we have stably gone up and we continue to intent that and I think you also saw that with this quarter now is 20.9% EBITDA margin is a nice place to be at and thats our commitment.
Tony Rizzuto - Cowen and Company - Analyst
I dont have a slide deck in front of me but is it possible, Klaus, and Bill that we could see those margins maybe getting up? Is it possible they could get up to the mid 20 range? Is that something that youre thinking about?
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13
APRIL 08, 2013 / 09:00PM GMT, AA - Q1 2013 Alcoa Inc. Earnings Conference Call
Klaus Kleinfeld - Alcoa Inc. - Chairman & CEO
Well, we have a commitment as I said and when you have a chance take a look at the slides and you can access those. The commitment is very clear. We are going to have a performance on EPS thats above the historic norms and you can clearly see where the historic norms are.
William Oplinger - Alcoa Inc. - EVP, CFO
And the extent of the guidance weve given, Tony is around the second quarter. EPS had a record first quarter of 20.9% and theyre going to get projected to be 5% better in the second quarter.
Tony Rizzuto - Cowen and Company - Analyst
All right, thanks gentlemen.
Klaus Kleinfeld - Alcoa Inc. - Chairman & CEO
Pleasure, Tony. Next question, please?
Operator
(Operator Instructions)
Aldo Mazzaferro, Macquarie.
Aldo Mazzaferro - Macquarie Research Equities - Analyst
Thank you. Its Mazzaferro. Hello. On the Massena project now that youve moved ahead and decided to go forward with it is there any timing that you see in terms of the EPA finalizing their plan for clean up and what the wide variety of what theyre saying could be the range. Im just wondering if you have any clarity.
Klaus Kleinfeld - Alcoa Inc. - Chairman & CEO
Well the good news is Aldo, whats called the record of decision has been put out by the EPA last week, so this is final. After 25 years I think I dont know exactly when this whole debate started and a very good cooperation with the communities, with the EPA, a lot of testing, a lot of science that goes into it we have been able to come to a conclusion and the EPA has basically come out with this final decision which is called the record of decision and its in line with what they had proposed before as a remedial action plan. And if you want to attach a dollar number to it the dollar number is $243 million and Bill said it before, the good news also is that because we had been working very intensely together with everybody there, this is also the number that we have accrued so theres no impact coming from that.
Aldo Mazzaferro - Macquarie Research Equities - Analyst
Well congratulations on settling that on a favorable basis.
Klaus Kleinfeld - Alcoa Inc. - Chairman & CEO
Yes, well thank you, but it was a lot of work for a lot of people and very good cooperation and fortunately, openness towards the science. Next question?
Operator
Paretosh Misra, Morgan Stanley.
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14
APRIL 08, 2013 / 09:00PM GMT, AA - Q1 2013 Alcoa Inc. Earnings Conference Call
Paretosh Misra - Morgan Stanley - Analyst
Hi guys. I had a question about your CapEx, $1 billion in sustaining CapEx and $550 million in growth CapEx. How much of that is for upstream versus downstream?
William Oplinger - Alcoa Inc. - EVP, CFO
Paretosh, unfortunately, I dont have that right in front of me, but you can clearly follow-up with Kelly and she will give you a better estimate of it. You can imagine that a large portion of that is in the upstream with some of the sustaining capital requirements that we have, specifically around residue storage areas and things like that so we will follow-up.
Paretosh Misra - Morgan Stanley - Analyst
Great, thanks.
Klaus Kleinfeld - Alcoa Inc. - Chairman & CEO
Thank you, Paretosh. Okay, next question, please?
Operator
Charles Bradford, Bradford Research.
Charles Bradford - Bradford Research - Analyst
Good afternoon. Hi. Could you talk a bit about the Saudi project and what kind of start up costs youre incurring and how theyre going to run for the next few quarters?
Klaus Kleinfeld - Alcoa Inc. - Chairman & CEO
Well, as I said, the good news is we are ahead of our own plan. We had the first hot metal on the 12th of December last year and so this has only been up 25 months after the pouring of the first concrete, and now were ramping up. And also on the ramp up things look really good, so we will be complete as I think it was on one of the slides there, we will be able to basically produce for this year roughly 250,000 tons of metal. Construction is almost 90% complete there on the smelter side, and for next year, we will be at full operating capacity next year. I dont know whether we have given out any break out. I dont think so.
William Oplinger - Alcoa Inc. - EVP, CFO
Well let me, Chuck, I think we alluded to in January to a $20 million outflow in the first quarter and we did better than that so we were approximately $12 million outflow in the first quarter and were projecting to maintain that in the second quarter. So thats a combination of start up costs and actual operations and we believe at this point thats ahead of where we would have thought to have been at this point of the project.
Charles Bradford - Bradford Research - Analyst
Thank you.
Klaus Kleinfeld - Alcoa Inc. - Chairman & CEO
Thank you, Chuck. Okay, any more questions?
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15
APRIL 08, 2013 / 09:00PM GMT, AA - Q1 2013 Alcoa Inc. Earnings Conference Call
Operator
Sal Tharani, Goldman Sachs.
Sal Tharani - Goldman Sachs - Analyst
Hi, Klaus. Slide 26 where you talk about aluminum lithium, its very interesting that you are talking about almost a 30% CAGR between now and 19. I was wondering, this is the revenue you expect Alcoa to generate. I was wondering if, do you have the capacity to increase and do you have the license or qualifications which needed to move on to a new product with these airlines or also the airplane producers, or are you still working on those?
Klaus Kleinfeld - Alcoa Inc. - Chairman & CEO
Yes, to start with the second part and I think I actually mentioned that and most of these revenues are already committed contracts, so yes, we have that. Its basically designed in. On the capacity side, we are as we speak building out our capacity because at this point in time the capacity for aluminum lithium production that we have is basically in Pittsburgh at our Tech Center and then in Kitts Green, in our UK facilities, and we are building an outlet basically in Lafayette and thats also built into the capital cost for this year, thats going to be specialized on aluminum lithium, so thats where we stand, Sal.
Sal Tharani - Goldman Sachs - Analyst
Just quickly on the auto side, I know you are not telling us which customer it is for the Davenport facility but so everybody has an idea of what were looking at, and if there is another platform which goes fully aluminum lets say, down the road 2017, 18, Im just wondering if Davenport would be enough or you can further expand or do you think another facility will be needed if you become part of the provider for that platform?
Klaus Kleinfeld - Alcoa Inc. - Chairman & CEO
Thats a very good question, and I can tell you Davenport is not enough. Davenport is not enough. Basically Davenport is basically sold out even though we havent even built that part, the automotive side of things, so that is something to talk about at a later point in time but thats better news. I mean more good news than bad news I would say.
William Oplinger - Alcoa Inc. - EVP, CFO
And needless to say we have optionality in the future
Klaus Kleinfeld - Alcoa Inc. - Chairman & CEO
We have a lot of optionality.
William Oplinger - Alcoa Inc. - EVP, CFO
We havent announced at this point but we do have optionality going forward.
Klaus Kleinfeld - Alcoa Inc. - Chairman & CEO
And in fact the optionality allows us also to do some things that we probably could not have done before.
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16
APRIL 08, 2013 / 09:00PM GMT, AA - Q1 2013 Alcoa Inc. Earnings Conference Call
Sal Tharani - Goldman Sachs - Analyst
Okay, great. Thank you very much.
Klaus Kleinfeld - Alcoa Inc. - Chairman & CEO
Thank you, Sal. Okay, any more questions?
Operator
Harry Mateer, Barclays.
Harry Mateer - Barclays Capital - Analyst
So just, Im just going to follow-up with one question on the credit rating if I can, Bill. Given that youve been executing against the back drop of your free cash flow targets and your operating performance, is there anything left to do here to try and save that rating? Is issuing equity something thats on the table to save that? And then related to that, if you just walk us through potential debt reduction levers in the next six months I guess specifically, you do have a maturity coming up in July. How do you plan to take care of that. Are you going to refinance it or pay it down with cash?
William Oplinger - Alcoa Inc. - EVP, CFO
The plan is to pay it down with cash, so just to be clear on that, Harry. Before even considering issuing equity, we have a series of options, a series of levers that we will be pulling at various stages, and its continued capital reduction, better productivity, better working capital, and if need be, asset sales. So those are all of the things that we have in our arsenal to insure that we stay where we need to be from a cash flow perspective so we are committed to insuring that we keep that investment grade rating.
Harry Mateer - Barclays Capital - Analyst
Thank you.
Klaus Kleinfeld - Alcoa Inc. - Chairman & CEO
Okay, I guess thats all the time we have today, so let me conclude. All-in all, I think you all agree we had a strong quarter. What makes me very positive here, our strategy is working. Step by step, little by little, we are making progress. You see that the value add businesses are ever greater contributors to our bottom line and that they have great growth opportunities, also thanks to the innovation capabilities, technical capabilities that we have and I think you also see that the upstream side is gaining competitiveness and overcoming some headwinds. As many of the questions referred to today, I think you can also tell we have a very very strong commitment throughout the Company. Otherwise we would not be able to achieve such numbers on working capital to commit to generate cash in every aspect. So with that said, thank you very much for joining us.
Operator
Thank you for your participation in todays conference. This concludes the presentation. You may now disconnect. Have a good day.
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17
APRIL 08, 2013 / 09:00PM GMT, AA - Q1 2013 Alcoa Inc. Earnings Conference Call
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18
[Alcoa
Logo] 1
Quarter Earnings Conference
April 8, 2013
1
[Alcoa Logo]
Exhibit 99.2
st
[Alcoa Logo] |
2
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, intends, outlook, plans, projects, should, targets, will, or other words of similar meaning. All
statements that reflect Alcoas expectations, assumptions, or projections about the
future other than statements of historical fact are forward-looking statements, including, without
limitation, forecasts concerning global demand growth for aluminum, end-market
conditions, supply/demand balances, and growth opportunities for aluminum in automotive,
aerospace and other applications, trend projections, targeted financial results or operating
performance, and statements about Alcoas strategies, outlook, and business and financial
prospects. Forward-looking statements are subject to a number of known and unknown
risks, uncertainties, and other factors and are not guarantees of future performance. Important
factors that could cause actual results to differ materially from those in the
forward-looking statements include: (a) material adverse changes in aluminum industry conditions, including
global supply and demand conditions and fluctuations in London Metal Exchange-based
prices for primary aluminum, alumina, and other products, and fluctuations in indexed-based
and spot prices for alumina; (b) deterioration in global economic and financial market
conditions generally; (c) unfavorable changes in the markets served by Alcoa, including
automotive and commercial transportation, aerospace, building and construction,
distribution, packaging, defense, and industrial gas turbine; (d) the impact of changes in foreign
currency exchange rates on costs and results, particularly the Australian dollar, Brazilian
real, Canadian dollar, euro, and Norwegian kroner; (e) increases in energy costs, including
electricity, natural gas, and fuel oil, or the unavailability or interruption of energy
supplies; (f) increases in the costs of other raw materials, including calcined petroleum coke, caustic
soda, and liquid pitch; (g) Alcoas inability to achieve the level of revenue growth,
cash generation, cost savings, improvement in profitability and margins, fiscal discipline, or
strengthening of competitiveness and operations (including moving its alumina refining and
aluminum smelting businesses down on the industry cost curves and increasing revenues
in its Global Rolled Products and Engineered Products and Solutions segments) anticipated
from its restructuring programs and productivity improvement, cash sustainability, and
other initiatives; (h) Alcoa's inability to realize expected benefits, in each case as
planned and by targeted completion dates, from sales of non-core assets, or from newly constructed,
expanded, or acquired facilities, such as the upstream operations in Brazil and the
investments in hydropower projects in Brazil, or from international joint ventures, including the joint
venture in Saudi Arabia; (i) political, economic, and regulatory risks in the countries in
which Alcoa operates or sells products, including unfavorable changes in laws and
governmental policies, civil unrest, or other events beyond Alcoas control; (j) the
outcome of contingencies, including legal proceedings, government investigations, and
environmental remediation; (k) the business or financial condition of key customers,
suppliers, and business partners; (l) adverse changes in tax rates or benefits; (m) adverse
changes in discount rates or investment returns on pension assets; (n) the impact of cyber
attacks and potential information technology or data security breaches; and (o) the other
risk factors summarized in Alcoa's Form 10-K for the year ended December 31, 2012 and
other reports filed with the Securities and Exchange Commission. Alcoa disclaims any
obligation to update publicly any forward-looking statements, whether in response to new
information, future events or otherwise, except as required by applicable law.
Non-GAAP Financial Measures
Some of the information included in this presentation is derived from Alcoas
consolidated financial information but is not presented in Alcoas financial statements prepared in
accordance with U.S. generally accepted accounting principles (GAAP). Certain of these data
are considered non-GAAP financial measures under SEC rules. These non-GAAP
financial measures supplement our GAAP disclosures and should not be considered an
alternative to the GAAP measure. Reconciliations to the most directly comparable GAAP
financial measures and managements rationale for the use of the non-GAAP financial
measures can be found in the Appendix to this presentation and on our website at www.alcoa.com under the Invest section. Any
reference during the discussion today to EBITDA means adjusted EBITDA, for which we have provided calculations and reconciliations
in the Appendix and on our website.
[Alcoa Logo] |
Klaus Kleinfeld
Chairman and Chief Executive Officer
April 8, 2013
[Alcoa Logo]
[Alcoa Logo] |
[Alcoa
Logo] Delivering Strong Quarterly Results
4
All segments profitable; Best net income
excluding special items since 3Q 2011
Adjusted EBITDA up 16% sequentially and 11% YoY
Record profitability in the Downstream
Improved Upstream performance YoY
despite lower metal price
Strong liquidity; $1.6 Billion cash on hand
Solid global end market growth;
Reaffirm 2013 global aluminum demand growth of 7%
[Alcoa Logo] |
William Oplinger
Executive Vice President and Chief Financial Officer
5
April 8, 2013
[Alcoa Logo]
[Alcoa Logo] |
Income Statement Summary
6
[Alcoa Logo]
$ Millions, except per-share amounts
1Q12
4Q12
1Q13
Sequential
Change
Revenue
$6,006
$5,898
$5,833
($65)
Cost of Goods Sold
$5,098
$4,968
$4,847
($121)
COGS % Revenue
84.9%
84.2%
83.1%
(1.1 % pts.)
Selling,
General Administrative, Other
$241
$277
$251
($26)
SGA % Revenue
4.0%
4.7%
4.3%
(0.4 % pts.)
Other Income
, Net
($16)
($345)
($27)
$318
Restructuring and Other Charges
$10
$60
$7
($53)
Effective Tax Rate
28.3%
35.8%
27.4%
(8.4 % pts.)
Net
Income
$94
$242
$149
($93)
Net Income Per Diluted Share
$0.09
$0.21
$0.13
($0.08) |
[Alcoa Logo]
Restructuring and Other Special Items
See appendix for Adjusted Income reconciliation
7
[Alcoa Logo] |
121
64
4
11
Net Income Excluding Restructuring & Other Special Items ($
millions)
Profitability increases nearly 90% driven by performance
See appendix for Adjusted Income reconciliation
8
4Q 2012
1Q 2013
45
Raw
Materials
0
Energy
15
Portfolio
Actions
Productivity
44
Price
/Mix
21
Volume
15
Currency
0
LME
Cost
Increases
/ Other
Market
-$4m
Performance
+$91m
Cost Headwinds
-$30m
[Alcoa Logo] |
1Q13
Actual
and
2Q13
Outlook
-
EPS
9
Record results for Engineered Products and Solutions
See
appendix
for
Adjusted
EBITDA
reconciliation.
*
Prior
period
amounts
have
been
revised
to
conform
to
the
current
period
presentation.
See
appendix
for
additional
information.
[Alcoa Logo]
$ Millions
1Q 12
4Q 12
1Q 13
Party Revenue
1,390
1,348
1,423
ATOI*
157
140
173
Adjusted EBITDA Margin*
19.4%
18.0%
20.9%
rd
3
Quarterly ATOI up $16M year-
over-
year to
record level
Record ATOI
driven by
productivity & Aerospace volume
offsetting
weakness
Non-
Residential Construction
Commercial Transportation
Achieved
record
adjusted EBITDA
margin of 20.9%
Generated
$19M of productivity
savings;
improvements
achieved by
all business units
in
and
$ Millions
1Q 13
$173
Cost Increase
$1
Productivity
$19
Price / Mix
$0
Volume
$15
4Q 12
$140
-
Aerospace
market remains
strong
European Non-
Residential Construction
market continues
recovery in North America
Share gains
through innovation continue
across all market
sectors
Productivity
improvements
to continue
ATOI
is expected to
increase ~5% sequentially
to decline
; signs of |
1Q13
Actual
and
2Q13
Outlook
-
GRP
Improved sequential performance for Global Rolled Products
10
[Alcoa Logo]
Aero & auto demand
expected to remain strong
Seasonal demand
increases in Packaging
Pricing pressures
continue in European and N.A.
Industrials and China markets
Productivity improvements
to continue
Excluding
LME
and
currency,
ATOI
is
expected
to
increase 15%-20% sequentially
1
st
Quarter Results
1
st
Quarter Business Highlights
2
nd
Quarter Outlook
1
st
Quarter Performance Bridge
$11
$14
$9
$7
$4
$1
$81
$77
1Q13
Cost
Increase
Productivity
Price/Mix
Volume
Currency
LME
4Q12
$ Millions
1Q 12
4Q 12
1Q 13
3
Party Revenue
1,845
1,771
1,779
ATOI*
102
77
81
Adjusted EBITDA/mt*
447
370
385
Aerospace and auto
demand remained strong
Higher volumes
in Packaging and Auto
Price and mix
was impacted by weaker pricing
Productivity
driven by higher utilizations offset
by
costs related to
energy, maintenance, and labor
Days working capital improved ~7 days year-over-year
$ Millions
See appendix for Adjusted EBITDA reconciliation. * Prior period amounts have been revised to
conform to the current period presentation. See appendix for additional information.
rd |
41% ATOI improvement in the Alumina segment
11
[Alcoa Logo]
Raw
Materials
Energy
Prod-
uctivity
Price
/Mix
Volume
/ Fixed
Cost
Currency
LME
4Q 12
1Q 13
Cost
Increase
$1
$3
$5
$6
$7
$4
$27
$58
$6
$41
+$23m
-$6m
Market
Performance
$ Millions
1Q 12
4Q 12
1Q 13
Production (kmt)
4,153
4,079
3,994
3
Party Shipments (kmt)
2,293
2,440
2,457
3
Party Revenue ($ Millions)
775
803
826
ATOI ($ Millions)
35
41
58
1
Quarter Results
st
1
st
Quarter Business Highlights
2
Quarter Outlook
1
st
Quarter Performance Bridge
1Q13 Actual and 2Q13 Outlook - Alumina
rd
rd
rd
nd
Mining cost increases
of $20m in Australia (Myara
crusher move) and Suriname
Record
days working capital of 23 days; ~9 day
improvement
year-over-year
Production lower
due to 2 fewer days in the quarter
Alumina Price
Index and
spot pricing
continued
positive trend
Productivity improvements
continued
Increased costs driven by the Myara crusher move
Production
increases by 150 kmt
Productivity improvements
to continue
52%
of 3 party shipments on spot or alumina price
index with 30 day lag
for 2013 |
[Alcoa Logo]
Primary Metals performance overcomes cost headwinds
12
1 Quarter Business Highlights
st
Price/Mix improved as regional premiums rose
and
value-added product mix
strengthened
Productivity improvements
continued
Rockdale outage
neared completion
Achieved record days working capital
of 18.8 days
Ahead of schedule
startup and cost control of Saudi
Arabia JV
minimized equity charge
1 Quarter Results
st
1 Quarter Performance Bridge
st
2 Quarter Outlook
nd
Pricing
to follow 15 day lag
to LME
Production increases by 15 kmt
Power plant outages
with $25m impact in Anglesea
(4-year overhaul) and Warrick
Saudi Arabia
JV
impact to remain flat
Productivity improvements
to continue
rd
rd
rd
$ Millions
market
performance
$39
$15
$17
$11
$275
$8
$13
$19
$316
$17
$41
Price
/Mix &
Vol.
Rockdale/
Anglesea
Cost
Increase
Energy
Portfolio
Actions
Prod-
uctivity
4Q 12
LME
4Q 12
adj.
1Q 13
Tapoco
Sale
Production (kmt)
951
912
891
Party Shipments (kmt)
771
768
705
Party Revenue ($ Millions)
1,944
1,890
1,758
Party Price ($/MT)
2,433
2,325
2,398
ATOI ($ Millions)
10
316
39
3
3
3
-$19m
+$17m
1Q13 Actual and 2Q13 Outlook Primary Metals
1Q 12
4Q 12
1Q 13 |
Continued sustainable days working capital reductions
[Alcoa Logo]
7 days
lower
2 days
lower
14 days
lower
4 days
lower
27 days;
$1.8 B
7 days
lower
Days Working Capital since Fourth Quarter 2008
2 days
lower
14 days
lower
4 days
lower
27 days;
$1.8 B
43
55
50
48
33
41
44
43
30
39
38
38
27
32
33
33
24
28
See appendix for days working capital reconciliation
13 |
[Alcoa Logo]
See appendix for Free Cash Flow, Net Debt and Net Debt-to-Capital
reconciliations 1 Quarter Cash Flow Overview
14
Net Income
$99
$257
$170
DD&A
$369
$363
$361
Change in Working Capital
($289)
$536
($323)
Pension Contributions
($213)
($46)
($83)
Taxes / Other Adjustments
($202)
($177)
($195)
Cash from Operations
($236)
$933
($70)
Dividends to Shareholders
($33)
($33)
($33)
Change in Debt
$357
($692)
$90
Distributions
to
Noncontrolling
Interests
($26)
($24)
($25)
Contributions
from
Noncontrolling
Interests
$90
$39
$15
Other Financing Activities
$6
($2)
$0
Cash from Financing Activities
$394
($712)
$47
Capital Expenditures
($270)
($398)
($235)
Other Investing Activities
($80)
$605
($50)
Cash from Investing Activities
($350)
$207
($285)
1 Quarter 2013 Cash Flow Overview
st
($ Millions)
1Q12
4Q12
1Q13
2010
2009
2008
1Q13
2012
2011
7,622
8,338
9,816
7,370
6,968
7,432
34.7%
42.5%
38.7%
34.9%
35.3%
34.8%
762
1,481
1,543
1,939
1,861
1,555
9,165
9,819
10,578
8,925
8,829
9,371
(millions)
Debt to Cap
Net Debt
Cash
(305)
(39)
(506)
(440)
(22)
(186)
(90)
(742)
(409)
535
246
656
164
526
1,005
176
87
761
+201
(millions)
Free Cash Flow
Debt, Net Debt and Debt-to-Capital %
st |
2013 Targets: Key Actions to Execute 2013 Cash Sustainability
Program Aggressive targets set to maximize
cash in 2013 15
Maintain 30%-35% Debt-to-Capital
Manage Growth Capital of $550M
Generate Productivity Gains of $750M
Target Saudi JV Investment of $350M
Overarching 2013 Financial Target
Taking the right actions
Control Sustaining Capital of $1.0B
Positive
Free Cash
Flow
[Alcoa Logo] |
16
[Alcoa Logo]
Capital Flows Into Equities from Commodities
2013 Global Aluminum Demand Will Grow at 7%
Supply and Demand Tightening On Curtailments
Inventories Are Stable, Premiums Remain Strong |
Capital flows into equities and out of commodities
17
Source: Bloomberg, CFTC COT Reports (excl. energy futures)
attracting capital from commodities
Net Managed Money Positions
($ billion)
Major equity exchanges rally
95%
100%
105%
110%
115%
120%
125%
S&P 500 Index
FTSE 100
NIKKEI
~50% decline
in 1Q13
~20%
increase in
1Q13
-
0.2
0.4
0.6
0.8
1.0
1.2
[Alcoa Logo] |
[Alcoa Logo]
Market fundamentals are stable
18
Market Tightening
On Curtailments
Inventory
is Stable
Regional Premiums Remain Strong
2013 Primary Aluminum Consumption (mmt) and Annualized Growth (%)
Global Inventories vs. LME Price Over Time $
Supply/Demand analysis
See appendix for full scale charts
2013 Global Demand
Growth Rate 7%
(World ex China 4%)
Decline 28 days
Global Inventories
from the 09 peak
Year on Year Change
Europe +35%
Japan + 96%
Midwest USA +27%
Deficit
(100)
4Q2012
(200)
Deficit
Surplus
155
4Q2012
535
Surplus
2013E Alumina Supply/Demand Balance
2013E Aluminum Supply/Demand Balance
000 mt
China
Rest of World
2013 Production
(Feb annualized)
41,600
53,700
2013 Production to be added
600
2,400
2013 Capacity to be curtailed
(1,000)
0
Imports/(exports)
3,900
(3,900)
Total supply
45,100
52,200
Demand
(45,100)
(52,300)
Net Balance
0
(100)
Supply
Demand
Supply
Demand
000 mt
China
Rest of World
2013 Production
(Feb annualized)
21,330
25,360
2013 Production to be added
2,270
1,190
2013 Capacity to be curtailed
Total supply
23,075
26,500
Demand
(23,000)
(26,420)
Net Balance
75
80
(525)
(50)
Regional Premiums over time
Global Aluminum Demand Growth at 7%
Producer
Japan Port
China Incl SRB
Off Exchange
LME On Warrant
Cancelled Warrants
LME 3 Mon
1%
8%
6%
5%
9%
11%
-2%
-1%
4%
4%
5%
7%
7%
6%
Asia ex. China
Other
India
Brazil
Russia
China
Europe
North America
2012
2013E
Other includes Middle East, Latin America ex Brazil, Eastern Europe and Rest of
World 49.4 mmt
(1)
(1)
6%
$1,250
$1,450
$1,650
$1,850
$2,050
$2,250
$2,450
$2,650
$2,850
$3,050
$3,250
$ per metric
ton
Days of
Consumption
Days of
Consumption
108 days
LME Price
$2,214/MT
LME Price
$2,686/MT
LME Price
$1,951/MT
Days of
Consumption
83 days
Days of
Consumption
80 days
7
21
28
35
42
49
56
63
70
77
84
91
98
105
14 |
Klaus Kleinfeld
Chairman and Chief Executive Officer
April 8, 2013
[Alcoa Logo]
[Alcoa Logo] |
Source: Alcoa analysis
Alcoa End Markets: Current Assessment of 2013 vs. 2012
Growth continues in global end markets
20
[Alcoa Logo]
North America
China
Global
Europe
-
Aerospace
Automotive
Heavy Truck &
Trailer
Beverage Can
Packaging
Commercial Building
and Construction
Industrial Gas
Turbine
9% -
10%
sales growth
2% -
3%
sales growth
4% -
5%
sales growth
3% -
5%
airfoil market
growth rate
1% -
4%
prod growth
2% -
7%
prod growth |
[Alcoa Logo]
Value add businesses driving 71% of segment profits
Alcoa business mix shift and GRP/EPS margins
21
EPS: Continuing to Grow Profitability
Business mix shifted toward value add
After tax operating income (ATOI) by segment
(% of total segment ATOI)
2003
2012
75%
29%
16%
26%
9%
45%
GPP
GRP
EPS
100%
100%
GRP: Generating Record Margins
10-YR Average ~ $248/MT
385
380
332
69
83
284
292
276
261
1Q13
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
Adjusted EBITDA per MT
15%
1Q13
21%
2012
19%
2011
18%
2010
17%
2009
13%
2008
2007
13%
2006
13%
2005
11%
2004
12%
2003
9%
Adjusted EBITDA
Margin
25%
71%
2.3x 2003 level
1.5x average
184
321
GPP: Combined Alumina and Primary Metals segments, GRP: Global Rolled Products, EPS:
Engineered Products and Solutions. Prior period amounts have been revised to conform to the current period presentation. See appendix for
additional information. |
[Alcoa Logo]
Aerospace accounts for $3.8B of value add revenue
Breakdown of 2012 Alcoa value-add revenue by market ($B)
22
Other
3.8
Aerospace
0.7
Automotive
3.2
Packaging
1.4
Building and
Construction
4.1
End Market Highlights
$13.2B
11.6%
End
Market
CAGR
(2012 -
2015)
~
(at 2012 rates)
8
year
backlog
of
production
Alcoa
well
positioned
on
both
Aluminum
and
CFRP
planes |
Sources: The Airline Monitor February 2013
Vibrant growth projected for the aerospace market
23
Aero
market
growth:
Commercial
Jet
Deliveries
1
and
Value
in
$B
Notes: (1) All figures include both Large Commercial Aircraft & Regional
Jets [Alcoa Logo] |
Alcoa Blue Flies From Nose to Tail
Wing ribs (plate
and extrusions)
Wing tips
Hydraulic vessels
Fuel connectors
Torque rods
Seat
frames
Window and
door frames
Wheels, brakes
and torque tubes
Fuselage to
wing
connection
Wing box
fasteners
Engine pylon
structure and
fasteners
Wing spars
(forgings
and plate)
Lower wing skins
Wing flap
fasteners
Wing
stringers
Wing gear ribs,
trunions and support fittings
Upper wing skins
Crown frames
Auxiliary power unit
exhaust ducts
Vertical stabilizer
fasteners
Fuselage
stringers
Fuselage
skins
Seat tracks
Landing gear,
bay frames
Sleeved fasteners
Fan blades
Guide vanes
Hot section
blades and
vanes
Compressor cases
Fuel metering
unit
Fan hub and
compressor
frames
Bearing
housings
Current
Future
More
than
90%
of
all
aluminum aerospace alloys
have been developed by
Alcoa
Every
Western Commercial
aircraft
flying
today
uses
Alcoa
fasteners
Every
Western Commercial
and military aircraft engine
uses Alcoa
castings
24
[Alcoa Logo] |
Sources: 1) The Airline Monitor February 2013
Notes: All figures include both Large Commercial Aircraft & Regional
Jets. CFRP refers to carbon fiber reinforced plastic Alcoa is well
positioned on both Aluminum and CFRP planes Commercial jet deliveries and
Alcoa Indexed Revenue by aircraft type 25
[Alcoa Logo] |
Innovation creating long term value for Alcoa
Aluminum Lithium Meeting Customer Needs
Reduce inspection
Improve comfort
20% fuel efficiency
improvement
Lower capital costs
Customer Needs
Al-Li Value Proposition
Improved corrosion and
fatigue
properties
2X
inspection
intervals
5% to 7% lower density
7% higher stiffness
Capital
costs
avoided
by
using existing Aluminum
infrastructure
Meets 787 humidity and
pressure benchmarks
30%-50% larger windows
26
Key Platforms Drivers:
Twin Aisle: Airbus A380 & A350, Boeing 787
Single Aisle: Bombardier CSeries, Comac
C919
Regional/Business Jet: Gulfstream G650,
Bombardier Global 7000/8000
Projected Al-Li Revenue in $M
Al-Li Revenue quadrupling by 2019
+350%
= 29% CAGR
2019
$197
2017
$161
2015
$61
2013
$43
[Alcoa Logo] |
[Alcoa Logo]
Automotive accounts for $700M of value add revenue
Breakdown of 2012 Alcoa value-add revenue by market ($B)
27
Building and
Construction
1.4
Packaging
3.2
Automotive
0.7
Aerospace
3.8
Other
4.1
$13.2B
End Market Highlights
2-3% End Market CAGR
(2012
-
2015)
30-35%
CAGR
for NA Auto
Sheet
(
2012
-
2015
)
3.6x
increase
in
Auto
Sheet
revenue
from
2012
to
2015 |
Alcoas content runs from bumper to bumper
Alcoa participation in automotive parts
Current
Future
28
[Alcoa Logo] |
[Alcoa Logo]
Aluminum intensity amplifying automotive market growth
Auto industry growth and projected incremental aluminum content
Sources: Ducker Worldwide , IHS , Alcoa analysis, *)
Extrapolated based on IHS 2020 forecast 29
Growth in Automotive Market
Global light vehicle production (in millions of units)
19
25
31
19
20
23
15
17
18
China
Europe
North
America
2025*
72
2015
62
2012
53
amplified by increasing Al intensity
136
55
14
2025
2015
2012
North America Aluminum Body Sheet
Content Per Vehicle (in lbs) |
[Alcoa Logo]
Consumers and regulations drive auto light-weighting
30
Consumers want it
US Corporate Average
Fuel Economy (MPG)
35.5
2011
27.2
2025
54.5
2016
Regulations demand it
2011
83%
2008
54%
% willing to pay for
better fuel efficiency
Consumers Outpace Regulation
US Consumer Buying vs. Regulation
miles per gallon
2000
29.7
30.8
50
45
40
35
30
25
0
2025
2020
2015
2010
2005
Regulations
Consumer Buying
Safety benefits
Changing body
structure from steel
to aluminum can
reduce stopping
distances
from 45
mph to zero by up to
7 feet
this can
mean the difference
between a
serious
collision and a
near-miss
NHTSA
1)
says:
Lightweighting
conserves fuel,
maintains footprint,
and may improve
the cars structural
strength and
handling
1)
National
Highway
Traffic
Safety
Admin.
Source: Ducker Worldwide , Consumer Reports, The Aluminum Association ,
NHTSA 1)
September 17, 2012, Alcoa Analysis |
[Alcoa Logo]
Alcoa is capturing auto sheet opportunity
Source: Ducker Worldwide , IHS , Alcoa analysis
31
$300M expansion
to capture
auto demand
Supported by
secured
contracts
On time and on budget
First coil
by December 2013
Auto Sheet Driving Growth
580
250
200
160
2015
2014
2013
2012
Delivers
~4x
Revenue
Increase
Projected Alcoa Auto Sheet
Revenues ($M)
Auto Treatment Line
Davenport, IA
North America Market Demand
Auto Aluminum (kMT)
2025
4,410
3,320
1,090
2015
3,080
2,660
420
2012
2,400
2,300
100
Other Auto Aluminum
(Castings, etc.)
Auto Sheet
4x increase
in
auto sheet already
locked into
designs
of 2015 models
3.6x
Positioned to Capture Demand
Actual
Projected |
[Alcoa Logo]
We continue to focus on coming down the cost curves
Alumina and Aluminum cost curves and Alcoa targets
32
0
100
200
300
400
500
600
700
0
20,000
40,000
60,000
80,000
100,000
120,000
Cumulative Production
(000MT)
Alcoa 2010
30
Percentile
Alumina Cost Curve
Alcoa 2015
23
Percentile
Refining Cost Curve Holding Steady
$/mt
Alcoa 2012
30
Percentile
Smelting Cost Curve Down 4% Points
0
500
1,000
1,500
2,000
2,500
3,000
3,500
0
20,000
40,000
60,000
Cumulative
Production
(000MT)
Alcoa 2015
41
Percentile
Alcoa 2010
51
Percentile
Aluminum Cost Curve
$/mt
Alcoa 2012
47
Percentile
-10 points
7 points
-
th
th
th
st
st
rd |
[Alcoa Logo]
Phase 2
Phase 1
Phase 1 and 2 Construction Progressing As Planned
Mine
Refinery
First hot coil 4Q 2013
Auto
hot coil 4Q 2014
First alumina 4Q 2014
Lowest
cost
refinery
2%
point
reduction
on
the refining cost curve
On track to provide
bauxite in 2014
33
Smelter
First Hot Metal December
Full operating capacity in
2014
Lowest
cost
smelting
facility
2%
point
reduction
on
the
smelting cost curve
74%
46%
Rolling Mill
12
, 2012
Complete
Complete
th |
[Alcoa Logo]
Executing on our targets to deliver long term value
34
All segments achieved solid financial performance
Strong commitment to cash generation
Capturing opportunities in growing markets |
[Alcoa Logo] |
[Alcoa Logo]
Kelly Pasterick
Director, Investor Relations
Alcoa
390 Park Avenue
New York, NY 10022-4608
Telephone: (212) 836-2674
www.alcoa.com
Additional Information
36 |
[Alcoa Logo]
Annual Sensitivity Summary
Currency Annual Net Income Sensitivity
+/-
$100/MT = +/-
$240 million
LME Aluminum 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 / EUR
Canadian $
+/-
$ 5 million
per 0.01 change in CAD / USD
Norwegian Kroner
+/-
$ 5 million
per 0.10 change in NOK / USD
37 |
[Alcoa Logo]
Revenue Change by Market
4%
3%
0%
9%
7%
2%
(2%)
(39%)
3%
(7%)
6%
0%
(1%)
(11%)
(4%)
17%
(5%)
1%
7%
(10%)
1Q13 Third-Party Revenue
Sequential
Change
Year-Over-Year
Change
38
17%
3%
6%
5%
9%
2%
13%
1%
14%
30%
Aerospace
Automotive
B&C
Comm. Transport
Industrial Products
IGT
Packaging
Distribution/Other*
Alumina
Primary Metals |
[Alcoa Logo]
Reconciliation of ATOI to Consolidated Net Income (Loss)
Attributable to Alcoa
39
*
On January 1, 2013, management revised the inventory-costing method used by
certain locations within the Global Rolled Products and Engineered Products
and Solutions segments in order to improve internal consistency and enhance
industry comparability. This revision does not impact the consolidated results of
Alcoa. Segment information for all prior periods presented was revised to
reflect this change. (in millions)
1Q12
2Q12
3Q12
4Q12
2012
1Q13
Total segment ATOI*
$ 304
$ 255
$ 224
$ 574 $ 1,357
$ 351
Unallocated amounts (net of tax):
Impact of LIFO
19
(7)
8
20
(2)
Interest expense
(80)
(80)
(81)
(78)
(319)
(75)
Noncontrolling interests
(5)
17
32
(15)
29
(21)
Corporate expense
(64)
(69)
(62)
(87)
(282)
(67)
Restructuring and other charges
(7)
(10)
(2)
(56)
(75)
(5)
Other*
(54)
(134)
(247)
(104)
(539)
(32)
Consolidated net income (loss) attributable to
Alcoa
$ 94
$ (2)
$ (143)
$ 242
$ 191
$ 149 |
[Alcoa Logo]
Reconciliation of Adjusted Income
40
(in millions, except per-share
amounts)
Income
Diluted EPS
Quarter ended
Quarter ended
March 31,
2012
December 31,
2012
March 31,
2013
March 31,
2012
December 31,
2012
March 31,
2013
Net income attributable to
Alcoa
$ 94
$ 242
$ 149
$ 0.09
$ 0.21
$ 0.13
Restructuring and other
charges
7
54
5
Discrete tax items*
(58)
(19)
Other special items**
4
(174)
(14)
Net income attributable to
Alcoa
as adjusted
$ 105
$ 64
$ 121
0.10
0.06
0.11
* Discrete tax items include the following:
Net income attributable to Alcoa as adjusted is a non-GAAP financial measure.
Management believes that this measure is meaningful to investors because management reviews the
operating results of Alcoa excluding the impacts of restructuring and other charges, discrete tax
items, and other special items (collectively, special items). There can be no assurances
that additional special items will not occur in future periods. To compensate for this
limitation, management believes that it is appropriate to consider both Net income attributable to Alcoa
determined under GAAP as well as Net income attributable to Alcoa as adjusted.
** Other special items include the following:
for the quarter ended March 31, 2013, a benefit related to the reinstatement under the American
Taxpayer Relief Act of 2012 of two tax provisions that will be applied in 2013 to Alcoas
U.S income tax return for calendar year 2012 ($19); and for the quarter ended December 31,
2012, a benefit related to the interim period treatment of losses in jurisdictions for which no tax benefit was recognized during the nine
months ended September 30, 2012 ($39); a benefit for a change in the legal structure of an investment
($13); and a net benefit for other miscellaneous items ($6). for the quarter ended March 31,
2013, a net favorable change in certain mark-to-market energy derivative contracts ($9) and a net insurance recovery related to the March 2012
cast house fire at the Massena, NY location ($5);
for the quarter ended December 31, 2012, a gain on the sale of the Tapoco Hydroelectric Project ($161:
$275 is included in the Primary Metals segment and $(114) is included in Corporate); a net
favorable change in certain mark-to-market energy derivative contracts ($12); interest income on an escrow deposit ($8); and uninsured losses related to
fire damage to the cast house at the Massena, NY location ($7); and
for the quarter ended March 31, 2012, a net unfavorable change in certain mark-to-market
energy derivative contracts.
|
[Alcoa Logo]
Reconciliation of Alcoa Adjusted EBITDA
41
($ in millions)
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
1Q12
4Q12
1Q13
Net income (loss)
attributable to Alcoa
$ 938
$ 1,310
$ 1,233
$ 2,248
$ 2,564
$ (74)
$ (1,151)
$ 254
$ 611
$ 191
$ 94
$ 242
$ 149
Add:
Net income (loss)
attributable to
noncontrolling
interests
212
233
259
436
365
221
61
138
194
(29)
5
15
21
Cumulative effect of
accounting changes
47
2
Loss (income) from
discontinued
operations
27
50
(22)
250
303
166
8
3
Provision (benefit) for
income taxes
367
546
464
853
1,623
342
(574)
148
255
162
39
143
64
Other (income)
expenses, net
(278)
(266)
(478)
(236)
(1,920)
(59)
(161)
5
(87)
(341)
(16)
(345)
(27)
Interest expense
314
271
339
384
401
407
470
494
524
490
123
120
115
Restructuring and other
charges
(28)
(29)
266
507
268
939
237
207
281
87
10
60
7
Provision for
depreciation,
depletion, and
amortization
1,110
1,142
1,227
1,252
1,244
1,234
1,311
1,450
1,479
1,460
369
362
361
Adjusted EBITDA
$ 2,682
$ 3,234
$ 3,362
$ 5,422
$ 4,795
$ 3,313
$ 359
$ 2,704
$ 3,260
$ 2,020
$ 624
$ 597
$ 690
Sales
$18,879
$21,370
$24,149
$28,950
$29,280
$26,901
$18,439
$21,013
$24,951
$23,700
$ 6,006
$ 5,898
$ 5,833
Adjusted EBITDA
Margin
14%
15%
14%
19%
16%
12%
2%
13%
13%
9%
10%
10%
12%
Alcoas definition of Adjusted EBITDA (Earnings before interest, taxes,
depreciation, and amortization) is net margin plus an add-back for depreciation, depletion, and amortization. Net margin is equivalent to Sales
minus the following items: Cost of goods sold; Selling, general administrative, and
other expenses; Research and development expenses; and Provision for depreciation, depletion, and amortization. Adjusted EBITDA is
a non-GAAP financial measure. Management believes that this measure is
meaningful to investors because Adjusted EBITDA provides additional information with respect to Alcoas operating performance and the
Companys ability to meet its financial obligations. The Adjusted EBITDA
presented may not be comparable to similarly titled measures of other companies. |
[Alcoa Logo]
Reconciliation of Alumina Adjusted EBITDA
42
($ in millions, except per
metric ton amounts)
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
1Q12
4Q12
1Q13
After-tax operating income
(ATOI)
$ 415
$ 632
$ 682
$ 1,050
$ 956
$ 727
$ 112
$ 301
$ 607
$ 90
$ 35
$ 41
$ 58
Add:
Depreciation, depletion,
and amortization
147
153
172
192
267
268
292
406
444
455
114
107
109
Equity (income) loss
(1)
2
(1)
(7)
(8)
(10)
(25)
(5)
(1)
(1)
(1)
Income taxes
161
240
246
428
340
277
(22)
60
179
(27)
(1)
2
14
Other
(55)
(46)
(8)
(6)
2
(26)
(92)
(5)
(44)
(8)
(4)
(3)
Adjusted EBITDA
$ 668
$ 978
$ 1,092
$ 1,666
$ 1,564
$ 1,239
$ 282
$ 752
$ 1,161
$ 505
$ 147
$ 145
$ 177
Production (thousand
metric tons) (kmt)
13,841
14,343
14,598
15,128
15,084
15,256
14,265
15,922
16,486
16,342
4,153
4,079
3,994
Adjusted EBITDA /
Production ($ per metric
ton)
$ 48
$ 68
$ 75
$ 110
$ 104
$ 81
$ 20
$ 47
$ 70
$ 31
$ 35
$ 36
$ 44
Alcoas definition of Adjusted EBITDA (Earnings before interest, taxes,
depreciation, and amortization) is net margin plus an add-back for depreciation, depletion, and amortization. Net margin is equivalent to Sales
minus the following items: Cost of goods sold; Selling, general administrative, and
other expenses; Research and development expenses; and Provision for depreciation, depletion, and amortization. The Other line
in the table above includes gains/losses on asset sales and other nonoperating
items. Adjusted EBITDA is a non-GAAP financial measure. Management believes that this measure is meaningful to investors
because Adjusted EBITDA provides additional information with respect to Alcoas
operating performance and the Companys ability to meet its financial obligations. The Adjusted EBITDA presented may not be
comparable to similarly titled measures of other companies.
|
[Alcoa Logo]
Reconciliation of Primary Metals Adjusted EBITDA
43
($ in millions, except per metric
ton amounts)`
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
1Q12
4Q12
1Q13
After-tax operating income
(ATOI)
$ 657
$ 808
$ 822
$ 1,760
$ 1,445
$ 931
$ (612)
$ 488
$ 481
$ 309
$ 10
$ 316
$ 39
Add:
Depreciation, depletion,
and amortization
310
326
368
395
410
503
560
571
556
532
135
134
135
Equity (income) loss
(55)
(58)
12
(82)
(57)
(2)
26
(1)
7
27
2
11
9
Income taxes
256
314
307
726
542
172
(365)
96
92
106
(13)
157
1
Other
12
20
(96)
(13)
(27)
(32)
(176)
(7)
2
(422)
(423)
(1)
Adjusted EBITDA
$ 1,180
$ 1,410
$ 1,413
$ 2,786
$ 2,313
$ 1,572
$ (567)
$ 1,147
$ 1,138
$ 552
$ 134
$ 195
$ 183
Production (thousand
metric tons) (kmt)
3,508
3,376
3,554
3,552
3,693
4,007
3,564
3,586
3,775
3,742
951
912
891
Adjusted EBITDA /
Production ($ per metric
ton)
$ 336
$ 418
$ 398
$ 784
$ 626
$ 392
$ (159)
$ 320
$ 301
$ 148
$ 141
$ 214
$ 205
Alcoas definition of Adjusted EBITDA (Earnings before interest, taxes, depreciation, and
amortization) is net margin plus an add-back for depreciation, depletion, and amortization. Net margin is equivalent
to Sales minus the following items: Cost of goods sold; Selling, general administrative, and other
expenses; Research and development expenses; and Provision for depreciation, depletion, and
amortization. The Other line in the table above includes gains/losses on asset sales and other
nonoperating items. Adjusted EBITDA is a non-GAAP financial measure. Management believes that this
measure is meaningful to investors because Adjusted EBITDA provides additional information with respect
to Alcoas operating performance and the Companys ability to meet its financial obligations. The
Adjusted EBITDA presented may not be comparable to similarly titled measures of other companies.
|
[Alcoa Logo]
Reconciliation of Global Rolled Products Adjusted EBITDA
44
($ in millions, except
per metric ton
amounts)
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
1Q12
4Q12
1Q13
After-tax operating
income (ATOI)*
$ 232
$ 290
$ 300
$ 317
$ 151
$ (41)
$
(106)
$ 241
$ 260
$ 346
$ 102
$ 77
$ 81
Add:
Depreciation,
depletion, and
amortization
190
200
220
223
227
216
227
238
237
229
57
58
57
Equity loss
1
1
2
3
6
1
2
4
Income taxes*
77
97
135
113
77
14
12
103
98
159
51
35
39
Other
(5)
1
1
20
1
6
(2)
1
1
(2)
(1)
Adjusted EBITDA*
$ 495
$ 589
$ 656
$ 675
$ 456
$ 195
$ 131
$ 583
$ 599
$ 738
$ 211
$ 172
$ 180
Total shipments
(thousand metric
tons) (kmt)
1,893
2,136
2,250
2,376
2,482
2,361
1,888
1,755
1,866
1,943
472
465
468
Adjusted EBITDA
/ Total shipments
($ per metric ton)*
$ 261
$ 276
$ 292
$ 284
$ 184
$ 83
$ 69
$ 332
$ 321
$ 380
$ 447
$ 370
$ 385
Alcoas definition of Adjusted EBITDA (Earnings before interest, taxes,
depreciation, and amortization) is net margin plus an add-back for depreciation, depletion, and amortization. Net margin is equivalent to
Sales minus the following items: Cost of goods sold; Selling, general
administrative, and other expenses; Research and development expenses; and Provision for depreciation, depletion, and amortization.
The
Other
line
in
the
table
above
includes
gains/losses
on
asset
sales
and
other
nonoperating
items.
Adjusted
EBITDA
is
a
non-GAAP
financial
measure.
Management
believes
that
this
measure
is
meaningful to investors because Adjusted EBITDA provides additional information with
respect to Alcoas operating performance and the Companys ability to meet its financial obligations. The Adjusted
EBITDA presented may not be comparable to similarly titled measures of other
companies. * On January 1, 2013, management revised the inventory-costing
method used by certain locations within the Global Rolled Products segment in order to improve internal consistency and enhance
industry comparability. This revision does not impact the consolidated results
of Alcoa. Segment information for all prior periods presented was revised to reflect this change. |
[Alcoa Logo]
Reconciliation of Engineered Products and Solutions
Adjusted EBITDA
45
($ in millions)
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
1Q12
4Q12
1Q13
After-tax operating
income (ATOI)*
$ 126
$ 161
$ 276
$ 382
$ 423
$ 522
$ 311
$ 419
$ 537
$ 612
$ 157
$ 140
$ 173
Add:
Depreciation,
depletion, and
amortization
166
168
160
152
163
165
177
154
158
158
40
40
40
Equity loss
(income)
6
(2)
(2)
(1)
Income taxes*
57
70
120
164
184
215
138
198
258
296
73
71
84
Other*
11
106
(11)
(2)
(7)
2
1
(1)
(8)
(9)
Adjusted EBITDA*
$ 360
$ 505
$ 545
$ 702
$ 763
$ 904
$ 625
$ 769
$ 951
$ 1,058
$ 270
$ 242
$ 297
Third-party sales
$ 3,905
$ 4,283
$ 4,773
$ 5,428
$ 5,834
$ 6,199
$ 4,689
$ 4,584
$ 5,345
$ 5,525
$ 1,390
$ 1,348
$ 1,423
Adjusted EBITDA
Margin*
9%
12%
11%
13%
13%
15%
13%
17%
18%
19%
19%
18%
21%
* On January 1, 2013, management revised the inventory-costing method used
by certain locations within the Engineered Products and Solutions segment in order to improve internal consistency and enhance
industry comparability. This revision does not impact the consolidated results
of Alcoa. Segment information for all prior periods presented was revised to reflect this change.
Alcoas definition of Adjusted EBITDA (Earnings before interest, taxes, depreciation, and
amortization) is net margin plus an add-back for depreciation, depletion, and amortization. Net margin is equivalent
to Sales minus the following items: Cost of goods sold; Selling, general administrative, and other
expenses; Research and development expenses; and Provision for depreciation, depletion, and amortization.
The Other line in the table above includes gains/losses on asset sales and other nonoperating
items. Adjusted EBITDA is a non-GAAP financial measure. Management believes that this measure is
meaningful to investors because Adjusted EBITDA provides additional information with respect to
Alcoas operating performance and the Companys ability to meet its financial obligations. The Adjusted
EBITDA presented may not be comparable to similarly titled measures of other companies.
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[Alcoa Logo]
Reconciliation of Free Cash Flow
46
(in millions)
Quarter ended
March 31,
2011
June 30,
2011
September 30,
2011
December 31,
2011
March 31,
2012
June 30,
2012
September 30,
2012
December 31,
2012
March 31,
2013
Cash from
operations
$ (236)
$ 798
$ 489
$ 1,142
$ (236)
$ 537
$ 263
$ 933
$ (70)
Capital
expenditures
(204)
(272)
(325)
(486)
(270)
(291)
(302)
(398)
(235)
Free cash flow
$ (440)
$ 526
$ 164
$ 656
$ (506)
$ 246
$ (39)
$ 535
$ (305)
Free Cash Flow is a non-GAAP financial measure. Management believes that
this measure is meaningful to investors because management reviews cash flows generated from operations after taking
into consideration capital expenditures due to the fact that these expenditures are
considered necessary to maintain and expand Alcoas asset base and are expected to generate future cash flows from
operations. It is important to note that Free Cash Flow does not represent the
residual cash flow available for discretionary expenditures since other non-discretionary expenditures, such as mandatory
debt service requirements, are not deducted from the measure.
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[Alcoa Logo]
Reconciliation of Free Cash Flow, cont
47
(in millions)
Quarter ended
December 31,
2008
March 31,
2009
June 30,
2009
September 30,
2009
December 31,
2009
March 31,
2010
June 30,
2010
September 30,
2010
December 31,
2010
Cash from
operations
$ 608
$ (271)
$ 328
$ 184
$ 1,124
$ 199
$ 300
$ 392
$ 1,370
Capital
expenditures
(1,017)
(471)
(418)
(370)
(363)
(221)
(213)
(216)
(365)
Free cash flow
$ (409)
$ (742)
$ (90)
$ (186)
$ 761
$ (22)
$ 87
$ 176
$ 1,005
Free Cash Flow is a non-GAAP financial measure. Management believes that
this measure is meaningful to investors because management reviews cash flows generated from operations after taking into
consideration
capital
expenditures
due
to
the
fact
that
these
expenditures
are
considered
necessary
to
maintain
and
expand
Alcoas
asset
base
and
are
expected
to
generate
future
cash
flows
from
operations.
It is important to note that Free Cash Flow does not represent the residual cash
flow available for discretionary expenditures since other non-discretionary expenditures, such as mandatory debt service
requirements, are not deducted from the measure. |
[Alcoa Logo]
Days Working Capital
($ in millions)
Quarter ended
March 31,
2012
June 30,
2012
September 30,
2012
December 31,
2012
March 31,
2013
Receivables from customers, less
allowances
$ 1,526
$ 1,575
$ 1,619
$ 1,399
$ 1,680
Add: Deferred purchase price receivable
*
254
141
81
18
14
Receivables from customers, less
allowances, as adjusted
1,780
1,716
1,700
1,417
1,694
Add: Inventories
3,097
3,051
2,973
2,825
2,982
Less: Accounts payable, trade
2,734
2,633
2,590
2,702
2,860
Working Capital
$ 2,143
$ 2,134
$ 2,083
$ 1,540
$ 1,816
Sales
$ 6,006
$ 5,963
$ 5,833
$ 5,898
$ 5,833
Days Working Capital
32
33
33
24
28
Days Working Capital = Working Capital divided by (Sales/number of days in the quarter).
*
The deferred purchase price receivable relates to an arrangement to sell certain customer receivables
to a financial institution on a recurring basis. Alcoa is adding back this receivable for
the purposes of the Days Working Capital calculation. 48
|
[Alcoa Logo]
Reconciliation of Net Debt
49
(in millions)
December 31,
March 31,
2008
2009
2010
2011
2012
2013
Short-term borrowings
$ 478
$ 176
$ 92
$ 62
$ 53
$ 51
Commercial paper
1,535
224
104
Long-term debt due within one year
56
669
231
445
465
1,025
Long-term debt, less amount due
within one year
8,509
8,974
8,842
8,640
8,311
7,745
Total debt
10,578
9,819
9,165
9,371
8,829
8,925
Less: Cash and cash equivalents
762
1,481
1,543
1,939
1,861
1,555
Net debt
$ 9,816
$ 8,338
$ 7,622
$ 7,432
$ 6,968
$ 7,370
Net debt is a non-GAAP financial measure. Management believes that this
measure is meaningful to investors because management assesses Alcoas leverage position after
factoring in available cash that could be used to repay outstanding debt.
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[Alcoa Logo]
Reconciliation of Net Debt-to-Capital
50
($ in millions)
December 31, 2012
March 31, 2013
Debt-to-Capital
Cash and Cash
Equivalents
Net Debt-to-
Capital
Debt-to-Capital
Cash and Cash
Equivalents
Net Debt-to-
Capital
Total Debt
Short-term borrowings
$ 53
$
51
Commercial paper
104
Long-term debt due within one
year
465
1,025
Long-term debt, less amount
due within one year
8,311
7,745
Numerator
$ 8,829
$ 1,861
$ 6,968
$ 8,925
$ 1,555
$ 7,370
Total Capital
Total debt
$ 8,829
$ 8,925
Total equity
16,523
16,774
Denominator
$ 25,352
$ 1,861
$ 23,491
$ 25,699
$ 1,555
$ 24,144
Ratio
34.8%
29.7%
34.7%
30.5%
Net debt-to-capital is a non-GAAP financial measure. Management believes that this
measure is meaningful to investors because management assesses Alcoas leverage position
after factoring in available cash that could be used to repay outstanding debt.
|
[Alcoa Logo]
Composition of Upstream Production Costs
51
Refining Cost Structure
Smelting Cost Structure
1
Natural gas information corresponds to Point Comfort, as Australia is priced on a
rolling 16 quarter average Input Cost
Inventory flow
Pricing
convention
Annual ATOI
Sensitivity
Fuel oil
1
2 months
Prior month
$4m per $1/bbl
Natural gas
N/A
Spot
1
$16m per $1/GJ
1
Caustic soda
3 -
6 months
Spot & semi-
annual
$9m per
$10/DMT
Input Cost
Inventory flow
Pricing convention
Annual ATOI
Sensitivity
Coke
1 -
2 months
Spot, quarterly &
semi-annual
$9m per
$10/MT
Pitch
1 -
2 months
Spot, quarterly &
semi-annual
$2.5m per
$10/MT
Alumina
32%
Carbon
15%
Power
25%
Materials
6%
Conversion
22%
Fuel Oil
14%
Natural gas
10%
Caustic
11%
Bauxite
23%
Conversion
42% |
[Alcoa Logo]
Global Aluminum Demand Growth at 7%
52
2013 Primary Aluminum Consumption (mmt), Annualized Growth (%) and Change (% pts) by
Region (1)
Other includes Middle East, Latin America ex Brazil, Eastern Europe and Rest of
World 4.0%
5%
6%
-1%
-2%
11%
9%
5%
4%
7%
4%
6%
7%
6%
8%
1%
3.8
2.0
1.0
1.0
China
Europe
North America
Asia ex. China
Other
(1)
India
Brazil
Russia
23.0
6.5
6.2
5.9
2013 Global Demand
49.4 mmt
2013 versus 2012
Source: Alcoa analysis
2013 Global Demand
Growth Rate 7%
(World ex China 4%)
2012
2013E |
53
2013E Aluminum Supply/Demand Balance
Supply
Demand
Surplus
155
000 mt
China
Rest of World
2013 Production (Feb annualized)
21,330
25,360
2013 Production to be added
2,270
1,190
2013 Capacity to be curtailed
(525)
(50)
Total supply
23,075
26,500
Demand
(23,000)
(26,420)
Net Balance
75
80
2013E Alumina Supply/Demand Balance
000 mt
China
Rest of World
2013 Production (Feb annualized)
41,600
53,700
2013 Production to be added
600
2,400
2013 Capacity to be curtailed
(1,000)
0
Imports/(exports)
3,900
(3,900)
Total supply
45,100
52,200
Demand
(45,100)
(52,300)
Net Balance
0
(100)
Supply
Demand
Deficit
(100)
Source: Alcoa analysis, Brook Hunt, CRU, CNIA, NBS, Chinese Customs
Market Tightening
On Curtailments
4Q2012
Deficit
(200)
4Q2012
Surplus
535
[Alcoa Logo] |
54
Global Inventories vs. LME Price Over Time $
Source: Alcoa analysis, LME, SHFE, CRU, IAI, Marubeni Corp.
Inventory
is Stable
[Alcoa Logo] |
[Alcoa Logo]
Regional Premiums
Remain strong
55
Regional Premiums over time
$ per metric
ton
$ per metric
ton
Region
End of Q113
Europe
$283/MT
Japan
$249/MT
Midwest USA
$253/MT
Year on Year Change
Europe +35%
Japan +96%
Midwest USA +27%
Source:
Month
end
pricing
-
Platts
Metals
Week
and
Metal
Bulletin
$0
$50
$100
$150
$200
$250
$300
$0
$50
$100
$150
$200
$250
$300 |