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Alcoa Delivers Strong Value-Add Revenue Growth and Improved Upstream Portfolio



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November 7, 2013

Alcoa Delivers Strong Value-Add Revenue Growth and Improved Upstream Portfolio, Sets New Business Targets at 2013 Investor Day

CLEVELAND--Alcoa (NYSE: AA) today announced new three-year business targets through 2016, building on the Company’s strong execution of its strategy to grow its value-add businesses and lower the cost structure of its commodity business. Alcoa executives confirmed their new targets, and reviewed achievements against existing three-year goals, at the Company’s annual Investor Day event in Cleveland, Ohio.

For the 2010 to 2013 period, Alcoa is on track to generate an additional combined $1.8 billion in revenue through innovation and market share gains at historically high profitability levels in the mid and downstream businesses. The Company also reported a strengthened commodity business, with lower cost positions in both alumina and aluminum.

“Alcoa’s strategy to grow our value-add businesses while lowering the cost base of our commodity business is working,” said Alcoa Chairman and CEO, Klaus Kleinfeld. “We have made significant strides to reposition the Company and are announcing a clear road map to further strengthen our competitive position while driving value-add growth at historic profitability levels.”

The following business performance highlights for the 2010 to 2013 period were confirmed:

  • Engineered Products and Solutions, Alcoa’s downstream business, is on track to generate $1 billion incremental revenue from share gains through innovation, and grow adjusted EBITDA margins on an annualized basis to a record high of 21.9 percent in 2013, up from 16.8 percent in 2010.
  • Global Rolled Products, Alcoa’s midstream business, is expected to generate $800 million incremental value-add revenue at historically high average adjusted EBITDA levels for the 2010 to 2013 period.
  • Global Primary Products, Alcoa’s upstream business, has significantly lowered its cost position in both aluminum smelting and alumina refining, having now reached the 43rd percentile on the global aluminum cost curve, and 27th percentile on the global alumina cost curve. These shifts represent an 8 point movement and 3 point movement respectively since 2010.


The following new business targets were announced for the 2013 to 2016 time period:

Engineered Products and Solutions

  • $1.2 billion in incremental revenue growth by 2016; $900 million coming from share gains through innovations
  • Adjusted EBITDA margin percent exceeding historical highs in 2016


Global Rolled Products

  • $1.0 billion in incremental revenue growth by 2016; $900 million through share gains and innovations
  • Adjusted EBITDA per metric ton at or above average historical highs in 2016


Global Primary Products

  • Improve position on global alumina cost curve by 6 percentage points, from 27th percentile to 21st percentile
  • Improve position on global aluminum cost curve by 5 percentage points, from 43rd percentile to 38th percentile


The webcast of the Alcoa Investor Day event is available for replay and the presentations archived at www.alcoa.com/investorday.

About Alcoa
Alcoa is the world’s leading producer of primary and fabricated aluminum, as well as the world’s largest miner of bauxite and refiner of alumina. In addition to inventing the modern-day aluminum industry, Alcoa innovation has been behind major milestones in the aerospace, automotive, packaging, building and construction, commercial transportation, consumer electronics, and industrial markets over the past 125 years. Among the solutions Alcoa markets are flat-rolled products, hard alloy extrusions, and forgings, as well as Alcoa® wheels, fastening systems, precision and investment castings, and building systems in addition to its expertise in other light metals such as titanium and nickel-based super alloys. Sustainability is an integral part of Alcoa’s operating practices and the product design and engineering it provides to customers. Alcoa has been a member of the Dow Jones Sustainability Index for 12 consecutive years and approximately 75 percent of all of the aluminum ever produced since 1888 is still in active use today. Alcoa employs approximately 61,000 people in 30 countries across the world. For more information, visit www.alcoa.com, follow @Alcoa on Twitter at www.twitter.com/Alcoa and follow Alcoa on Facebook at www.facebook.com/Alcoa.

Forward-Looking Statements This release contains statements that relate to future events and expectations and as such constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include those 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 Alcoa’s 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 Alcoa’s 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 expressed or implied 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 (and premiums, as applicable) 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 aerospace, automotive, commercial transportation, 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) Alcoa’s 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, 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, including facilities supplying aluminum-lithium capacity, 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 Alcoa’s 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 release is derived from Alcoa’s consolidated financial information but is not presented in Alcoa’s 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 management’s rationale for the use of the non-GAAP financial measures can be found in the schedules to this release and on our website at www.alcoa.com under the “Invest” section.

 
 

Alcoa and subsidiaries

Reconciliation of Engineered Products and Solutions Adjusted EBITDA

($ in millions)

 
       

2003

 

2004

 

2005

 

2006

 

2007

 

2008

 

2009

 

2010

 

2011

 

2012

 

3Q13
YTD

 
After-tax operating income (ATOI)*

$

126

$

161

$

276

$

382

$

423

$

522

$

311

$

419

$

537

$

612

$

558

 
Add:

Depreciation, depletion, and amortization

166

168

160

152

163

165

177

154

158

158

119

Equity loss (income)

6

(2

)

(2

)

(1

)

Income taxes* 57 70 120 164 184 215 138 198 258 296 269
Other*   11     106     (11 )   (2 )   (7 )   2     1         (1 )   (8 )    
 
Adjusted EBITDA* $ 360   $ 505   $ 545   $ 702   $ 763   $ 904   $ 625   $ 769   $ 951   $ 1,058   $ 946  
 

Third-party sales

$

3,905

$

4,283

$

4,773

$

5,428

$

5,834

$

6,199

$

4,689

$

4,584

$

5,345

$

5,525

$

4,328

 
Adjusted EBITDA Margin*

9.2

%

11.8

%

11.4

%

12.9

%

13.1

%

14.6

%

13.3

%

16.8

%

17.8

%

19.1

%

21.9

%

 
Alcoa’s 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 Alcoa’s operating performance and the Company’s 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 Engineered Products and Solutions segment, which affects the determination of the segment’s profitability measure, ATOI. Management made the change 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 and subsidiaries

Reconciliation of Global Rolled Products Adjusted EBITDA

($ in millions, except per metric ton amounts)

 
       

2003

 

2004

 

2005

 

2006

 

2007

 

2008

 

2009

 

2010

 

2011

 

2012

 

3Q13
YTD

 
After-tax operating income (ATOI)*

$

232

$

290

$

300

$

317

$

151

$

(41

)

$

(106

)

$

241

$

260

$

346

$

231

 
Add:
Depreciation, depletion, and amortization

190

200

220

223

227

216

227

238

237

229

168

Equity loss 1 1 2 3 6 9
Income taxes* 77 97 135 113 77 14 12 103 98 159 103
Other   (5 )   1   1   20   1   6     (2 )   1   1   (2 )   (1 )
 
Adjusted EBITDA* $ 495   $ 589 $ 656 $ 675 $ 456 $ 195   $ 131   $ 583 $ 599 $ 738   $ 510  
 
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

1,508

 
Adjusted EBITDA / Total shipments ($ per metric ton)*

$

261

$

276

$

292

$

284

$

184

$

83

$

69

$

332

$

321

$

380

$

338

 
Alcoa’s 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 Alcoa’s operating performance and the Company’s 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, which affects the determination of the segment’s profitability measure, ATOI. Management made the change 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.