Making an Economic Impact

 

We understand the importance of the economic value we create for our shareholders, customers, employees, and the communities in which we operate.

 

Disciplined financial management is essential to ensure long-term success for Alcoa and our stakeholders. We maintain robust financial controls, a strong dedication to financial returns, and an intense focus on creating value through top-line growth, strategic capital spending, and cost-reduction activities.

 

2014 Financial Performance
Objective
Key 2014 Results/Actions
Reposition the Portfolio The Global Rolled Products (GRP) and Engineered Products and Solutions (EPS) business groups, which are our value-add businesses, generated 56% of our revenues and 53% of segment profits.

We acquired Firth Rixson, a global leader in aerospace jet engine components. This business, which is being integrated into EPS, is expected to contribute revenues of US$1.6 billion in 2016 and US$2.0 billion in 2019.

Value-add products represented 65% of our total primary aluminum shipments. These cast aluminum products, which include billet, slab, and rod, are customized to meet the specific needs of our customers.

We closed or curtailed 583,000 metric tons, or 14%, of our global smelting capacity to lower our position on the global aluminum cost curve and improve our competitiveness. We also sold ownership interests in a U.S. smelter (Alcoa’s share was 115,000 metric tons) and a Jamaican refinery (Alcoa’s share was 779,000 metric tons), both of which represented high-cost capacity in the respective business portfolios.
Profitable Growth EPS increased revenue by US$273 million compared to 2013 and generated US$338 million in productivity gains, both of which led to continued growth (the highest ever) in its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) margin. Innovation and share gains were responsible for 70% of the revenue increase.

Compared to 2013, GRP achieved US$245 million in revenue growth, of which 87% was derived from innovation and share gains. It also generated US$279 million in productivity gains. This business segment’s adjusted EBITDA per metric ton was consistent with its three-year (2010-2012) average historical high.

The Global Primary Products business group, which represents our commodity business and is composed of our Alumina and Primary Metals segments, generated US$512 million in productivity gains. Along with closing or curtailing high-cost capacity, this improved its position on the alumina cost curve to the 25th percentile (from 27th) and maintained its position on the aluminum cost curve at the 43rd percentile. A stronger U.S. dollar offset actions taken related to the smelter operations.
Disciplined Execution As a company, we achieved the following:
  • Productivity gains of US$1.2 billion;
  • A stable level of average days working capital (below 30 days) from 2013, despite supporting our growth initiatives related to the automotive and aerospace end markets;
  • A debt-to-capital ratio of 37.4%, which includes a negative impact of 1.5 percentage points due to the effect of foreign currency translation as a result of a stronger U.S. dollar; and
  • Cash from operations of US$1.7 billion and capital expenditures of US$1.2 billion.

All productivity figures represent gross productivity and are presented before tax and before non-controlling interests’ share. Alcoa’s definition of adjusted EBITDA 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.

 

Complete details on our 2014 financial performance can be found in the Alcoa Annual Report.

 

Contributions to Communities

We operate in many communities throughout the world. Our contributions to those communities, and to society at large, are significant and bring social and economic benefit to regions wherever we operate.

 

The contributions we make annually include:

  • Wages that we pay and benefits that we provide to employees (59,000 in 2014);
  • Payments for services and supplies to thousands of contractors and suppliers that support our local operations;
  • Dividends to our shareholders;
  • Payments for income taxes to national, state, and local governments; and
  • Significant charitable contributions we make both financially through our business operations and Alcoa Foundation and in-kind from employee volunteers.

 

We consider it an honor and a privilege to be able to operate in the various local communities where we exist around the world. As a neighbor, we have an obligation to contribute positively to those communities each and every day. That accountability is what earns us the license to continue to operate there.

 

2014 Value Added by Region
U.S. dollars
  Asia Australia Europe North
America
South
America
Total
Sales (billions) 0.7      3.0      6.4      12.3      1.5      23.9     
Wages & Benefits (billions) 0.1      0.7      1.0      3.5      0.3      5.6     
Procurement Spend (billions) 0.4      2.5      4.6      8.9      2.2      18.6     
Income Taxes (millions) 19.3      154.9      79.4      (1.4)     49.3      301.5     
Alcoa/Alcoa Foundation Community Investments (millions) 0.5      3.6      5.1      25.2      4.0      38.4     

 

In addition to the contributions above, we paid US$161 million combined in dividends to our common and preferred shareholders and US$441 million in interest (net of interest capitalized) under our financing arrangements in 2014.

 

We understand that business decisions we make have an impact in the communities where we operate, including when we curtail or close operations. For each, we conduct extensive stakeholder engagement.

 

In 2014, the communities impacted by our curtailment or closure of smelting capacity were in Point Henry, Australia; São Luís and Poços de Caldas, Brazil; Massena, New York, USA; and Portovesme, Italy (idle since 2012).

 

As a result of the full curtailment of the Poços de Caldas smelter, we curtailed approximately 200,000 metric tons of capacity at our Poços de Caldas refinery during 2014. We also closed two rolling mills with a combined can sheet capacity of approximately 200,000 metric tons in Point Henry and Yennora, Australia, due to persistent oversupply in the packaging end market.