Alcoa 2014 Annual Report

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Alcoa 2014 Annual Report ANNUAL REPORT 2014 ANNUAL REPORT TRANSFORMING ANNUAL REPORT 2014 ALCOA WHO WE ARE Alcoa is a global leader in lightweight metals packaging, high performance defense vehicles technology, engineering and manufacturing. across air, land and sea, deeper oil and gas Alcoa innovates multi-material solutions drilling and more efficient power generation. that advance our world. Our technologies We pioneered the aluminum industry over enhance transportation, from automotive 125 years ago, and today, our 59,000 people and commercial transport to air and space in 30 countries deliver value-add products travel, and improve industrial and consumer made of titanium, nickel and aluminum, and electronics products. We enable smart produce best-in-class bauxite, alumina and buildings, sustainable food and beverage primary aluminum products. CHAIRMAN’S LETTER This year was an important milestone in nickel metals capabilities and expand our footprint in Europe and Alcoa’s transformation. In recent years, my China. We are creating a leading portfolio position across all major shareholder letters focused on our many components of a jet engine on the most attractive and highest efforts to keep the Alcoa ship on course while growth engine platforms. Combined with our innovation advances in buffeted by external events. Year after year, aircraft structures, particularly in our breakthrough aluminum-lithium we proved that we can weather the storms extrusions and electromagnetic energy management fastening that batter our industry. In 2014, as in the systems technologies, Alcoa will be a driving force in advancing years before but with an accelerated pace, next-generation aircraft. Because our customers recognize that we discharged legacy issues that were slowing Alcoa’s innovations play a vital role in new aircraft fleets by us down. This enables us to transform Alcoa improving fuel efficiency by 20%, reducing engine fuel burn by faster and to better control our destiny in a 15% and decreasing maintenance costs by 30%, they depend on world of continuing economic uncertainty. us to help them shape the future of the aerospace industry. Our transformation goals are two-fold: to build Alcoa’s value- In the automotive sector, we have built on Alcoa’s A951 bonding add portfolio of multi-material, innovation-rich businesses that process, the breakthrough that enables the automotive industry to serve high-growth end markets, and to increase the global shift to aluminum intensive vehicles. The first high-volume model to competitiveness of our commodity portfolio by moving further make that shift is Ford’s F-150 pickup, the highest selling vehicle down the alumina and aluminum cost curves. These goals draw in the United States. By replacing its steel body with military-grade on Alcoa’s innovation strengths in our value-add businesses and aluminum, Ford reduced the weight of the new F-150 by more than proven cost management systems in our commodity business. 700 pounds and offers its customers significant fuel economies, We are focusing our value-add businesses on multiple growth heavier payload, improved handling and greater ruggedness. As markets like aerospace and automotive. We are structuring our other automotive manufacturers transition to aluminum, we forecast commodity business for continued profitability during the cyclical that Alcoa’s 2013 auto sheet revenues of $229 million prior to the swings in the price of aluminum, profiting more when prices are shift, will triple by 2015 and then double to $1.3 billion by 2018. high and remaining competitive when prices are low. To provide us the technologies and capacity to begin capturing that explosive growth, we launched an expansion and modernization of Our transformation strategy, both its current impact and its future our rolling mills in Iowa and Tennessee. Most importantly, we also growth potential, has greatly improved our operating performance. announced new advanced aluminum alloys that combine higher As a result, 2014 was another solid year of Alcoa business strength with lower weight and improved formability, while showing performance and transformation progress that delivered significant automotive grade surface quality. These material characteristics are returns to our shareholders. Our stock price increased by 49% over what every vehicle designer dreams of, but so far never had, and the course of the year, compared to 5% for the S&P 500® Materials will be made possible by Alcoa’s truly revolutionary Micromill™ Index and 8% for the Dow Jones Industrial Average (DJIA). On a production technology. Automotive manufacturers also have three-year basis, Alcoa outperformed the S&P 500® Materials Index responded favorably to the fact that the Micromill will reduce the and DJIA by 38 and 37 percentage points, respectively. time to produce aluminum coil from molten metal to 20 minutes Our sustained performance stems from Alcoa’s innovation strengths from 20 days. and our partnerships with our customers to create new applications Alcoa innovation is driving profitable growth across multiple that are transforming entire industries and expanding Alcoa’s market business areas. We launched a new portfolio of foundry alloys to share. As our high employee-engagement scores attest, we have support the automotive industry’s relentless pursuit of lighter, more unleashed the innovative energies of Alcoans. Another year of strong efficient power trains and suspension components. We invented a financial performance reinforces confidence in Alcoa’s ability to four-layer brazing sheet for automotive, residential and commercial consistently deliver on our commitments and provide the means to condensers and evaporators that are undergoing an exciting make investments critical to Alcoa’s future growth. transition from copper to aluminum. The aerospace industry’s In the aerospace sector, we completed the acquisition of Firth first aluminum fan blade forging that Alcoa developed for Pratt & Rixson and in the first quarter of 2015 closed on the purchase of Whitney’s jet engines that use its Geared Turbofan™ technology TITAL, which together will double Alcoa’s content on key new- recently qualified for Airbus’ new A320neo. In the commercial generation jet engine programs. These acquisitions will provide transportation sector, our latest aluminum wheel model, the Ultra Alcoa with leading-edge technologies, strengthen our titanium and ONE™ with MagnaForce™ alloy, is 47% lighter than a steel wheel, 2 enabling truck drivers to increase their fuel savings and payloads. us to attract, develop and motivate outstanding talent, resulting in For our U.S. military customers, we produced the world’s largest a 57% increase in our employee engagement scores in the past aluminum forging for the armored undercarriage of troop transport eight years. Each year, we also measure the effectiveness of our vehicles, an innovation that will save countless soldiers’ lives. The Customer Advantage through an industry-wide program called increased thermal performance and superior blast resistance of Net Promoter Score (NPS); in 2014, we exceeded the industrial Alcoa’s windows and framing systems for the facades of nonresidential Best-in-Class NPS rating by more than four points. Our Technology buildings have become an indispensable part of the green building Advantage enables our businesses to work with our Alcoa Technical phenomenon to improve energy efficiency by 25%. Aluminum Center to develop the many innovations we describe in this report. bottles and aseptic foil are breathing new life into our packaging During my visits to Alcoa facilities around the world in 2014, it has business. In each of those markets, our technologies are enabling been gratifying to see the Alcoa Advantage in action. To single out our customers—and therefore Alcoa—to gain market share. just one of hundreds of examples, during a visit with the CEO of a We also took decisive actions in 2014 to improve the profitability major aerospace customer of our power and propulsion business of our commodity business. We reduced the capacity of our smelting in Whitehall, Michigan, one of our newly-hired engineers, Peter business by 549 thousand metric tons through divestitures, closures Takunjo, demonstrated an acoustic emissions technology that he and curtailments of high-cost assets. Construction of the Ma’aden- developed to detect cracks in ceramic cores early on. As those Alcoa integrated aluminum complex in Saudi Arabia neared cracks were previously only discovered during final testing at the completion in 2014, under budget and ahead of schedule. The end of the manufacturing cycle, the new technology dramatically cut combination of the highly profitable Saudi complex, the reduction of costs in our manufacturing process and improved on-time delivery high-cost facilities and significant productivity improvements in our to our customers. Peter’s recruitment and development at Alcoa, remaining upstream operations are expected to enable us to achieve and his opportunity as a newly-hired engineer to work on one of our 2016 targets of reaching the 21st and 38th percentiles on the Alcoa’s most sophisticated products for a key customer, is a classic respective alumina refining and aluminum smelting cost curves. example of the Alcoa Advantage working together in a way that no competitor can match. In 2014, we made significant progress in exerting greater control of our commodity business. Since introducing the Alumina Price In addition to the Alcoa Advantage, our businesses benefit from a Index (API) in 2010 to sell our smelter-grade alumina at prices that set of Alcoa Values that have endured the test of time—Integrity; represent alumina market fundamentals rather than being linked to Respect; Environment, Health and Safety; Innovation; and Excellence. the volatile aluminum price on the London Metal Exchange, we have Serving as our Company’s North Star, Alcoa’s Values guided the been steadily increasing our API/spot sales. In 2014, 68% of total generations of Alcoans who came before us. Those same Values third-party smelter-grade alumina sales were based on API/spot are attracting the best and brightest of today’s generation to Alcoa market pricing, up from 55% in 2013.
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