Alcoa 2019 Annual Report 1

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Alcoa 2019 Annual Report 1 2019 ANNUAL REPORT 74384.indd 1 3/13/20 1:04 PM Bauxite Alcoa is among the world’s largest bauxite producers, and we operate with effi cient and sustainable mining practices, including environmental management through biodiversity initiatives and stakeholder engagement. With ownership in seven active bauxite mines globally, we maintain a fi rst-quartile cost position with reserves located near strategic markets, supplying both our own internal refi nery system and third-party customers. In 2019, this segment set annual production records. PRODUCTION: 47.4 million dry metric tons TOTAL SHIPMENTS: 47.6 million dry metric tons 3RD-PARTY SHIPMENTS: 6.2 million dry metric tons TOTAL REVENUE: $1.3 billion ADJUSTED EBITDA MARGIN: 39.5% Alumina We are the world’s largest alumina producer outside of China and maintain a fi rst quartile cost position. We have a competitive advantage due to our proprietary technology, process automation, and a highly skilled workforce. Our refi neries use high-quality bauxite, enabling peak effi ciency. Most of our alumina is sold to external customers for metallurgical applications. In 2019, this segment set annual production records. PRODUCTION: 13.3 million metric tons TOTAL SHIPMENTS: 13.5 million metric tons 3RD-PARTY SHIPMENTS: 9.5 million metric tons TOTAL REVENUE: $4.8 billion ADJUSTED EBITDA MARGIN: 22.8% Aluminum Our aluminum portfolio is comprised of smelting, casting, rolling, and energy assets, and is focused on being competitive through all market cycles. Most of our smelters are powered by renewable, hydro-electric generation under long-term contracts. We produce a variety of products, including value-added castings in diverse shapes and alloys, many of which were developed and patented by Alcoa. PRIMARY ALUMINUM PRODUCTION: 2.1 million metric tons 3RD-PARTY ALUMINUM PRODUCT SHIPMENTS: 2.9 million metric tons TOTAL REVENUE: $6.8 billion ADJUSTED EBITDA MARGIN: 0.4% 74384.indd 2 3/13/20 1:04 PM Our Values Alcoa 2019 Annual Report 1 Act with Integrity | Operate with Excellence | Care for People Our Strategic Priorities A stronger Alcoa through refreshed strategic priorities Operate our business and Improve commercial capabilities, assets with a focus on being invest in targeted growth opportunities, low cost, competitive, and increase margin focus across the resilient through all market cycles. value chain. Continue to strengthen the balance sheet, transform the portfolio, and leverage our industry-leading environmental and social standards for a sustainable future. Where We Operate Mosjøen Global Fjarðaál Lista Employees 1 1,2 Manicouagan Strathcona Baie-Comeau 13,800 Bécancour Deschambault Massena West San Ciprián Warrick Intalco Lake Charles2 Wenatchee3 Guinea1 BAUXITE Ma'aden JV1 Juruti Mineração Rio Do Norte1 Mine São Luís3 Estreito1 Serra do Facão1 ALUMINA Machadinho1 1 Refinery Barra Grande Poços de Caldas Willowdale Huntly ALUMINUM Pinjarra Wagerup Smelter/Casthouse Kwinana Portland Rolling Mill Location data as of December 31, 2019 Energy 1 Minority ownership, non-operating partner 2 Processes petroleum coke, a raw material used to create anodes used in aluminum smelting 3 Fully curtailed smelter 2 Letter to Stockholders In 1886, an industrious 22-year-old named In October of 2019, we announced the intention to Charles Martin Hall discovered the commercial generate between $500 million and $1 billion in cash, process to make aluminum. His invention over a 12- to 18-month period, through the sale of non-core assets. We’ve made quick progress toward transformed the world and became the this goal. In January 2020, we completed the sale foundation for the creation of Alcoa. of our waste processing business in Gum Springs, His dedication to exploring ideas and challenging Arkansas in a transaction valued at $250 million. conventions is echoed in our corporate tagline: In addition, we are currently in the fi rst year of a fi ve- “The Element of Possibility.” Today, with bauxite, year process to reshape our global portfolio with the alumina, and aluminum assets on six continents, aim of creating a cycle-proof set of assets with an we are working to recognize new possibilities and improved cost position and a smaller carbon footprint. execute swiftly on our strategy for future success. The review includes 1.5 million metric tons of global We are focused on being a low-cost producer, smelting capacity, or approximately 50 percent of our improving margins, investing wisely, and leveraging current aluminum portfolio. In Aluminum, we currently our industry-leading reputation in a world that is hold a high second quartile position on the cost curve, becoming even more focused on responsible and and we will drive to enter the fi rst quartile once we sustainable production. complete the capacity review. In 2019, we continued to strengthen our Company, In Alumina, we’ve already made signifi cant progress in guided by three strategic priorities: reduce complexity, our review of 4 million metric tons of refi ning capacity. drive returns, and advance sustainably. In December of 2019, we permanently closed the Point Comfort refi nery, trimming 2.3 million metric As we deliver on these priorities, we must focus fi rst tons from our portfolio, slightly more than half of our on safety. In 2019, three people sustained serious original review of approximately 27 percent of global injuries at Alcoa facilities and, sadly, in February refi ning capacity. At the end of the review process, 2020, a contracted worker died after an accident we expect to maintain our fi rst-quartile cost position. at the Poços de Caldas facility in Brazil. This is unacceptable. Everyone at our locations, whether Environmental performance they are an employee, contractor, temporary worker, Today, Alcoa operates as an industry leader, or visitor, must go home safely. beginning with responsibly and sustainably mined bauxite in some of the world’s most protected Actions to strengthen Alcoa areas. Our high-quality bauxite supplies third-party Since the launch of our company in November of customers and our own refi ning system, the largest 2016, we have worked to strengthen Alcoa for the outside of China. Our alumina system has the long-term, in part by managing our liabilities and industry’s lowest per ton emissions of carbon dioxide. eliminating high-cost, unprofi table capacity from our portfolio. In Aluminum, we are one of the lowest per ton emitters of carbon dioxide among global aluminum In 2019, we designed and executed on the fi rst producers, and approximately 70 percent of our stages of a multifaceted plan to drive lower costs metal is produced with renewable energy. After our and sustainable profi tability. portfolio review, we expect to be the lowest carbon In the fourth quarter, we implemented our new emitter in the global industry, with 85 percent of our operating model, which eliminates our prior business metal produced with renewable energy. unit structure, consolidates certain enterprise level An even smaller environmental footprint, strengthened functions, and puts our operations personnel closer by our portfolio actions, will provide a continued to executive-level decision-making. This streamlined competitive advantage for Alcoa, which is already approach will further reduce our already low recognized as our industry’s leader in environmental, administrative costs, driving $60 million in annual social and governance criteria. savings beginning in the second half of 2020. 74384.indd 4 3/13/20 1:04 PM Alcoa 2019 Annual Report 3 lockout at the Bécancour smelter in Québec in July 2019. The process of restarting the smelter is underway and should be completed in the second quarter of 2020, restoring the smelter to Alcoa’s full operating capacity of 310,000 metric tons. During 2019, we also completed the divestiture of the historically unprofi table Avilés and La Coruña smelting facilities in Spain after reaching an agreement with the workers’ representatives at these two facilities. Focused on the long-term Financially, 2019 was a challenging year. We fi nished Roy C. Harvey and Michael G. Morris the year with a net loss of $1.1 billion. Adjusted EBITDA excluding special items was positive $1.7 Our reputation for sustainability is reinforced by billion. However, even with lower prices in alumina our low-carbon products. Our SUSTANATM brand and aluminum in 2019, we continued to work on includes primary aluminum with the lowest carbon actions designed to strengthen our Company, dioxide intensity in the industry (2.5 metric tons of including addressing long-term liabilities. carbon dioxide per metric ton of aluminum) and billet produced with at least 50 percent recycled content. Importantly, we closed the year with a cash balance of $879 million, a notable achievement considering Meanwhile, our ELYSISTM joint venture is working our $351 million in prior year tax payments, to commercialize by 2024 an Alcoa-developed $379 million in capital projects and $292 million technology. It eliminates all direct carbon dioxide for funding pension and other postemployment emissions from the traditional smelting process, benefi ts (OPEB). producing pure oxygen instead. Apple purchased from ELYSISTM the fi rst commercial batch of this At the close of the year, our pension and OPEB metal, produced at the Alcoa Technical Center liabilities stood at $2.3 billion. That’s down from outside of Pittsburgh, in December 2019. $3.5 billion in 2017, our fi rst full year as an independent company. 2019 Achievements While we remain focused on the future, we had As we move forward, we will continue to improve notable achievements in 2019. Our global portfolio our company and work to create a cycle-proof of bauxite mines, one of the world’s largest such portfolio of assets. We will do so with the same spirit systems, increased its output, setting an annual of innovation that has defi ned Alcoa, recognizing production record of 47.4 million dry metric tons.
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