Alcoa Corporation

Good afternoon and welcome to the Alcoa Corporation's second quarter 2020 earnings presentation and conference call. All participants will be in a listen-only mode. Should you need assistance, please signal conference specialists by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. To withdraw your question, please press star then two. Please know that this event is being recorded. I would now like to turn the conference over to James Dwyer, Vice President of Investor Relations. Please go ahead, sir.

Thank you, and good day, everyone. I'm joined today by Roy Harvey, Alcoa Corporation President and Chief Executive Officer, and William Oplinger, Executive Vice President and Chief Financial Officer. We will take your questions after comments by Roy and Bill. As a reminder, today's discussion will contain forward-looking statements relating to future events and expectations that are subject to various assumptions and caveats. Factors that may cause the company's actual results to differ materially from these statements are included in today's presentation and in our SEC filings. In addition, we have included some non-GAAP financial measures in this presentation. Reconciliations to the most directly comparable GAAP financial measures can be found in the appendix to today's presentation. Any reference in our discussion today to EBITDA means adjusted EBITDA. Finally, as previously announced, the earnings release and slide presentation are available on our website. With that, here's Roy.

Thank you, Jim, and thanks to everyone for joining our call today. As we previewed last week, Alcoa is progressing on each of our operational and strategic programs, acting with resolve and urgency to deliver safe and healthy operations, improved stability, and a stronger future for this company. And this quarter's strong outcome is a result of the dedication and focus of each of our teams as we face the challenges of the COVID-19 pandemic and the resulting economic downturn. We may not be able to control the macroeconomic factors that drive the price of our products, but we are aggressively executing on the items within our control. And while uncertainty continues, I am confident that our teams will innovate and improve to adapt to future situations. Before we get into the details, though, I want to begin, as I always do, with safety, our most important metric and vital for our continued success. We had no serious injuries this quarter, and we continue to manage the risks from the pandemic and to maintain healthy, safe, and stable operations. Of course, one principle of our safety program is that we must never rest comfortably, especially with the risks posed by this virus and the increasing case counts in some jurisdictions where we have important operations. such as the United States and Brazil. We are confident, however, that we've put the right measures in place to protect our people, and we have well-developed reaction plans if the situation should worsen. To put these latest financial results in context, it's important to remember that we have established three simple strategic priorities for this company to reduce complexity, drive returns, and advance sustainably, and they have helped us navigate this period from a position of relative strength Late last year, before the pandemic started its global spread, we laid out a plan to improve our cost structure with a new operating model, which is now fully implemented, and started a review of our global asset portfolio, including our existing production capacities and non-core assets. This plan will improve our portfolio and allow us to remain competitive in a fast-evolving marketplace and to succeed in a world that is becoming more focused on sustainably and responsibly produced products. It offers us a roadmap to follow as we manage the impacts of the current market while not losing sight of our longer-term strategy. Next, I would like to highlight the resilience and strength of our operations teams as evidenced by a number of achievements in the second quarter. Overall, our production is up year over year in all three segments. In Voxite, we realized a production record for the first half of the year, and in Illumina, we recorded a quarterly record for average daily production. In our aluminum segment, our Beconcourt restart continues to advance, and we are progressing with the safe and orderly curtailment of the Intalcos Melter in Washington State. We reached an agreement with the Workers' Union for severance to help mitigate the impacts of this decision, which was necessitated by significant structural issues that made the facility uncompetitive. Meanwhile, we are currently in the midst of a 30-day consultation with the Works Council that represents employees at the San Ciprian aluminum facility in Spain. No formal decisions will be made until we complete this negotiation process. During this pandemic, we've worked across our company to help create a safe, healthy, and productive environment in our operations. This teamwork, in conjunction with our supply chain, commercial, and financial team, helped drive our cash balance to $965 million through good operating performance and smart management of our working capital. Also, last week we issued $750 million of senior notes with a coupon of 5.5%, a rate lower than any of our other debt. This will provide even greater liquidity during these uncertain times and will allow greater flexibility to potentially accelerate our portfolio reviews. including making sure that non-core asset sales are executed at the right time and the right price to deliver maximum value. Put simply, through actions taken across our company to generate cash and by tapping the debt markets at a favorable time, we are in a stronger position to do what we've said, complete our portfolio review as soon as possible over the next several years, generate cash from non-core assets, and reduce net debt. Before we begin a deeper discussion of markets, I'd like to provide some additional information on our response to the COVID-19 pandemic. As I mentioned earlier, all of Alcoa's global locations continue to operate stably, whether it be a bauxite mine, alumina refinery, aluminum smelter, or rolling mill. Importantly, we have been able to maintain this stability because of our focus on the health and safety of our workforce. Globally, approximately 2% of our employees and contractors have been affected by the virus. Thankfully, most have already recovered and returned to work. The fact that we've had a relatively low number of cases among our workforce is a testament to the measures we implemented early and, of course, what we continue to do. For example, we were one of the first companies to restrict travel for our global employees. In February, as the global risk started becoming more apparent, we triggered our global crisis response team and implemented our crisis management plan. By early March, we had deployed a comprehensive approach to protect health while simultaneously conducting supply and staffing contingency planning. On the left hand of this slide, you will see a chart that gives a glimpse of the very robust approach we've used to manage through this pandemic. First, we have a global crisis management plan that provides a solid framework to guide decision-making, and protect our company. That's supplemented, in this case, with a health prevention response plan developed with best practices and with input from our own medical experts and external sources. We also have business continuity plans for our locations. They're designed to ensure continued critical supplies, logistics, and operational needs. This feeds into our global regional and location crisis response team, and allows them to anticipate potential risks and ensure response plans are utilized whenever appropriate. We have playbooks on how to effectively operate based on increasing levels of stress. We consider leading indicators such as the number of employees who are self-quarantined and isolating, infection rates in the local community, and inventory levels of critical raw materials. Lagging indicators include items such as cases of coronavirus infections among location employees, absenteeism, government directives, and other factors. From all of this, we assign a response level and deploy additional and appropriate actions. As of today, we have locations that have reached level two during this current health crisis, but due to our effective response, none have progressed to implementation of all level three actions. While this is a simplified depiction of our COVID-19 response, the team's actions to date have made a real difference and have helped us to avoid any significant impact to our operations, or our supply chains. But this crisis continues, and we will not let up our guard as we remain focused on protecting the health and safety of our workforce. Importantly, throughout this pandemic, we've also responded to assist the communities where we operate, both through the Alcoa Foundation and our company's resources. I'm proud of the work that has taken place on a humanitarian level as it further illustrates our Alcoa values in action.