Alcoa Corporation

Good afternoon and welcome to the Alcoa Corporation third quarter 2020 earnings presentation and conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist 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 note 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.

Thank you, and good day, everyone. I'm joined today by Roy Harvey, Alcoa Corporation President and Chief Executive Officer, and William Opplinger, 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 and 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. Despite what have been turbulent and unpredictable circumstances this quarter, I am proud to report that Alcoa's performance has been strong. A few examples of this quarter's accomplishments include increasing sales revenue underpinned by improving prices and solid production, successful efforts to reduce our cost structure, and continued progress on a comprehensive set of measures that are improving our company for the long term. Let me begin my discussion with our most important initiative, safety. I'm happy to report that we had no serious injuries in the quarters. The priority we've placed on safety, which includes a systems-based approach to risk mitigation, is fundamental. The careful attention to details and to potential risks, including clear mandates to seek help when necessary, has worked to keep people safe during these uncertain times. Importantly, getting safety right allows us to perform well in other aspects of our business. While we continue to follow health-based protocols to mitigate the risks from the pandemic, our teams are also staying focused on the everyday items that can create unsafe conditions. We recognize that the pandemic can create distractions, so we are consistently communicating the importance of being laser-focused on the tasks at hand and completing pre-job briefings, as an example, to ensure we have adequate safety controls in place before ever beginning work. As far as the risks posed by the pandemic, we've had a relatively low number of cases across our company since the pandemic began, and most who were diagnosed have now fully recovered and returned to work. Meanwhile, we're not becoming overconfident. As some countries' experience arise in cases, our global and regional crisis response teams remain active. Our locations are continuing to refine and update their preparedness and response plans to ensure that they are a fit for purpose as local or regional conditions change. Put simply, the safety and well-being of our global teams remain our top priority. As we move through our presentation today, you'll see that we continue to make progress on multiple fronts. We're doing what we said we would do to improve our company. Our strategic priorities have helped strengthen us so we can succeed through all market cycles including in these uncertain and unexpected times. We entered this current period from a position of relative strength as we had a clear plan of action and we're already implementing steps to improve Alcoa for the long term. Turning to our results, we reported EBITDA of $284 million, which was a 54% sequential improvement. And we also increased our cash balance to more than $1.7 billion. at the end of the third quarter. As most will recall, we completed a bond issuance in July. The proceeds increase our flexibility to meet short-term challenges while we continue to hold to our capital allocation framework. Our new operating model, which took effect late last year, is driving down costs and increasing efficiency and output. Again this quarter, we set production records in the bauxite and alumina segments. and our commercial arm is driving a productive view of our supply chain, working capital management, and customer relationships. This operating model change has already proven its resiliency and effectiveness. Also, we are seeing improvements in our markets, which are recovering from the lows in the second quarter. We saw an 11% sequential increase in volume of value-add products within our aluminum business. In the third quarter, We also fully completed the restart of the ABI smelter in Bekankur. Separately, in August, we finished the full curtailment of our Intalco smelter, which faced significant cost challenges. I want to thank the employees there for completing safe and orderly curtailment. We've now placed the smelter in care and maintenance mode while we consider future opportunities for the site. Next, we announced last month a new addition to our Sustaina brand. which is the most comprehensive suite of sustainable products in the aluminum industry. EcoSource is the world's first low-carbon alumina brand, leveraging our leadership as the world's largest third-party supplier of smelter-grade alumina and with the lowest average carbon footprint in the industry. I do want to note an action that we announced just last week. On October 8th, we made a decision to curtail the San Cibrian smelter We made this decision within a 15-day period per Spanish regulations to consider our next steps after completing four months of consultations with the workers' representatives. The smelter has sustained significant and ongoing financial losses. We understand the significance of the decision on our employees and the community, and we are offering severance and outplacement services for the affected employees. A portion of our cast-offs will continue to cast metal separately, Our refinery continues to operate. Now, let's discuss our markets and the trends we're observing. When it comes to the observed rebound in global aluminum demand, China is leading the way. Though the restart of the Chinese economy from COVID has been faster than other regions, we are seeing improvements across the globe. First, starting from the bottom of the chart on the left, In China, industrial production, as well as the key aluminum end markets of building and construction and transportation, were all above 2019 levels as early as the second quarter. We saw continued strength in the third quarter with those three indicators up 7% when compared with the same quarter last year. In Europe and North America, which are key regions for Alcoa's aluminum customers, we see solid quarterly improvements across those sectors. While not as strong as China, demand is returning. A gradual recovery is likely in these end markets in North America and Europe, with specific improvement expected in the fourth quarter in the transportation sector, where, on a year-over-year basis, light vehicle production in North America is expected to be up 3% and up 6% in the European Union, according to automotive analysts. The building and construction market didn't suffer a demand shock as severe as the transportation sector, But commercial construction, where more aluminum is used, is likely to be slower to recover due to reduced pull for office space. Moving now to the right hand of this slide, recovery in the end markets translated into further improvements in global primary aluminum demand in the third quarter, which has increased quarter on quarter over the course of the year. In the third quarter, worldwide demand for primary aluminum was off just 4% from the same period in 2019. This has improved from the first half where there was an 11% drop in demand from the same six-month period in 2019. Two other areas indicate an improvement in aluminum demand, inventories and Chinese imports of unwrought aluminum. On inventories, we estimate that global aluminum stock growth has slowed in the second and third quarters relative to the first quarter. In China, Net imports of unraw aluminum have increased steadily over the last two quarters, showing an unusual reversal of typical trade flows. Imports of unraw, unalloyed, and alloyed metal in July and August alone totaled over 700,000 tons, up from nearly 400,000 tons in the second quarter. It is likely that these flows are comprised of a mix of both primary and secondary metal, as China seeks more aluminum due to a domestic scrap shortage a result of the limits it has placed on imports of low-grade scrap. At the same time, this trend is indicative of primary aluminum demand and prices in China having increased enough to make it profitable for China to import metal. While this trend may be temporary, it is another sign of the strength of the recovery in China. Of course, much can still happen with COVID-19 and its impacts on the global economy. Nonetheless, the third quarter provides some cautious optimism for global aluminum demand. Now, let's discuss performance in our three segments, starting with operations. We're proud of the dedicated work of our teams to keep all of Alcoa's global assets operating without interruption during the global health crisis. We remain vigilant in protecting our people and using all appropriate health-related measures. We saw consistent production improvement in the third quarter, continuing the positive momentum from the prior period. We once again saw increases in daily average production across our three segments. The productivity program we implemented in the first quarter of the year is providing sustainable, cost-saving improvements for the tons we produce. In bauxite, we are mining at a record pace. Through the third quarter, Alcoa's operated mines set a year-to-date production record, led by two of our mines in Western Australia. For alumina, we also broke a record we set in this segment last quarter for metric tons per day production. Finally, in our aluminum segment, improved operational stability is helping to drive increased output. As noted earlier, this takes into account that the ABI smelter in Quebec is now fully restarted, a task completed in the third quarter. Now, an update on our commercial activities. In bauxite, we expect steady volume in pricing for the year. In alumina, we have realized benefits from a tighter-than-expected market, driven by the improved supply-demand balances in aluminum that we discussed. Also, some supply disruptions from other producers resulted in a further tightening in the market during the third quarter. Finally, in aluminum, as we've noted, we saw an overall increase in orders for value-add products. As we mentioned in both the second and third quarters, sales of value-add products were negatively impacted by COVID, with the second quarter as a low point. In the third quarter, we saw an 11% sequential improvement, although still lower than the same period in 2019. While our customers continue to be cautious, we see signs of green shoots, although Q4 demand is still expected to remain below 2019 levels. Now I'll turn it over to Bill to discuss more fully this quarter's results.