Attached files
| file | filename |
|---|---|
| EX-99.1 - EXHIBIT 99.1 - Aleris Corp | a2q16earningsrelease.htm |
| 8-K - 8-K - Aleris Corp | alerisform8-k2q16earningsr.htm |
1
Second Quarter 2016
Earnings Presentation
August 4, 2016
2
IMPORTANT INFORMATION
This information is current only as of its date and may have changed. We undertake no obligation to update this information in light of new information, future events or otherwise. This
information contains certain forecasts and other forward looking information concerning our business, prospects, financial condition and results of operations, and we are not making any
representation or warranty that this information is accurate or complete. See “Forward-Looking Information” below.
BASIS OF PRESENTATION
We completed the sale of our recycling and specification alloys and extrusions businesses in the first quarter of 2015. We have reported these businesses as discontinued operations for all
periods presented, and reclassified the results of operations of these businesses as discontinued operations. Except as otherwise indicated, the discussion of the Company’s business and
financial information throughout this presentation refers to the Company’s continuing operations and the financial position and results of operations of its continuing operations.
FORWARD-LOOKING INFORMATION
Certain statements contained in this press release are “forward-looking statements” within the meaning of the federal securities laws. Statements under headings with “Outlook” in the title and
statements about our beliefs and expectations and statements containing the words “may,” “could,” “would,” “should,” “will,” “believe,” “expect,” “anticipate,” “plan,” “estimate,” “target,”
“project,” “look forward to,” “intend” and similar expressions intended to connote future events and circumstances constitute forward-looking statements. Forward-looking statements include
statements about, among other things, future costs and prices of commodities, production volumes, industry trends, anticipated cost savings, anticipated benefits from new products, facilities,
acquisitions or divestitures, projected results of operations, achievement of production efficiencies, capacity expansions, future prices and demand for our products and estimated cash flows
and sufficiency of cash flows to fund capital expenditures. Forward-looking statements involve known and unknown risks and uncertainties, which could cause actual results to differ
materially from those contained in or implied by any forward-looking statement. Some of the important factors that could cause actual results to differ materially from those expressed or
implied by forward-looking statements include, but are not limited to, the following: (1) our ability to successfully implement our business strategy; (2) the success of past and future
acquisitions and divestitures; (3) the cyclical nature of the aluminum industry, material adverse changes in the aluminum industry or our end-uses, such as global and regional supply and
demand conditions for aluminum and aluminum products, and changes in our customers’ industries; (4) increases in the cost, or limited availability, of raw materials and energy; (5) our ability
to enter into effective metal, energy and other commodity derivatives or arrangements with customers to manage effectively our exposure to commodity price fluctuations and changes in the
pricing of metals, especially London Metal Exchange-based aluminum prices; (6) our ability to generate sufficient cash flows to fund our capital expenditure requirements and to meet our debt
obligations; (7) our ability to fulfill our substantial capital investment requirements; (8) competitor pricing activity, competition of aluminum with alternative materials and the general impact of
competition in the industry end-uses we serve; (9) our ability to retain the services of certain members of our management; (10) the loss of order volumes from any of our largest customers;
(11) our ability to retain customers, a substantial number of whom do not have long-term contractual arrangements with us; (12) risks of investing in and conducting operations on a global
basis, including political, social, economic, currency and regulatory factors; (13) variability in general economic conditions on a global or regional basis; (14) current environmental liabilities
and the cost of compliance with and liabilities under health and safety laws; (15) labor relations (i.e., disruptions, strikes or work stoppages) and labor costs; (16) our internal controls over
financial reporting and our disclosure controls and procedures may not prevent all possible errors that could occur; (17) our levels of indebtedness and debt service obligations, including
changes in our credit ratings, material increases in our cost of borrowing or the failure of financial institutions to fulfill their commitments to us under committed credit facilities; (18) our ability
to access the credit or capital markets; (19) the possibility that we may incur additional indebtedness in the future; (20) limitations on operating our business as a result of covenant
restrictions under our indebtedness, and our ability to pay amounts due under the Senior Notes; and (21) other factors discussed in our filings with the Securities and Exchange Commission,
including the sections entitled “Risk Factors” contained therein. Investors, potential investors and other readers are urged to consider these factors carefully in evaluating the forward-looking
statements and are cautioned not to place undue reliance on such forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements,
whether in response to new information, futures events or otherwise, except as otherwise required by law.
NON-GAAP INFORMATION
The non-GAAP financial measures contained in this presentation (including, without limitation, EBITDA, Adjusted EBITDA, commercial margin, and variations thereof) are not measures of
financial performance calculated in accordance with U.S. GAAP and should not be considered as alternatives to net income and loss attributable to Aleris Corporation or any other
performance measure derived in accordance with GAAP or as alternatives to cash flows from operating activities as a measure of our liquidity. Non-GAAP measures have limitations as
analytical tools and should be considered in addition to, not in isolation or as a substitute for, or as superior to, our measures of financial performance prepared in accordance with GAAP.
Management believes that certain non-GAAP financial measures may provide investors with additional meaningful comparisons between current results and results in prior periods.
Management uses non-GAAP financial measures as performance metrics and believes these measures provide additional information commonly used by the holders of our senior debt
securities and parties to the 2015 ABL Facility with respect to the ongoing performance of our underlying business activities, as well as our ability to meet our future debt service, capital
expenditure and working capital needs. We calculate our non-GAAP financial measures by eliminating the impact of a number of items we do not consider indicative of our ongoing operating
performance, and certain other items. You are encouraged to evaluate each adjustment and the reasons we consider it appropriate for supplemental analysis. See “Appendix.”
INDUSTRY INFORMATION
Information regarding market and industry statistics contained in this presentation is based on information from third party sources as well as estimates prepared by us using certain
assumptions and our knowledge of these industries. Our estimates, in particular as they relate to our general expectations concerning the aluminum industry, involve risks and uncertainties
and are subject to changes based on various factors, including those discussed under “Risk Factors” in our filings with the Securities and Exchange Commission.
Forward-Looking and Other Information
3
$8M of YoY metal headwinds limited Adjusted EBITDA growth
2Q16 Adjusted EBITDA of $65M
Strong demand in key end uses
Unfavorable impact of $8M from
challenging metal spreads
Solid improvement in Europe & Asia
Pacific
Continued progress on North America
ABS project; remains on track
Signed multi-year agreement with Airbus
in July
AOS OpEx focus to drive higher efficiency
Second Quarter Overview
2Q Adjusted EBITDA ($M)
$60 $65
7%
2Q16 2Q15
Adjusted EBITDA per ton ($/t)
$292$286
2Q15 2Q16
4
Key Global End Uses
1IHS Global Insights, July 2016
Aleris YoY improvement driven by
strong growth in China volume
Global demand remains solid
Aerospace 19%
EU premium Auto builds up 13%1
Continued benefits from lightweighting
trends
Automotive
Increased seasonal customer
destocking
Industry fundamentals remain solid
Heat
Exchanger
Aleris Volume Drivers
2Q YoY
Growth
17%
(4%)
5
Agreement significantly expands Aleris’ range of products with Airbus
Airbus multi-year agreement
beginning in 2017
Aleris aluminum plate and sheet will
be used in production of all Airbus
aircraft programs; expected to deliver
increased volumes
Contract introduces new alloys &
wing skins to our product mix, a
higher value mix
Extends our strategic relationship with
Airbus
Airbus Multi-Year Supply Agreement
Koblenz,
Germany
Zhenjiang,
China
Products supplied from facilities in
Koblenz, Germany and Zhenjiang,
China – leverages our global
aerospace platform
6
Key Regional End Uses
Healthy industry demand
Increasing single family starts
Volume growth limited by operational
bottlenecks
N.A.
Building &
Construction
4%
YoY volume down as expected due
to record year in 2015
N.A.
Truck Trailer
Strong regional demand
Continued YoY growth
Limited Brexit impact
Debottleneck capacity to improve mix
EU Regional
Commercial
Plate & Sheet
Continued focus to move to more
customized bill of material business
Operational upgrades at Lewisport
limiting available mill time
N.A.
Distribution
2Q YoY
Growth
1%
(12%)
25%
Aleris Volume Drivers
7
Project remains on target for 2017 shipments
Deployed $309M as of 2Q16 for Lewisport ABS expansion
Installations and commissioning continue to show progress; on target for
all key milestones
Lewisport Automotive Expansion Update
2014 2015 2016F
$14 $155 $200
ESTIMATED LEWISPORT ABS EXPANSION CAPEX ($M)
2Q16
$62
8
Adjusted EBITDA Bridge
$60
$5 $8
$65
25
30
35
40
45
50
55
60
65
70
2Q16 Currency/
Translation/
Other
$3
Productivity
$4
Base
Inflation
$3
Commodity
Inflation
$2
Metal
Spreads
Price
$1
Volume/Mix 2Q15
1H16 vs. 1H15
($M)
$115
$12 $20
$109
20
40
60
80
100
120
140
1H16 Currency/
Translation/
Other
$7
Productivity
$6
Base
Inflation
$8
Commodity
Inflation
$5
Metal
Spreads
Price
$6
Volume/Mix 1H15
2Q16 vs. 2Q15
9
North America
Metal spread environment remains challenging;
continued lower scrap availability
Unable to offset metal headwinds with volume
growth
Operational issues limited our ability to take full
advantage of demand
Volume (kT) Segment Adjusted EBITDA ($M)
2Q16 Performance 2Q Adjusted EBITDA Bridge ($M)
127 129
2Q15
2%
2Q16
$34
$28
2Q16 2Q15
Adj. EBITDA / ton
$269 $219
$28
$7
$34
$30
$15
$35
$25
$40
$20
$10
$5
$0
2Q16 Productivity
$0
Base
Inflation
$2
Commodity
Inflation
$1
Metal
Spreads
Price
$1
Volume/Mix
$1
2Q15
10
Continued decline in spreads; low P1020 prices and below average scrap availability
Metal Update
$1.00
$0.20
$1.20
$0.85
$1.10
$0.95
$0.90
$1.05
$0.35
$0.25
$1.15
$0.30
$0.15
$0.80
$0.75
$0.70
Jun
2016
Mar
2016
Dec
2015
Sep
2015
Jun
2015
Mar
2015
Dec
2014
Sep
2014
Jun
2014
1Platts, Aleris Management Analysis, July 2016
P1020 (left axis) Weighted Painted Siding, Mixed Low Copper, Sheet Spread
North America Scrap Spreads1
11
Europe
Volume increase driven by strong Automotive and
Regional Plate & Sheet demand
Productivity and lower natural gas costs more than
offset base inflation
Operational issues limited growth in Aerospace
Volume and mix drove improved Adj. EBITDA / ton
Volume (kT) Segment Adjusted EBITDA ($M)
2Q16 Performance 2Q Adjusted EBITDA Bridge ($M)
79
87
11%
2Q16 2Q15
$35
$43
2Q16 2Q15
Adj. EBITDA / ton
$447 $487
$43
$3
$35
$10
$40
$30
$20
$15
$35
$45
$5
$25
$0
Currency/
Translation/
Other
$2
Productivity 2Q16
$1
Volume/Mix
$3
2Q15 Base
Inflation
Metal
Spreads
$1
Commodity
Inflation
$1 $1
Price
12
Asia Pacific
Record Aerospace shipment volume offset decline
in Commercial Plate shipments
Favorable improvement in mix drove YoY Adjusted
EBITDA growth
Step change performance improvement reflected in
Adj. EBITDA / ton
Volume (kT) Segment Adjusted EBITDA ($M)
2Q16 Performance 2Q Adjusted EBITDA Bridge ($M)
5.4 5.4
2Q16 2Q15
(1%)
$0.1
2Q16
$2.5
2Q15
Adj. EBITDA / ton
NM $469
$1.8
$0.3
$0.5
$0.4
$2.5
$0.0
$0.1
$0.0
$2.0
$2.5
$1.5
$1.0
$3.0
$0.5
Base
Inflation
2Q16 Currency/
Translation/
Other
Metal
Spreads
Productivity Commodity
Inflation
($0.2)
2Q15 Price
($0.5)
Volume/Mix
13
Cash Flow and LTM Working Capital
Net Cash Flow ($M)1
77 77 76
70
19%
21%21%21%
50
55
60
65
70
75
80
2Q16 2015 2014 2013
Inventory reduction continuing to drive working
capital improvement
Operating cash flow benefits from lower aluminum
prices and working capital improvements
2Q15 2Q16
Cash provided (used) by Operating Activities $47 $33
Capital Expenditures (56) (100)
Other / Sales Proceeds 57 (1)
Net Cash Before Financing $49 ($68)
ABL / Senior Notes / Other (4) 81
Net Cash Flow After Financing $45 $13
Total Working Capital Days2,3
1Reflects cash flows of continuing operations and discontinuing operations as permitted by US GAAP
2Nichols sales and working capital included in 2013 & 2014; See Appendix for more detail
3Pro forma for divestitures of Global Recycling and Extrusions businesses
14
Sufficient liquidity to support growth objectives
Capital & Liquidity Overview
6/30/2016
Cash $75
Availability under ABL Facility 283
Liquidity $358
Capital Structure ($M)
Liquidity Summary ($M)
$91 $82 $96 $88
$44
$174
$82
$201
$225
$4
2Q16
$100
$16
$2
2016E
$350-$375
$58-83
$280
2015
$315
1H16
$222
$14
2013
$188
$107
2012
$298
2014
$121
Lewisport ABS Project & Other Upgrades
Maintenance
Other Growth
Capital Expenditures Summary ($M)1
1Excludes discontinued operations CapEx of $75M, $50M, $43M, $15M in 2012-2015
2Amounts exclude applicable discounts
3Other excludes $44M of exchangeable notes
4Excludes Non-Recourse China Loan Facilities
5Secured debt includes $100M of outstanding ABL Facility balance and $550M of 2021 Secured Notes
6/30/2016
Cash $75
ABL 100
Notes2 990
Non-Recourse China Loan Facilities2 200
Other2,3 5
Net Debt $1,220
LTM Adjusted EBITDA $217
Net Debt / Adj.EBITDA 5.6x
Net Recourse Debt4 / Adj. EBITDA 4.7x
Secured Debt5 / Adj. EBITDA 3.0x
15
Year-over-year performance expected to exceed second half of 2015
Global Aerospace volumes expected to exceed prior year
Improved North America Building and Construction volumes
Order patterns for regionally-based Europe Plate and Sheet and B&C
products expected to outpace prior year
Unfavorable metal spreads and tight scrap supply will continue to impact
results; impact expected to be less significant than in the first half of 2016
Aleris Operating System is expected to drive favorable productivity as
operating performance improves and stabilizes
2H16 Outlook
16
Appendix
17
2Q Adjusted EBITDA Reconciliation
($M)
2016 2015 2016 2015
Adjusted EBITDA $64.5 $60.3 $109.0 $115.3
Unrealized gains (losses) on derivative financial instruments of continuing operations 5.6 15.2 14.8 (4.3)
Restructuring charges (0.6) (4.9) (1.4) (7.7)
Unallocated currency exchange (losses) gains on debt (0.6) (1.9) (0.5) 7.9
Stock-based compensation expense (1.7) (2.6) (3.4) (5.3)
Start-up costs (10.0) (3.9) (16.4) (7.8)
(Unfavorable) favorable metal price lag (3.1) (21.7) 0.7 (16.1)
Other (10.2) (6.8) (12.1) (13.2)
EBIT A 43.9 33.7 90.7 68.8
Interest expense, net (21.1) (24.5) (39.2) (51.1)
(Provision for) benefit from income taxes (9.4) 12.7 (18.2) 14.9
Depreciation and amortization (26.4) (28.7) (52.7) (65.2)
(Loss) income from discontinued operations, net of tax — (11.8) — 119.4
Net (loss) income attributable to Aleris Corporation (13.0) (18.6) (19.4) 86.8
Net income from discontinued operations attributable to noncontrolling interest — — — 0.1
Net (loss) income ($13.0) ($18.6) ($19.4) $86.9
For the three months ended
June 30,
For the six months ended
June 30,
18
2Q Quarterly Adjusted EBITDA
Reconciliation
($M)
2016 2015 2016 2015
Adjusted EBITDA $64.5 $60.3 $109.0 $115.3
Unrealized gains (losses) on derivative financial instruments of continuing operations 5.6 15.2 14.8 (4.3)
Restructuring charges (0.6) (4.9) (1.4) (7.7)
Unallocated currency exchange (losses) gains on debt (0.6) (1.9) (0.5) 7.9
Stock-based compensation expense (1.7) (2.6) (3.4) (5.3)
Start-up costs (10.0) (3.9) (16.4) (7.8)
(Unfavorable) favorable metal price lag (3.1) (21.7) 0.7 (16.1)
Other (10.2) (6.8) (12.1) (13.2)
EBITDA 43.9 33.7 90.7 68.8
Interest expense, net (21.1) (24.5) (39.2) (51.1)
(Provision for) benefit from income taxes (9.4) 12.7 (18.2) 14.9
Depreciation and amortization (26.4) (28.7) (52.7) (65.2)
(Loss) income from discontinued operations, net of tax — (11.8) — 119.4
Net (loss) income attributable to Aleris Corporation (13.0) (18.6) (19.4) 86.8
Net income from discontinued operations attributable to noncontrolling interest — — — 0.1
Net (loss) income ($13.0) ($18.6) ($19.4) $86.9
For the three months ended
June 30,
For the six months ended
June 30,
19
2Q Adjusted EBITDA Reconciliation by
Segment
($M)
1Amounts may not foot as they represent the calculated totals based on actual amounts and not the rounded amounts presented in this table
2There was no difference between segment income and segment Adjusted EBITDA for this segment
2016 2015 2016 2015
North America
Segment income $27.6 $24.6 $51.7 $56.6
Unfavorable (favorable) metal price lag 0.7 9.6 (2.7) 6.3
Segment Adjusted EBITDA1 $28.3 $34.2 $49.0 $62.9
Europe
Segment income $40.2 $23.0 $73.2 $64.4
Unfavorable metal price lag 2.4 12.1 2.0 9.8
Segment Adjusted EBITDA1 $42.6 $35.1 $75.2 $74.2
Asia Pacific
Segment income $2.5 $0.1 $3.4 ($1.8)
Segment Adjusted EBITDA2 $2.5 $0.1 $3.4 ($1.8)
For the three months ended
June 30,
For the six months ended
June 30,
20
2Q Adjusted EBITDA Per Ton Reconciliation
($M, except per ton measures, volume in thousands of tons)
*Result is not meaningful
1Finished product shipped excludes slab and billet sales from the Voerde and Koblenz cast houses
2See prior slides for a reconciliation to the applicable GAAP financial measures
2016 2015 2016 2015
Metric tons of finished product shipped:
North America 130 127 249 247
Europe1 87 79 169 154
Asia Pacific 5 5 10 11
Intra-entity shipments (1) (1) (3) (1)
Total metric tons of finished product shipped 221 211 426 410
Segment Adjusted EBITDA:2
North America $28.3 $34.2 $49.0 $62.9
Europe $42.6 $35.1 $75.2 $74.2
Asia Pacific $2.5 $0.1 $3.4 ($1.8)
Corporate ($8.9) ($9.1) ($18.6) ($20.0)
Total Adjusted EBITDA $64.5 $60.3 $109.0 $115.3
Segment Adjusted EBITDA per ton shipped:
North America $218.6 $268.7 $196.6 $254.7
Europe1 $487.1 $447.0 $444.0 $482.9
Asia Pacific $468.6 * $332.4 *
Aleris Corporation $291.9 $286.2 $255.8 $281.0
For the three months ended
June 30,
For the six months ended
June 30,
21
Robust risk management discipline minimizes commodity price exposure
Metal Hedging Practices
Pass through pricing and tolling
Minimize inventory levels
Sell 100% of open inventory forward
LME and regional premium volatility
(inventory exposure)
Risk Impact Mitigation Strategy
Lowers margin volatility
Minimizes earnings impact
Risk limited to turn of inventory
(“metal lag”)
Match sales with physical purchases or LME
forwards
Attempt to minimize LT fixed price sales
Forward price sales Locks in rolling margin
Reduces multiyear dated
derivatives
Adjusted EBITDA vs. Metal price lag
Adj. EBITDA including metal lag $57 $47 $61 $39 $64 $40 $48 $68
(–) Income / (expense) from metal
price lag
2 9 6 (22) (4) 1 4 ($3)
Adj. EBITDA as reported $55 $39 $55 $60 $68 $39 $45 $65
3Q 2014 4Q 2014 1Q 2015 2Q 2015 3Q 2015 4Q 2015 1Q 2016 2Q 2016
Metal price lag impact on gross
profit
$25 $9 ($6) ($16) ($24) $0 $11 $6
(+) Realized gains / (losses) on
metal derivatives
(24) 0 12 (6) 20 1 (7) (9)
(Unfavorable) / favorable metal
price lag net of realized
derivative gains / losses
$2 $9 $6 ($22) ($4) $1 $4 ($3)
22
Working Capital Excluding Nichols
84
78
21%
23%
50
55
60
65
70
75
80
85
90
2013 2014
Total Working Capital Days1
1Excludes management estimates of Nichols working capital and sales prior to acquisition