Attached files
| file | filename |
|---|---|
| 8-K - 8-K - Aleris Corp | alerisform8-k3q16earningsr.htm |
| EX-99.1 - EXHIBIT 99.1 - Aleris Corp | a3q16earningsrelease.htm |
1
Third Quarter 2016
Earnings Presentation
November 14, 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 presentation 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, the pending acquisition of the Company by Zhongwang USA LLC, 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 service 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;
(21) risks related to the Merger (including the possibility that the merger may not be consummated or, that, if the Merger does close, our stockholders may not realize the anticipated benefits
from the Merger) and (22) 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
Third Quarter Overview
3Q Adjusted EBITDA ($M)
$68
$53
3Q16 3Q15
Adjusted EBITDA per ton ($/t)
$306
$249
3Q15 3Q16
3Q16 Adjusted EBITDA of $53M
Strong building and construction demand; stable
global automotive volumes
Weak distribution demand; destocking aerospace
demand
Asia Pacific continuing to benefit from growing
aerospace share gains
North America performance negatively impacted
by production outages tied to Lewisport
transformation and tighter metal spreads
Continued progress on North America ABS
Project; meeting all customer milestones
Challenging Quarter
4
Announced on August 29 that Aleris is to be acquired by Zhongwang USA LLC
for $2.3B ($1.1B in equity and $1.2B in net debt)
− Zhongwang USA is controlled by a fund that is majority-owned by Mr. Liu
Zhongtian, the founder and chairman of China Zhongwang Holdings, the
second largest aluminum extrusions company in the world
Aleris will continue to be a stand alone company, maintaining name, brand and
management team
Zhongwang’s philosophy of disciplined investment will support Aleris’ long
term growth potential
Currently progressing through regulatory approvals; acquisition remains on
track for 1Q17 close
Aleris to be Acquired by Zhongwang USA
Acquisition supports Aleris in its long term growth strategy
5
Key Global End Uses
1IHS Global Insights, October 2016
Aleris YoY improvement driven by
growth in Asia Pacific volume
Backlogs remain healthy
Europe impacted by OEM inventory
destocking
Aerospace 2%
EU Premium auto builds up 2%1
Continued benefits from lightweighting
trends
Automotive
Customer destocking across supply
chain
Lower demand from Asian
customers
Heat
Exchanger
Aleris Volume Drivers
3Q YoY
Growth
4%
(9%)
6
Key Regional End Uses
Healthy industry demand
Increasing single family starts
N.A.
Building &
Construction
7%
YoY volume down as expected due
to record year in 2015
N.A.
Truck Trailer
Strong regional demand
Continued YoY growth
EU Regional
Commercial
Plate & Sheet
Operational upgrades at Lewisport
limiting available mill time
Weaker than expected demand
N.A.
Distribution
3Q YoY
Growth
(25%)
(17%)
7%
Aleris Volume Drivers
7
Project remains on target for 2017 shipments
Deployed $342M as of 3Q16 for North America ABS Project in Lewisport
On target for all key milestones; first phase of commissioning complete
for CALP I
North America ABS Project Update
2014 2015 2016F
$14 $155 $200
ESTIMATED ABS PROJECT CAPEX ($M)
3Q16 3Q16 YTD
$33 $173
First CALP Line Second CALP Line
8
Adjusted EBITDA Bridge
$68
$13
$4 $4
$53
70
60
50
40
30
$1
Volume/Mix 3Q15 3Q16 Currency/
Translation/
Other
$0
Productivity
$2
Base
Inflation
Commodity
Inflation
$2
Metal
Spreads
Price
3Q16 YTD vs. 3Q15 YTD
($M)
$183
$24
$11
$162
130
110
90
190
150
170
3Q16 YTD Currency/
Translation/
Other
$6
Productivity
$2
3Q15 YTD
$8
Base
Inflation
Commodity
Inflation
$7
Metal
Spreads
Price Volume/Mix
$7
3Q16 vs. 3Q15
9
North America
Lewisport hot mill throughput impacted by both
planned and unplanned outages related to the
North America ABS Project
Improved B&C volumes more than offset by weaker
distribution and truck trailer volumes
Metal spread environment slow to improve;
continued lower scrap availability
Volume (kT) Segment Adjusted EBITDA ($M)
3Q16 Performance 3Q Adjusted EBITDA Bridge ($M)
137 127
(7%)
3Q16 3Q15
$34
$18
3Q16 3Q15
Adj. EBITDA / ton
$249 $143
$18
$2
$3
$11
$34
$10
$5
$0
$35
$30
$25
$20
$15
$1
$1
$1
Commodity
Inflation
Metal
Spreads
Price Volume/Mix 3Q15 3Q16 Productivity Base
Inflation
10
Spreads remain tight due to continued limited scrap availability
Metal Update
$0.30
$0.25
$0.20
$0.15
$1.20
$1.15
$1.10
$1.05
$1.00
$0.95
$0.90
$0.85
$0.80
$0.35
$0.75
$0.70
Sep
2016
Jun
2016
Mar
2016
Dec
2015
Sep
2015
Jun
2015
Mar
2015
Dec
2014
Sep
2014
1Platts, Aleris Management Analysis, October 2016
P1020 (left axis) Weighted Painted Siding, Mixed Low Copper, Sheet Spread
North America Scrap Spreads1
11
Europe
Overall stable volumes and demand environment
Unfavorable mix shift due to lower aerospace
volumes
Favorable productivity and lower natural gas costs
more than offset inflation
FX trends led to modest benefits
Volume (kT) Segment Adjusted EBITDA ($M)
3Q16 Performance 3Q Adjusted EBITDA Bridge ($M)
81 82
1%
3Q16 3Q15
$41 $42
3Q16 3Q15
Adj. EBITDA / ton
$505 $512
$42
$3$4
$41
$40
$35
$30
$25
$20
$15
$10
$5
$0
$45
3Q16 Currency/
Translation/
Other
$2
Productivity Base
Inflation
$1
Commodity
Inflation
$1
Metal
Spreads
$1
Price
$0
Volume/Mix 3Q15
12
Asia Pacific
Growth in aerospace shipments while commercial
plate volume remained flat
Favorable improvement in mix drove YoY Adjusted
EBITDA growth
Step-change performance improvement reflected in
Adjusted EBITDA / ton
Volume (kT) Segment Adjusted EBITDA ($M)
3Q16 Performance 3Q Adjusted EBITDA Bridge ($M)
5.5
7.0
29%
3Q16 3Q15
$0.6
3Q16
$2.8
3Q15
Adj. EBITDA / ton
NM $398
$2.1
$0.4
$2.8
$0.4
$0.2
$0.0
$0.6
$0.0
$2.5
$3.0
$1.5
$2.0
$1.0
$0.5
3Q16 Currency/
Translation/
Other
Productivity Base
Inflation
($0.2)
Commodity
Inflation
Metal
Spreads
Price
($0.6)
Volume/Mix 3Q15
13
Cash Flow and LTM Working Capital
Net Cash Flow ($M)1
77 77 76
70
19%
21%21%21%
50
55
60
65
70
75
80
3Q16 2015 2014 2013
3Q15 3Q16
Cash provided by Operating Activities $145 $2
Capital Expenditures (54) (74)
Other / Sales Proceeds 12 (0)
Net Cash Before Financing $103 ($72)
ABL / Senior Notes / Other (129) 33
Net Cash Flow After Financing ($26) ($39)
Total LTM 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
9/30/2016
Cash $36
Availability under ABL Facility 251
Liquidity $288
Capital Structure ($M)
Liquidity Summary ($M)
$91 $82 $96 $88
$58
$234
$60
$201
$225
2014
$121
$14
2013
$188
$107
2012
$315
3Q16
YTD
$296
$4
3Q16
$74
$14
$0
2016E
$3752
$83
$280
2015
$298
Maintenance
North America ABS Project & Other Upgrades
Other Growth
Capital Expenditures Summary ($M)1
1Excludes discontinued operations CapEx of $75M, $50M, $43M, $15M in 2012-2015
2Guidance does not include capitalized interest
3Amounts exclude applicable discounts
4Other excludes $45M of exchangeable notes
5Excludes Non-Recourse China Loan Facilities
6Secured debt includes $140M of outstanding ABL Facility balance and $550M of 2021 Secured Notes
9/30/2016
Cash $36
ABL 140
Notes3 990
Non-Recourse China Loan Facilities3 194
Other3,4 5
Net Debt $1,293
LTM Adjusted EBITDA $202
Net Debt / Adj. EBITDA 6.4x
Net Recourse Debt5 / Adj. EBITDA 5.4x
Secured Debt6 / Adj. EBITDA 3.4x
15
Performance expected to be in line with the fourth quarter of 2015
Improved North America building and construction volumes
Minor weakness in Europe aerospace volumes will be offset by Asia
Pacific aerospace volumes
Continued weakness in distribution and heat exchanger volumes
4Q16 Outlook
16
Appendix
17
3Q Adjusted EBITDA Reconciliation
($M)
2016 2015 2016 2015
Adjusted EBITDA $53.3 $68.2 $162.3 $183.5
Unrealized gains (losses) on derivative financial instruments of continuing operations 8.8 (21.3) 23.6 (25.7)
Restructuring charges (0.3) (1.0) (1.8) (8.7)
Unallocated currency exchange (losses) gains on debt (0.4) (4.8) (1.0) 3.1
Stock-based compensation (expense) benefit (1.8) 1.5 (5.2) (3.9)
Start-up costs (14.1) (6.8) (30.4) (14.6)
Unfavorable metal price lag (1.2) (3.7) (0.6) (19.8)
Other (3.6) (2.8) (15.6) (15.9)
EBITDA 40.7 29.3 131.3 98.0
Int rest expense, net (19.2) (23.6) (58.4) (74.7)
(Provision for) benefit from income taxes (12.3) 1.0 (30.5) 16.0
Depreciation and amortization (26.2) (27.7) (78.8) (92.9)
(Loss) income from discontinued operations, net of tax (4.6) (4.4) (4.6) 115.0
Net (loss) income attributable to Aleris Corporation (21.6) (25.4) (41.0) 61.4
Net income from discontinued operations attributable to noncontrolling interest — — — 0.1
Net (loss) income ($21.6) ($25.4) ($41.0) $61.5
For the three months ended
September 30,
For the nine months ended
September 30,
18
3Q Adjusted EBITDA Reconciliation by
Segment
($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 $18.1 $36.4 $69.8 $93.0
Unfavorable (favorable) metal price lag 0.1 (2.2) (2.6) 4.1
Segment Adjusted EBITDA1 $18.2 $34.2 $67.2 $97.1
Europe
Segment income $40.7 $35.1 $113.8 $99.5
Unfavorable metal price lag 1.1 5.9 3.1 15.6
Segment Adjusted EBITDA1 $41.7 $41.0 $116.9 $115.2
Asia Pacific
Segment income (loss) $2.8 $0.6 $6.2 ($1.2)
Segment Adjusted EBITDA2 $2.8 $0.6 $6.2 ($1.2)
For the three months ended
September 30,
For the nine months ended
September 30,
19
3Q Adjusted EBITDA Per Ton Reconciliation
($M, except per ton measures, volume in thousands of tons)
*Result is not meaningful
1See prior slides for a reconciliation to the applicable GAAP financial measures
2016 2015 2016 2015
Metric tons of finished product shipped:
North America 127.5 137.3 376.7 384.4
Europe 81.5 81.0 250.9 234.7
Asia Pacific 7.0 5.5 17.3 16.1
Intra-entity shipments (1.9) (0.7) (4.5) (1.8)
Total metric tons of finished product shipped 214.1 223.1 640.4 633.4
Segment Adjusted EBITDA:1
North America $18.2 $34.2 $67.2 $97.1
Europe $41.7 $41.0 $116.9 $115.2
Asia Pacific $2.8 $0.6 $6.2 ($1.2)
Corporate ($9.4) ($7.6) ($28.0) ($27.6)
Total Adjusted EBITDA $53.3 $68.2 $162.3 $183.5
Segment Adjusted EBITDA per ton shipped:
North America $142.7 $249.0 $178.4 $252.7
Europe $511.7 $505.5 $466.0 $490.7
Asia Pacific $398.0 * $359.0 *
Aleris Corporation $248.9 $305.5 $253.5 $289.6
For the three months ended
September 30,
For the nine months ended
September 30,
20
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 $47 $61 $39 $64 $40 $48 $62 $53
(–) Income / (expense) from metal
price lag
9 6 (22) (4) 1 4 (3) (1)
Adj. EBITDA as reported $39 $55 $60 $68 $39 $45 $65 $53
4Q 2014 1Q 2015 2Q 2015 3Q 2015 4Q 2015 1Q 2016 2Q 2016 3Q 2016
Metal price lag impact on gross
profit
$9 ($6) ($16) ($24) $0 $11 $6 $8
(+) Realized gains / (losses) on
metal derivatives
0 12 (6) 20 1 (7) (9) (9)
(Unfavorable) / favorable metal
price lag net of realized
derivative gains / losses
$9 $6 ($22) ($4) $1 $4 ($3) ($1)
21
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