Attached files
| file | filename |
|---|---|
| EX-99.1 - EXHIBIT 99.1 - Aleris Corp | a3q17earningsrelease.htm |
| 8-K - 8-K - Aleris Corp | alerisform8-k3q17earningsr.htm |
1
Third Quarter 2017
Earnings Presentation
November 10, 2017
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 are a direct wholly owned subsidiary of Aleris Corporation. Aleris Corporation currently conducts its business and operations through us and our consolidated subsidiaries. As used in this presentation,
unless otherwise specified or the context otherwise requires, “Aleris,” “we,” “our,” “us,” “ and the “Company” refer to Aleris International, Inc. and its consolidated subsidiaries. Notwithstanding the
foregoing, with respect to the historical financial information and other data presented in this presentation, unless otherwise specified or the context requires, “Aleris,” “we,” “our,” “us,” and the “Company’
refer to Aleris Corporation. 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 (the “Merger”), 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. Important factors that could cause actual results to differ materially from the 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 or 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) competitor pricing activity, competition of aluminum with alternative materials and the general impact of
competition in the industry end-uses we serve; (8) our ability to retain the services of certain members of our management; (9) the loss of order volumes from any of our largest customers; (10) our ability
to fulfill our substantial capital investment requirements; (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 facilities; (18) our ability to access
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.
WEBSITE POSTING
We use our investor website (investor.aleris.com) as a channel of distribution of Company information. The information we post through this channel may be deemed material. Accordingly, investors
should monitor this channel, in addition to following our press releases, Securities and Exchange Commission ("SEC") filings, and public conference calls and webcasts. The content of our website is not,
however, a part of this presentation.
Forward-Looking and Other Information
3
Third Quarter Overview
3Q Adjusted EBITDA ($M)
$53
$46
3Q16 3Q17
Adjusted EBITDA per ton ($/t)
$249
$229
3Q16 3Q17
3Q17 Adjusted EBITDA of $46M
Successful completion of complex Lewisport
hot mill outage
CALP I in production mode
Improved underlying operating performance offset by
lower volume demand
– Strong North America operating performance
and productivity; favorable metal spreads
– Planned extended Lewisport outage had
significant one-time impact in the quarter
– Slower 3Q / 2H B&C volume
– Europe unfavorably impacted by short-term
aerospace and automotive headwinds and a
weaker U.S. dollar
Executed new LTA with Bombardier with increased
volume; others pending
Critical accomplishments achieved in third quarter; moving to next phase
4
Key Global End Uses
Aleris Volume Drivers
3Q YoY
Growth
Demand growth remains strong
HEX volume upside limited by available
capacity until 2019
Heat
Exchanger 6%
Ongoing industry destocking, weaker
than expected volumes
Long-term fundamentals and backlogs
remain robust
LTA volume gains should more than
offset destocking effect going into 2018
Aerospace (14%)
Continued impact from OEM program
timing delays through 3Q17
EU capacity held to support NA
NA ABS shipments began in 4Q17
Automotive (4%)
5
Key Regional End Uses
Uneven demand trends after strong
start to year
Single family starts trending positively
2H16 delinquency catch-up contributing
to unfavorable YoY comparison
N.A.
Building &
Construction
(13%)
Better volumes than 3Q16 but cyclical
demand remains low
YTD volumes now flat compared to
prior year
N.A.
Truck Trailer
Focus on value-added product mix
Ongoing uncertainty due to elevated
LME prices
EU Regional
Commercial
Plate & Sheet
Overall end-use customer demand
environment remains favorable
Significant effects from Lewisport hot
mill outage
N.A.
Distribution (9%)
10%
(4%)
Aleris Volume Drivers
3Q YoY
Growth
6
Lewisport Outage Update
Complex outage completed; great execution by Lewisport team
Scalper
First Wide Coil:
Sep. 5, 2017 Reversing Mill
Widened the scalper
Widened the hot mill
Upgraded pre-heating equipment
Upgraded hot mill controls
ABS spec-ready
Improved reliability and uptime
Over 4,000 individual projects successfully completed during ~60-day outage
Approximately $30M Adjusted EBITDA impact from Lewisport outage in 2017
7
Automotive expansion on target to hit critical milestones
First commercial ABS coil recently shipped, focused on additional customer qualifications and contracts
Wide Cold Mill: Provisional acceptance complete
CALP I: Provisional acceptance complete; moved into production mode
CALP II: Commissioning well underway
Three of four alloys approved by primary OEM; fourth currently in aging process
North America ABS Project Update
2014 2015 2016 2017E
$13 $153 $185 $72
AUTOMOTIVE BODY SHEET (ABS) PROJECT CAPEX ($M)
3Q17
$16
CALP I CALP II Wide Cold Mill
8
Adjusted EBITDA Bridges
$46
$5
$53
20
30
40
50
60
Metal
Spreads
Base
Inflation
($6) ($1)
Productivity Volume/Mix
$1
$3
Price
($8)
3Q16 Commodity
Inflation
($1)
Currency/
Translation/
Other
3Q17
3Q17 YTD vs. 3Q16 YTD
($M)
$162
$12
$11
$164
80
120
160
200
Volume/Mix 3Q16 YTD Currency/
Translation/
Other
Metal
Spreads
Commodity
Inflation
($7)
Price
$0 $5 ($2) ($17)
Base
Inflation
3Q17 YTD Productivity
3Q17 vs. 3Q16
9
North America
Volume (kT) Segment Adjusted EBITDA ($M)
3Q17 Performance 3Q Adjusted EBITDA Bridge ($M)
127 115
3Q17 3Q16
(10%)
$18
$21
3Q16 3Q17
Adj. EBITDA / ton
$143 $186
$18
$3
$4 $4
$21
10
15
20
25
($4)
3Q16 Price Volume/Mix Productivity 3Q17 Base
Inflation
($3)
Commodity
Inflation
($1)
Metal
Spreads
As expected, volume impact from Lewisport outage,
uneven B&C demand and an unfavorable
comparison period
Improved operational performance contributed to
higher Adj. EBITDA and Adj. EBITDA / ton
Favorable metal spread environment with better
scrap flows and usage
Improved rolling margins offset by decline in B&C
and distribution volumes
10
Ongoing improvement in metal spreads and scrap trends
Metal Update
$0.30
$0.20
$1.05
$1.10
$1.00
$0.95
$0.90
$0.85
$0.75
$0.80
$0.70 $0.14
$0.22
$0.24
$0.26
$0.28
$0.32
$0.34
$0.36
$0.16
$0.18
Mar
2016
Mar
2017
Dec
2016
Dec
2015
Sep
2015
Jun
2015
Jun
2017
Mar
2015
Dec
2014
Sep
2017
Sep
2016
Jun
2016
1Platts, Aleris Management Analysis, October 2017
Weighted Painted Siding, Mixed Low Copper, Sheet Spread P1020 (left axis)
North America Scrap Spreads1
11
$29
$42
20
25
30
35
40
45
3Q16 Volume/Mix
($5)
($2)
($4)
Currency/
Translation/
Other
($3)
($0)
Price Metal
Spreads
$1
Productivity
$0
Base
Inflation
Commodity
Inflation
3Q17
Europe
Volume (kT) Segment Adjusted EBITDA ($M)
3Q17 Performance 3Q Adjusted EBITDA Bridge ($M)
82 78
3Q17
(4%)
3Q16
$42
$29
3Q16 3Q17
Adj. EBITDA / ton
$512 $365
Volume and mix lower due to continued aerospace
destocking and shift in automotive program timing;
partially offset by increased HEX volumes
Higher hardener costs and increased externally
purchased slab impacted metal spreads
FX headwinds continue to persist
12
Asia Pacific
Volumes slightly higher than prior year
Lower rolling margins due to increased competition
in more commoditized grades of commercial plate
Productivity gains from continued strong operational
performance
Volume (kT) Segment Adjusted EBITDA ($M)
3Q17 Performance 3Q Adjusted EBITDA Bridge ($M)
$3
$1
$1
$1
0
1
2
3
4
5
$0
$4
($1)
$0
($1)
Metal
Spreads
3Q17 Volume/Mix 3Q16 Base
Inflation
Currency/
Translation/
Other
Productivity Price Commodity
Inflation
7 7
7%
3Q17 3Q16
$3
$4
3Q17 3Q16
Adj. EBITDA / ton
$398 $527
13
Cash Flow and LTM Working Capital
Net Cash Flow ($M)
76
71
76
21%
19%
21%
50
55
60
65
70
75
80
3Q17 2016 2015
Total LTM Working Capital Days1
1Pro forma for divestitures of Global Recycling and Extrusions businesses
3Q16 3Q17
Cash Provided by Operating Activities $2 $43
Capital Expenditures (74) (57)
Other (0) (2)
Net Cash Before Financing ($72) ($15)
Higher LME increasing working capital investment
Additional inventory for Lewisport outage and ABS
commissioning/qualification
Balancing ABS project ramp-up and cash flow
Days % of Sales
14
1Excludes discontinued operations CapEx of $50M, $43M, $15M in 2013-2015
2Guidance does not include capitalized interest
3Includes $4M of restricted cash for payoff of China Loan Facility
4Amounts exclude applicable premiums and discounts
5Other excludes $45M of exchangeable notes
6See prior SEC filing for applicable reconciliations to GAAP financial measures
7Excludes Non-Recourse China Loan Facilities
8Secured debt includes outstanding ABL Facility balance and 2021 Secured Notes
Note: Certain amounts may not foot as they represent the calculated totals based on actual amounts
and not the rounded amounts presented in these charts and tables
Capital expenditures ramping down in 2017 and 2018
Capital & Liquidity Overview
Capital Structure ($M)
Liquidity Summary ($M)
$82 $96 $88 $74
$42
$201
$276
$157
$45
$128
$125$107
2017E
$2
3Q17
YTD
$175
3Q17
$5
$57
$10
$7
2016
$188
$230-$2402
2014
$8
$358
2015
$298
$65-$75
$121
$10
$14
2013 2018E
Maintenance
North America ABS Project & Other Upgrades
Other Growth
Capital Expenditures Summary ($M)1
9/30/2017
Cash and Restricted Cash3 $76
Availability under ABL Facility 206
Liquidity $281
9/30/2017
Cash and Restricted Cash3 $76
ABL 245
Notes4 1,240
Non-Recourse China Loan Facilities4 174
Other4,5 10
Net Debt $1,593
LTM Adjusted EBITDA6 $206
Net Debt / LTM Adj. EBITDA 7.7x
Net Recourse Debt7 / LTM Adj. EBITDA 6.9x
Net Secured Debt8 / LTM Adj. EBITDA 5.1x
15
Outlook
Fourth quarter 2017 segment income and Adjusted EBITDA expected to be lower than prior
year based on continuation of current short-term trends
Commercial shipments from first Lewisport CALP line have recently commenced and will
show meaningful ramp up in 2018 based on contracted volumes; residual outage effect
complete in 4Q
Improved metal spreads expected to continue to benefit North America
We expect building and construction fundamentals to remain healthy; fourth quarter
volumes are expected to be lower due to delinquency reductions in the prior year
Aerospace softness, due to continued supply chain destocking, and automotive model
launch delays will continue to impact Europe volumes in the fourth quarter; trends reversing
sequentially going into 2018
Weaker U.S. dollar will negatively impact Europe results in the fourth quarter
Strengthening long-term global aerospace presence
We expect liquidity to benefit from customer capacity reservation fees in early 2018
16
Appendix
17
3Q Adjusted EBITDA Reconciliation
($M)
For the three months ended For the nine months ended
2017 2016 2017 2016 2017 2016 2017 2016
Adjusted EBITDA $45.5 $53.3 $163.7 $162.3 Adjusted EBITDA $45.50 $53.30 $163.70 $162.30
Unrealized (losses) gains on derivative financial instruments (18.8) 8.8 (1.5) 23.6 Unrealized (losses) gains on derivative financial instruments -18.8 8.8 -1.5 23.6
Restructuring charges (0.9) (0.3) (2.1) (1.8) Restructuring charges -0.9 -0.3 -2.1 -1.8
Unallocated currency exchange losses on debt (1.8) (0.4) (3.1) (1.0) Unallocated currency exchange losses on debt -1.8 -0.4 -3.1 -1
Stock-based compensation expense (0.4) (1.8) (1.5) (5.2) Stock-based compensation expense -0.4 -1.8 -1.5 -5.2
Start-up costs (22.8) (14.1) (52.6) (30.4) Start-up costs -22.8 -14.1 -52.6 -30.4
Unfavorable metal price lag (1.0) (1.2) (3.6) (0.6) Unfavorable metal price lag -1 -1.2 -3.6 -0.6
Loss on extinguishment of debt - - - (12.6) Loss on extinguishment of debt - - - -12.6
Other (1.4) (3.6) (5.1) (3.0) Other -1.4 -3.6 -5.1 -3
EBITDA ($1.6) $40.7 $94.2 $131.3 EBITDA ($1.60) $40.70 $94.20 $131.30
Interest expense, net (32.0) (19.2) (90.4) (58.4) Interest expense, net -32 -19.2 -90.4 -58.4
Provision for income taxes (1.6) (12.3) (25.1) (30.5) Provision for income taxes -1.6 -12.3 -25.1 -30.5
Depreciation and amortization (30.5) (26.2) (82.0) (78.8) Depreciation and amortization -30.5 -26.2 -82 -78.8
Loss from discontinued operations, net of tax - (4.6) - (4.6) Loss from discontinued operations, net of tax - -4.6 - -4.6
Net loss ($65.7) ($21.6) ($103.3) ($41.0) Net loss ($65.70) ($21.60) ($103.30) ($41.00)
-
COPY IN FROM ER HEREFor the three months ended
September 30,
For the nine months ended
September 30,
18
3Q Adjusted EBITDA Reconciliation by Segment
($M)
1Amounts may not foot as they represent the calculated totals based on actual amounts and not the rounded amounts presented in this table
For the three months ended For the nine months ended
2017 2016 2017 2016 30-Sep-17 30-Sep-16 30-Sep-17 30-Sep-16
North America North America
Segment income $19.9 $18.1 $75.2 $69.8 Segment income $19.9 $18.1 $75.2 $69.8
Unfavorable (favorable) metal price lag 1.6 0.1 5.9 (2.6) Unfavorable (favorable) metal price lag $1.6 $0.1 $5.9 ($2.6)
Segment Adjusted EBITDA
1
$21.4 $18.2 $81.1 $67.2 Segment Adjusted EBITDA
1
$21.4 $18.2 $81.1 $67.2
Europe Europe
Segment income $28.4 $40.7 $101.7 $113.8 Segment income $28.4 $40.7 $101.7 $113.8
Unfavorable (favorable) metal price lag 0.1 1.1 (0.5) 3.1 Unfavorable (favorable) metal price lag $0.1 $1.1 ($0.5) $3.1
Segment Adjusted EBITDA
1
$28.5 $41.7 $101.2 $116.9 Segment Adjusted EBITDA1 $28.5 $41.7 $101.2 $116.9
Asia Pacific Asia Pacific
Segment income $4.3 $2.8 $10.0 $6.2 Segment income $4.3 $2.8 $10.0 $6.2
Favorable metal price lag (0.6) - (1.8) - Favorable metal price lag ($0.6) - ($1.8) -
Segment Adjusted EBITDA $3.7 $2.8 $8.3 $6.2 Segment Adjusted EBITDA $3.7 $2.8 $8.3 $6.2
(1) Amounts may not foot as they represent the calculated totals based on actual amounts and not the rounded amounts presented in this table.
For the three months ended
September 30,
For the nine months ended
September 30,
19
3Q Adjusted EBITDA Per Ton Reconciliation
($M, except per ton measures, volume in thousands of tons)
1See prior slides for a reconciliation to the applicable GAAP financial measures
For the three months ended For the nine months ended
2017 2016 2017 2016 30-Sep-17 30-Sep-16 30-Sep-17 30-Sep-16
Metric tons of finished product shipped: Metric tons of finished product shipped:
North America 115.3 127.5 361.9 376.7 North America 115.3 127.5 361.9 376.7
Europe 78.2 81.5 240.4 250.9 Europe (1) 78.2 81.5 240.4 250.9
Asia Pacific 7.1 6.6 19.4 16.9 Asia Pacific 7.1 6.6 19.4 16.9
Intra-entity shipments (1.8) (1.9) (4.5) (4.5) Intersegment shipments -1.8 -1.9 -4.5 -4.5
Total metric tons of finished product shipped 198.8 213.7 617.2 640.0 Total metric tons of finished product shipped 198.8 213.7 617.2 640
Segment Adjusted EBITDA:
1
Segment Adjusted EBITDA:
North America $21.4 $18.2 $81.1 $67.2 North America $21.40 $18.20 $81.10 $67.20
Europe 28.5 41.7 101.2 116.9 Europe 28.5 41.7 101.2 116.9
Asia Pacific 3.7 2.8 8.3 6.2 Asia Pacific 3.7 2.8 8.3 6.2
Corporate (8.1) (9.4) (26.9) (28.0) Corporate -8.1 -9.4 -26.9 -28
Total Adjusted EBITDA $45.5 $53.3 $163.7 $162.3 Total Adjusted EBITDA $45.50 $53.30 $163.70 $162.30
Segment Adjusted EBITDA per metric ton shipped: Segment Adjusted EBITDA per metric ton shipped:
North America $185.8 $142.7 $224.1 $178.4 North America $185.80 $142.70 $224.10 $178.40
Europe 364.7 511.7 420.8 466.0 Europe 364.7 511.7 420.8 466
Asia Pacific 525.5 422.8 425.0 367.9 Asia Pacific 525.5 422.8 425 367.9
Aleris Corporation 229.1 249.4 265.1 253.7 Aleris Corporation 229.1 249.4 265.1 253.7
* Result is not meaningful.
(1) Finished product shipped excludes slab and billet sales from the Voerde and Koblenz cast houses.
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 $40 $48 $61 $52 $47 $54 $62 $45
(–) Income / (expense) from metal
price lag
1 4 (3) (1) 4 2 (5) (1)
Adj. EBITDA as reported $39 $45 $65 $53 $43 $52 $66 $46
4Q 2015 1Q 2016 2Q 2016 3Q 2016 4Q 2016 1Q 2017 2Q 2017 3Q 2017
Metal price lag impact on gross
profit
$0 $11 $6 $8 $8 $22 $8 ($5)
(+) Realized (losses) / gains on
metal derivatives
1 (7) (9) (9) (5) (19) (12) 4
Favorable / (unfavorable) metal
price lag net of realized
derivative gains / losses
$1 $4 ($3) ($1) $4 $2 ($5) ($1)