Attached files
| file | filename |
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| 8-K - 8-K - Aleris Corp | alerisform8-k1q18earningsr.htm |
| EX-99.1 - EXHIBIT 99.1 - Aleris Corp | a1q18earningsrelease.htm |
EARNINGS
PRESENTATION
First Quarter 2018
Aleris Corporation
May 3, 2018
2
Forward-Looking and Other Information
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, 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 operations, capital expenditures and debt service
obligations. 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 operations and 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 retain customers, a substantial number of whom do not have long-term contractual arrangements with us; (11) risks of investing in and conducting operations on a global basis, including political, social, economic, currency and regulatory factors; (12)
variability in general economic or political conditions on a global or regional basis; (13) current environmental liabilities and the cost of compliance with and liabilities under health and safety laws; (14) labor relations (i.e., disruptions, strikes or work stoppages)
and labor costs; (15) our internal controls over financial reporting and our disclosure controls and procedures may not prevent all possible errors that could occur; (16) 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; (17) our ability to access credit or capital markets; (18) the possibility that we may incur additional indebtedness in
the future; (19) limitations on operating our business and incurring additional indebtedness as a result of covenant restrictions under our indebtedness, and our ability to pay amounts due under our outstanding indebtedness; and (20) 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 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.
3
First Quarter Overview
Solid underlying performance with 1Q18 Adjusted EBITDA of
$54 million
– Strong B&C and global automotive demand
– Improved operational performance and productivity
– Higher rolling margins and favorable scrap spreads in
North America
– Increased automotive volumes in Europe unable to offset
aerospace destocking headwinds and weaker mix
Full $80 million capacity reservation fee received; final $20 million
received early in the second quarter of 2018
North American ABS project on-track, CALP I ramping up
commercial shipments, CALP II commissioning well underway
3% year over year Adjusted EBITDA growth
1Q Adjusted EBITDA ($M)
$52
$54
1Q181Q17
+3%
Adjusted EBITDA per ton ($/t)
$261 $256
1Q181Q17
4
Key Global End Uses
Aleris Volume Drivers
Demand remains favorable, driven by strong automotive growth
All major customers under 2018 commitments
HEX volume upside limited by available capacity until 2019
Continued benefits from strong Europe demand and less
European capacity reserved to support North America in 2018
Growth in North America driven by commercial ABS shipments
Customer commitments in place for 2H18 ramp up
Heat
Exchanger
Automotive
Continued industry destocking, unfavorable product mix and
weaker spot pricing affected results
Strategic Zhenjiang mill continues to increase aerospace volumes
Long-term fundamentals and backlogs remain robust
New multi-year supply agreements in place with all major OEMs
Continue to expect return to volume growth in 2H18
Aerospace
1Q YoY Growth
1%
28%
(2%)
5
Favorable industry demand trends with single family
housing starts
Strong operational performance from Aleris B&C facilities
N.A.
Building &
Construction
Cyclical demand remains low
Uptick in demand underway
N.A.
Truck Trailer
Focus on value-added product mix
Ongoing uncertainty due to elevated LME prices
Solid economic fundamentals
EU Regional
Commercial
Plate & Sheet
Prior year sales affected by strategic build of inventory in
advance of Lewisport’s outage
Overall customer demand environment remains favorable
N.A.
Distribution
7%
8%
(4%)
2%
1Q YoY Growth
Key Regional End Uses
Aleris Volume Drivers
6
Adjusted EBITDA Bridges
$52
$54
$10
$7
30
35
40
45
50
55
60
Base InflationCommodity Inflation
($4)
ProductivityPrice /
Metal Spreads
1Q18
($3)
($6)
Currency/
Translation/
Other
($2)
1Q17 Volume / Mix
1Q18 vs. 1Q17
($M)
7
North America
Segment Adjusted EBITDA ($M)Volume (kT)
1Q18 Performance1Q Adjusted EBITDA Bridge ($M)
115 120
4%
1Q17 1Q18
$23
$34
1Q17 1Q18
Adj. EBITDA / ton
$203 $285
Higher B&C, distribution and automotive volumes partially offset
by weaker transportation volumes; better overall product mix
Favorable scrap spreads resulting from rising aluminum prices,
improved scrap availability and strategic metal purchasing
Improved rolling margins, better Adjusted EBITDA/ton
Productivity gains from improved operational performance
partially offset base wage inflation and substantially higher
freight costs
$3
$11 $3
$34
$23
0
5
10
15
20
25
30
35
40
1Q18ProductivityBase Inflation
($3)
($3)
Price / Metal
Spreads
Volume / Mix Commodity
Inflation
1Q17
8
$0.95
$0.80
$0.15
$0.75
$1.10
$1.05
$1.15
$0.25
$0.20
$0.85
$0.90
$1.20
$1.00
$0.70
$0.35
$0.30
$0.40
$0.45
Sep
2016
Mar
2015
Dec
2014
Mar
2017
Jun
2015
Dec
2015
Sep
2015
Sep
2017
Jun
2017
Jun
2016
Dec
2016
Dec
2017
Mar
2016
Mar
2018
Metal Update
Ongoing historically high metal spreads and favorable scrap trends
Weighted Painted Siding, Mixed Low Copper, Sheet SpreadP1020 (left axis)
1Platts, Aleris Management Analysis, April 2018
9
Europe
Segment Adjusted EBITDA ($M)Volume (kT)
1Q18 Performance1Q Adjusted EBITDA Bridge ($M)
80 85
1Q17 1Q18
7%
$37
$27
1Q17 1Q18
Adj. EBITDA / ton
$468 $315
Unfavorable aerospace mix and continued aerospace
destocking, partially offset by increased automotive volumes
Unfavorable cost absorption resulting from working capital
optimization initiatives impacted volume/mix by $5 million
Lower rolling margins from lower spot prices in aerospace and
unfavorable product mix with customers; lower automotive
rolling margins more than offset by better volumes
Improved operational stability and cost optimization more than
offset inflation
FX headwinds continue to persist with weaker U.S. dollar
$27
$6
$37
15
20
25
30
35
40
Currency/
Translation/
Other
($1)
Base Inflation
($3)
Commodity
Inflation
1Q17 Productivity 1Q18Price / Metal
Spreads
($4)
($7)
($1)
Volume / Mix
10
Asia Pacific
Segment Adjusted EBITDA ($M)Volume (kT)
1Q18 Performance1Q Adjusted EBITDA Bridge ($M)
5 6
17%
4Q16 4Q17
$1
$2
1Q181Q17
Adj. EBITDA / ton
$170 $334
Strong growth in aerospace volumes and growth in commercial
plate
Rolling margins stable after pressure in 2017
Operational performance reflected in volume growth and
favorable productivity
Negative impact from FX with weaker U.S. dollar
$1
$2
$2
$1
0
2
4
1Q17 Currency/
Translation/
Other
Commodity
Inflation
$0
Price / Metal
Spreads
ProductivityBase Inflation
$0
Volume / Mix 1Q18
($2)$0
11
Cash Flow and LTM Working Capital
Balancing ABS project inventory needs and cash flow
Total LTM Working Capital Days1Net Cash Flow ($M)
1Q17 1Q18
Cash Provided / (Used) by Operating Activities ($39) ($35)
Capital Expenditures (63) (30)
Net Cash Before Financing ($102) ($65)
71
78 78
22%
19%
22%
50
55
60
65
70
75
80
1Q1820172016
% of SalesDays
Higher LME increasing working capital investment
Additional inventory for ABS commissioning/qualification
Increasing operational stability in Europe driving improvements
12
Capital Structure & Liquidity Overview
CapEx continuing to ramp down, all capacity reservation fees now received
Liquidity Summary ($M)Capital Expenditures Summary ($M)1
Capital Structure ($M)
$82 $96 $88 $74
$53
$14
$201
$276
$148
$23
$107
2016
$358
1Q18
$30
$6
2018E
$125 - $1402
2017
$208
$7
$8
2015
$298
$10
$188
$121
20142013
$1
North America ABS Project & Other UpgradesOther Growth Maintenance
1Excludes discontinued operations CapEx of $50M, $43M, $15M in 2013-2015
2Guidance does not include capitalized interest
3Includes $6M of restricted cash for China Loan Facility payments
4Does not include benefit of $20M of customer capacity fees received early in 2Q 2018
5Amounts exclude applicable premiums and discounts
6Other excludes $45M of exchangeable notes
7See prior SEC filing for applicable reconciliations to GAAP financial measures
8Excludes Non-Recourse China Loan Facilities
9Secured 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
3/31/2018
Cash and Restricted Cash3 $85
ABL 366
Notes5 1,240
Non-Recourse China Loan Facilities5 173
Other5,6 9
Net Debt $1,703
LTM Adjusted EBITDA7 $202
Net Debt / LTM Adj. EBITDA 8.4x
Net Recourse Debt8 / LTM Adj. EBITDA 7.5x
Net Secured Debt9 / LTM Adj. EBITDA 5.8x
3/31/2018
Cash and Restricted Cash3 $85
Availability under ABL Facility 158
Liquidity $2434
13
Outlook
Second quarter segment income and Adjusted EBITDA expected to be meaningfully higher than
the second quarter of 2017 from anticipated increases in global automotive and North America
building and construction and distribution volumes, as well as favorable metal spreads
Continue to expect that full year 2018 segment income and Adjusted EBITDA will be substantially
higher than prior year
Commercial shipments from new North America automotive assets are expected to show
significant ramp up in second half of 2018 based on committed volumes
Global aerospace volumes expected to benefit from higher aircraft production rates and new
global, multi-year customer contracts after inventory destocking subsides, anticipated in the
second half of the year
European automotive volume expected to benefit from new model launches
Favorable year-over-year scrap spreads expected in North America, particularly through the
second quarter of 2018
A weaker U.S. dollar will negatively impact results in 2018
14
APPENDIX
15
1Q Adjusted EBITDA Reconciliation
($M)
2018 2017
Adjusted EBITDA 53.6$ 51.8$
Unrealized gains (losses) on derivative financial instruments 33.7 (7.8)
Restructuring charges (0.9) (0.4)
Unallocated currency exchange gains on debt 1.1 —
Stock-based compensation expense (0.3) (0.6)
Start-up costs (16.0) (14.5)
Favorable metal price lag 9.0 2.1
Other (1.7) (2.3)
EBITDA 78.5$ 28.3$
Interest expense, net (33.8) (27.1)
Provision for income taxes (5.4) (10.7)
Depreciation and amortization (34.7) (25.7)
Net income (loss) 4.6$ (35.2)$
For the three months ended
March 31,
16
1Q Adjusted EBITDA Reconciliation by Segment
($M)
1Amounts may not foot as they represent the calculated totals based on actual amounts and not the rounded amounts presented in this table
2018 2017
North America
Segment income 41.5$ 24.2$
Favorable metal price lag (7.4) (0.9)
Segment Adjusted EBITDA1 34.1$ 23.3$
Europe
Segment income 28.3$ 38.0$
Favorable metal price lag (1.4) (0.7)
Segment Adjusted EBITDA1 26.9$ 37.3$
Asia Pacific
Segment income 2.3$ 1.4$
Favorable metal price lag (0.2) (0.5)
Segment Adjusted EBITDA1 2.1$ 0.9$
For the three months ended
March 31,
17
2018 2017
Metric tons of finished product shipped:
North America 119.5 114.5
Europe 85.4 79.7
Asia Pacific 6.4 5.5
Intra-entity shipments (2.0) (1.4)
Total metric tons of finished product shipped 209.3 198.3
Segment Adjusted EBITDA:1
North America2 34.1$ 23.3$
Europe 26.9 37.3
Asia Pacific 2.1 0.9
Corporate (9.5) (9.7)
Total Adjusted EBITDA 53.6$ 51.8$
Segment Adjusted EBITDA per metric ton shipped:
North America 285.1$ 203.2$
Europe 315.1$ 467.8$
Asia Pacific 333.6$ 170.4$
Aleris Corporation 256.3$ 261.4$
For the three months ended
March 31,
1Q Adjusted EBITDA Per Ton Reconciliation
1See prior slides for a reconciliation to the applicable GAAP financial measures
2Segment Adjusted EBITDA excludes start-up operating expenses and losses incurred during the start-up period. For the three months ended March 31, 2018 and 2017, start-up costs were $14.5 million and $13.0 million, respectively
($M)
18
Metal Hedging Practices
Robust risk management discipline minimizes commodity price exposure
Risk Mitigation Strategy Impact
LME and regional premium volatility
(inventory exposure)
Forward price sales
Pass through pricing and tolling
Minimize inventory levels
Sell 100% of open inventory forward
Match sales with physical purchases or LME forwards
Attempt to minimize LT fixed price sales
Lowers margin volatility
Minimizes earnings impact
Risk limited to turn of inventory (“metal lag”)
Locks in rolling margin
Reduces multiyear dated derivatives
Adjusted EBITDA vs. Metal Price Lag
2Q 2016 3Q 2016 4Q 2016 1Q 2017 2Q 2017 3Q 2017 4Q 2017 1Q 2018
Metal price lag impact on gross profit $6 $8 $8 $22 $8 ($5) $16 $10
(+) Realized (losses) / gains on metal
derivatives (9) (9) (5) (19) (12) 4 (19) (1)
Favorable / (unfavorable) metal price lag
net of realized derivative gains / losses ($3) ($1) $4 $2 ($5) ($1) ($3) $9
Adj. EBITDA including metal lag $61 $52 $47 $54 $62 $45 $34 $63
(–) Income / (expense) from metal price lag (3) (1) 4 2 (5) (1) (3) 9
Adj. EBITDA as reported $65 $53 $43 $52 $66 $46 $37 $54