- Smelting Output Reduced 750,000 mtpy, or 18% of Output
Reducing Headcount by 13,500 (13% of Global Workforce) and an
Additional 1,700 Contractor Positions
- Freezing Salaries and Hiring
- Selling Four Non-Core Downstream Businesses
- Reducing 2009 Capital Expenditures by 50%
- Taking Advantage of New Sourcing For Raw Materials
Exchanging Equity Stakes with Orkla; Alcoa To Take 100% Ownership of 2
Elkem Smelters For its 45% Stake in SAPA
After-Tax Charges For 4Q 2008 Range from $900 to $950 Million, 80%
PITTSBURGH–Alcoa (NYSE:AA) today detailed a series of specific actions to conserve
cash, reduce costs and strengthen the Company’s competitiveness during
the current economic downturn. Building on the Company’s commitment from
October, these actions address additional production curtailments, cost
and procurement efficiencies, portfolio streamlining and reduction of
capital expenditures and other liquidity enhancements.
“These are extraordinary times, requiring speed and decisiveness to
address the current economic downturn, and flexibility and foresight to
be prepared for future uncertainties in our markets,” said Klaus
Kleinfeld, President and CEO of Alcoa Inc. “We are taking a wide-ranging
set of aggressive, but prudent, measures to ensure that Alcoa maintains
its competitive lead in today’s challenging markets while also emerging
even stronger when the economy recovers.”
Further smelting reductions of more than 135,000 metric tons per year
(mtpy) will be implemented resulting in reduction of total primary
aluminum output by more than 750,000 mtpy, or 18 percent of annualized
output. Alumina production will also be reduced accordingly across the
global refining system to a total of 1.5 million mtpy in response to
market conditions. Curtailments will be fully implemented by the end of
the first quarter 2009.
Cost and Procurement Efficiencies
Targeted reductions, curtailments and plant closures and consolidations
will reduce headcount by more than 13,500 employees or 13 percent of the
Company’s worldwide workforce by the end of 2009. An additional 1,700
contractor positions also will be eliminated. The Company has also
instituted a global salary and hiring freeze.
Accelerated procurement actions to address major input costs such as
energy, coke, caustic soda, and aluminum fluoride will provide
significant short term cash benefits. Initiatives to secure raw
materials from alternate suppliers globally are providing cost
advantages for several key inputs. These actions are expected to yield
savings of greater than 20 percent in each of the materials. Lower
market oil and gas prices also are having a positive impact.
Alcoa continued to make progress on its re-powering strategy and has
finalized and signed agreements to supply power through 2040 to three
smelters in Quebec that will benefit approximately 25% of the Company’s
smelting production. Nearly 80% of the Company’s capacity is now covered
by re-powering agreements and self generation through 2025 and the
Company is aggressively pursuing other efforts across its portfolio.
As previously announced, Alcoa and ORKLA ASA (Orkla) have agreed to
exchange their stakes in a Norwegian smelting partnership and a Swedish
extrusion joint venture in order to focus on their respective areas of
expertise and best practices. Alcoa will receive Orkla’s 50 percent
stake in Elkem Aluminum and Orkla will receive Alcoa’s 45 percent stake
in the SAPA extrusion profiles business.
Elkem Aluminum, which will be 100 percent owned by Alcoa following the
transaction, includes aluminum smelters in Lista and Mosjoen, Norway
with a combined output of 282,000 metric tons per year (mtpy). Included
in the transaction is Elkem’s stake in a newly opened anode plant in
Mosjoen in which Alcoa already holds an approximate 82 percent stake.
Alcoa also intends to divest four non-core downstream businesses:
Electrical and Electronic Systems; Global Foil; Cast Auto Wheels; and
Transportation Products Europe. The businesses to be sold had 2008
combined revenues of $1.8 billion and an estimated after-tax operating
loss of approximately $105 million. The businesses employ a combined
22,600 people at 38 locations. Expected net proceeds for the
divestitures are estimated to be approximately $100 million.
Capital Expenditures and Liquidity
Building on the previously announced initiative to conserve cash and
suspend the Company’s share repurchase program, the Company is stopping
all non-critical capital investment. Capital expenditures in 2009 are
projected to be down to $1.8 billion, a 50 percent decrease from 2008,
and will be $1.5 billion after partner contributions. Capital spending
includes approximately $750 million for the completion of key Brazilian
growth projects. The Sao Luis refinery expansion and the greenfield
Juruti bauxite mine are scheduled to be finished in the first half of
Total charges for the 4th quarter 2008 due to restructuring,
impairment and other special charges are expected to be between $900 and
$950 million after tax, or $1.13 to $1.19 per share, of which
approximately 80 percent is non-cash. The restructuring and divestiture
program is expected to save approximately $450 million before
taxes on an annualized basis.
“Because we recently completed an extensive competitive analysis,
including a strategic review of each business, we have been able to
quickly identify and implement effective responses that strengthen our
market competitiveness and financial staying power in the economic
downturn. We will continue to monitor the dynamic market situation to
ensure that we adjust capacity to meet any future changes in demand and
seize new opportunities that emerge. These are extraordinary times
requiring extraordinary actions,” said Mr. Kleinfeld.
Note: Detailed actions by segment and businesses are covered in the
Appendix to Press Release – 4th
Quarter Actions by Alcoa Organizations
Primary Metals and Alumina
Further smelting reductions of 135,000 metric tons per year (mtpy)
will be implemented resulting in reduction of total primary aluminum
output by more than 750,000 mtpy, or 18 percent of annualized output.
The combined curtailments include all smelting at the company’s Alcoa,
Tennessee Operations (rigid packaging division operations there are
not impacted). Alumina production will also be reduced accordingly
across the global refining system to a total of 1.5 million mtpy in
response to market conditions. Curtailments will be fully implemented
by the end of the first quarter 2009.
Cost reductions across the global primary metals and alumina
operations, including those associated with curtailments, affecting
approximately 2,600 employee and contractor positions.
To help further reduce Alcoa’s cost position, the Company finalized
new power agreements in Quebec through 2040. The agreements will
supply clean, renewable energy to all three of the Company’s aluminum
smelters in the province – Baie Comeau, Becancour (ABI), and
Deschambault — and enable Alcoa to upgrade and expand Baie Comeau
production. The agreements cover approximately 1.1 million mtpy, or
more than 25 percent of the Company’s production.
Significant progress has been made on the Alumar alumina refinery
expansion and the greenfield Juruti bauxite mine in Brazil and
both are nearing completion. When finished, Juruti and Alumar will
contribute to Alcoa’s world-class mining and refining system, moving
Alcoa into the lowest-cost quartile of the global cost curve.
Expenditures on the projects have been reduced by approximately $150
million through efficiencies and a strengthened U.S. dollar.
To further reduce costs, Alcoa has accelerated procurement actions to
address major input costs such as energy, coke, caustic soda, and
aluminum fluoride that will provide significant short term cash
benefits. These initiatives to secure raw materials from alternate
suppliers globally are providing cost advantages for several key
inputs and include developing new supply chains, primarily originating
in China, to lower its input costs for strategic raw materials. These
actions have generated savings of greater than 20% in each of the
materials. Lower market oil and gas prices also are having a positive
Actions taken and positioning by the Alumina and Primary businesses
over the last 90 days are expected to reduce operating costs by
Flat Rolled Products
The planned sale of the global foil business serving the industrial
and packaging markets.
Restructuring and downsizing of the Company’s Mill Products businesses
in Europe and North America resulting in the reduction of
approximately 900 positions.
Optimization of the Company’s global hard alloy extrusion production
operations serving a variety of markets, resulting in the elimination
of approximately 235 positions in the U.S. and Europe.
Alignment of production with demand at the Company’s Russian
operations impacting approximately 18 percent of the positions.
Engineered Products and Solutions
The planned sale of the Electrical and Electronic Systems business
(AEES) serving the automotive and heavy truck markets. In addition, in
order to address declining customer demand, the business is reducing
the number of positions across North America and Europe by
The planned sale of the Transportation Products Europe business
including operations in Italy, Hungary and Germany.
After these portfolio adjustments, revenue in Engineered Products &
Solutions derived from the automotive market will decrease from
approximately 20 percent to approximately five percent.
The exiting of the auto cast wheel business and subsequent
consolidation of the Beloit, WI facility employing approximately 265
by June 1, 2009. The company will continue to produce and market
Consolidation of operations in the building and construction systems
business to maximize operating efficiencies and align capacity with
the decline in the commercial building and construction segment.
Alignment of production with demand across the global Power and
Propulsion business has resulted in the layoff of approximately 1,100
The elimination of approximately 260 corporate staff and contractor
positions across the Company in order to reduce overhead serving
- The Company also has frozen hiring and salaries where possible.
The Company’s open market exposure to oil and gas will allow it to
benefit from falling prices, albeit on a lag basis.
Capital expenditures in 2009 are projected to be down to $1.8 billion,
a 50 percent decrease from 2008, and will be $1.5 billion after
partner contributions. Capital spending includes approximately $750
million for the completion of key Brazilian growth projects. The Sao
Luis refinery expansion and the greenfield Juruti bauxite mine are
scheduled to be finished in the first half of 2009.
Forward Looking Statement
Certain statements in this release relate to future events and
expectations and as such constitute forward-looking statements involving
known and unknown risks and uncertainties that may cause actual results,
performance or achievements of Alcoa to be different from those
expressed or implied in the forward-looking statements. Alcoa disclaims
any obligation to update publicly any forward-looking statements,
whether in response to new information, future events or otherwise,
except as required by applicable law. Important factors that could cause
actual results to differ materially from those in the forward-looking
statements include: (a) material adverse changes in economic or aluminum
industry conditions generally, including global supply and demand
conditions and fluctuations in London Metal Exchange-based prices for
primary aluminum and other products; (b) material adverse changes in the
markets served by Alcoa, including automotive and commercial
transportation, aerospace, building and construction, distribution,
packaging, and industrial gas turbine markets; (c) Alcoa’s inability to
achieve the level of cost reductions, cash generation or conservation,
return on capital improvement, improvement in profitability and margins,
or strengthening of operations anticipated by management in connection
with its restructuring activities; (d) continued volatility or
deterioration in the financial markets, including disruptions in the
commercial paper, capital and credit markets; (e) Alcoa’s inability to
mitigate impacts from increased energy, transportation and raw materials
costs, including caustic soda, calcined coke and natural gas, or from
other cost inflation; (f) Alcoa’s inability to complete its joint
venture or growth projects or achieve efficiency improvements at newly
constructed or acquired facilities as planned and by targeted completion
dates; (g) unfavorable changes in laws, governmental regulations or
policies, foreign currency exchange rates or competitive factors in the
countries in which Alcoa operates; (h) significant legal proceedings or
investigations adverse to Alcoa, including environmental, product
liability, safety and health and other claims; and (i) the other risk
factors summarized in Alcoa’s Form 10-K for the year ended December 31,
2007, Forms 10-Q for the quarters ended March 31, 2008, June 30, 2008
and September 30, 2008 and other reports filed with the Securities and