Attached files
| file | filename |
|---|---|
| EX-99.1 - EXHIBIT 99.1 - Aleris Corp | a1q17earningsrelease.htm |
| 8-K - 8-K - Aleris Corp | alerisform8-k1q17earningsr.htm |
1
First Quarter 2017
Earnings Presentation May 4, 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.
Forward-Looking and Other Information
3
First Quarter Overview
1Q Adjusted EBITDA ($M)
$45
$52
1Q16 1Q17
Adjusted EBITDA per ton ($/t)
$217
$261
1Q16 1Q17
1Q17 Adjusted EBITDA of $52M
Adjusted EBITDA and Adjusted EBITDA per ton up
YoY despite lower volumes in 1Q
– Improved operating performance and
productivity
– Favorable metal and metal spread environment
– North America ABS Project unfavorably
impacted distribution volumes
– Solid mix upgrades in Europe and regional
commercial plate in China helped offset impact
of aerospace destocking
Continued progress on North America ABS Project;
remains on track for customer milestones
Regulatory review of acquisition by Zhongwang USA
LLC still ongoing
16% year over year Adjusted EBITDA growth
4
Key Global End Uses
1IHS Global Insights, April 2017
Ongoing industry destocking
Partially offset by growth in Asia PacificAerospace
Overall stable demand
1Q volume tied to program timing delays
EU Premium Auto builds up 7%1
Automotive
Order book improving
HEX volume upside limited by available
capacity
Heat
Exchanger
Aleris Volume Drivers
1Q YoY
Growth
(5%)
(5%)
(1%)
5
Key Regional End Uses
Continued healthy industry demand
Single family starts trending positively
N.A.
Building &
Construction
3%
Expected declines after cyclical peak
Volumes beginning to stabilize and
up sequentially
N.A.
Truck Trailer
Regional demand continues to be
stable
Ongoing product/mix upgrades
EU Regional
Commercial
Plate & Sheet
Overall end-use demand solid
1Q mill time balanced between current
demand and demand during 2Q/3Q
outage
N.A.
Distribution (18%)
(10%)
4%
Aleris Volume Drivers
1Q YoY
Growth
6
Project remains on target for 2017 ABS shipments
Deployed approximately $376M as of 1Q17 for North America ABS Project in Lewisport
CALP I qualification process on schedule; CALP II installation nearing completion and will begin commissioning in 2Q
New wide cold mill running qualification coils and in production in 2Q
Hitting key customer milestones for successful project delivery
North America ABS Project Update
2014 2015 2016 2017E
$13 $153 $185 $74
AUTOMOTIVE BODY SHEET (ABS) PROJECT CAPEX ($M)
First CALP Line Wide Cold Mill
1Q17
$25
Second CALP Line
7
Adjusted EBITDA Bridge
$3
$5
$3
$2
$52
$45
35
40
45
50
55
1Q17Currency/
Translation/
Other
ProductivityPrice
($2)
Volume/Mix1Q16
$0
Base
Inflation
($4)
Commodity
Inflation
Metal
Spreads
($M)
1Q17 vs. 1Q16
8
North America
Higher B&C and strong non-CALP auto volumes
offset by weaker distribution and truck trailer
volumes
Improvement in metal spread environment with
better scrap flow
Lewisport hot mill capacity allocated to strategic
inventory build ahead of extended outage
Productivity offset increased labor expenses
Volume (kT) Segment Adjusted EBITDA ($M)
1Q17 Performance1Q Adjusted EBITDA Bridge ($M)
120 115
1Q16 1Q17
(4%)
$21 $23
1Q16 1Q17
Adj. EBITDA / ton
$173 $203
$21
$3
$4
$2
$23
$24
$26
$22
$20
$16
$18
1Q16 Volume/Mix
($2)
Productivity 1Q17Base
Inflation
($2)
Commodity
Inflation
($3)
Metal
Spreads
Price
9
Ongoing improvement in metal spreads and scrap trends
Metal Update
$0.30
$0.25
$0.20
$0.35
$1.00
$0.95
$0.90
$0.85
$0.15
$1.10
$1.05
$0.80
$0.75
$0.70
Dec
2016
Sep
2016
Jun
2016
Mar
2016
Dec
2015
Sep
2015
Jun
2015
Mar
2015
Dec
2014
Mar
2017
1Platts, Aleris Management Analysis, April 2017
P1020 (left axis) Weighted Painted Siding, Mixed Low Copper, Sheet Spread
North America Scrap Spreads1
10
$33
$3
$2
$3
$37
$1
$36
$40
$28
$32
1Q17Currency/
Translation/
Other
ProductivityBase
Inflation
($2)
Commodity
Inflation
Metal
Spreads
($1)
Price
($1)
Volume/Mix1Q16
Europe
Volumes lower primarily due to aerospace
destocking and weaker than normal 1Q auto
Coil & sheet mix improvements helped offset impact
from aerospace and automotive volume declines
Productivity gains driven by better operational
stability
Currency benefits with stronger dollar
Volume (kT) Segment Adjusted EBITDA ($M)
1Q17 Performance1Q Adjusted EBITDA Bridge ($M)
82 80
(3%)
1Q171Q16
$33 $37
1Q16 1Q17
Adj. EBITDA / ton
$398 $468
11
Asia Pacific
Seasonally lower demand due to spring festival/
New Year
Growth in both aerospace and commercial plate
volumes
Lower rolling margins
Productivity and cost leverage more than offset
base inflation
Currency benefits with stronger dollar
Volume (kT) Segment Adjusted EBITDA ($M)
1Q17 Performance1Q Adjusted EBITDA Bridge ($M)
$0.5
$0.7
$0.9$0.9
$0.0
$2.0
$1.5
$1.0
$0.5
($0.5)
Metal
Spreads
Price
$0.9
($0.2)
1Q17Currency/
Translation/
Other
ProductivityBase
Inflation
Volume/Mix
($1.9)
1Q16
$0.1
Commodity
Inflation
$0.0
5 6
1Q16
12%
1Q17
$1$1
1Q171Q16
Adj. EBITDA / ton
$181 $170
12
Cash Flow and LTM Working Capital
Net Cash Flow ($M)
76
71 70
20%19%
21%
50
55
60
65
70
75
80
1Q1720162015
Total LTM Working Capital Days1
1Pro forma for divestitures of Global Recycling and Extrusions businesses
1Q16 1Q17
Cash provided (used) by Operating Activities $11 ($39)
Capital Expenditures (122) (63)
Other (0) (0)
Net Cash Before Financing ($111) ($102)
Higher LME increasing working capital investment
Higher than normal North America inventory build
to accommodate upcoming Lewisport outage in
2Q and 3Q
Long term opportunity; balancing project ramp-up and cash flow
% of SalesDays
13
Capital expenditures ramping down in 2017
Capital & Liquidity Overview
3/31/2017
Cash and Restricted Cash3 $78
Availability under ABL Facility 315
Liquidity $394
Capital Structure ($M)
Liquidity Summary ($M)
$82 $96 $88 $74
$201
$276
$169
$43
$107
$10
2014
$121
$14
2013
$188
1Q17
$63
$16
$3
2017E
$240-$2502
$57-$67
$14
2016
$358
$8
2015
$298
Maintenance
North America ABS Project & Other Upgrades
Other Growth
Capital Expenditures Summary ($M)1
1Excludes discontinued operations CapEx of $50M, $43M, $15M in 2013-2015
2Guidance does not include capitalized interest
3Includes $3M 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
Cash and Restricted Cash3 $78
ABL 121
Notes4 1,240
Non-Recourse China Loan Facilities4 186
Other4,5 6
Net Debt $1,475
LTM Adjusted EBITDA6 $212
Net Debt / LTM Adj. EBITDA 6.9x
Net Recourse Debt7 / LTM Adj. EBITDA 6.1x
Net Secured Debt8 / LTM Adj. EBITDA 4.0x
14
Overall very pleased with the results in 1Q
– Operational excellence and productivity
– Solid North America building & construction and scrap environment
– Solid mix upgrade in Europe helped offset aero destocking
– Excellent progress on all fronts with Lewisport transformation
Segment income and Adjusted EBITDA expected to be in line with the second
quarter of 2016
– Continued demand growth for North America building and construction
– Favorable scrap spreads resulting from higher aluminum prices
– Impact of Lewisport outage, which is expected to begin in mid-June
– Europe to be unfavorably impacted by continued aerospace destocking
Wrap Up & 2Q 2017 Outlook
15
Appendix
16
1Q Adjusted EBITDA Reconciliation
($M)
2017 2016
Adjusted EBITDA $51.8 $44.5
Unrealized (losses) gains on derivative financial instruments (7.8) 9.2
Restructuring charges (0.4) (0.8)
Unallocated currency exchange gains on debt — 0.1
Stock-based compensation expense (0.6) (1.7)
Start-up costs (14.5) (6.3)
Favorable metal price lag 2.1 3.8
Other (2.3) (2.0)
EBITDA 28.3 46.8
Interest expense, net (27.1) (18.1)
Provision for income taxes (10.7) (8.7)
Depreciation and amortization (25.7) (26.3)
Net loss ($35.2) ($6.3)
For the three months ended
March 31,
17
1Q Adjusted EBITDA Reconciliation by Segment
($M)
1Amounts may not foot as they represent the calculated totals based on actual amounts and not the rounded amounts presented in this table
2017 2016
North America
Segment income $24.2 $24.2
Favorable metal price lag (0.9) (3.4)
Segment Adjusted EBITDA1 $23.3 $20.7
Europe
Segment income $38.0 $32.9
Favorable metal price lag (0.7) (0.3)
Segment Adjusted EBITDA1 $37.3 $32.6
Asia Pacific
Segment income $1.4 $0.9
Favorable metal price lag (0.5) —
Segment Adjusted EBITDA1 $0.9 $0.9
For the three months ended
March 31,
18
1Q Adjusted EBITDA Per Ton Reconciliation
($M, except per ton measures, volume in thousands of tons)
1See prior slides for a reconciliation to the applicable GAAP financial measures
2017 2016
Metric tons of finished product shipped:
North America 114.8 119.8
Europe 79.7 82.0
Asia Pacific 5.5 4.9
Intra-entity shipments (1.4) (1.4)
Total metric tons of finished product shipped 198.6 205.3
Segment Adjusted EBITDA:1
North America $23.3 $20.7
Europe $37.3 $32.6
Asia Pacific $0.9 $0.9
Corporate ($9.7) ($9.7)
Total Adjusted EBITDA $51.8 $44.5
Segment Adjusted EBITDA per metric ton:
North America $202.6 $172.9
Europe $467.8 $397.9
Asia Pacific $170.3 $180.9
Aleris Corporation $260.9 $216.8
For the three months ended
March 31,
19
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 ImpactMitigation 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 $39 $64 $40 $48 $61 $52 $47 $54
(–) Income / (expense) from metal
price lag (22) (4) 1 4 (3) (1) 4 2
Adj. EBITDA as reported $60 $68 $39 $45 $65 $53 $43 $52
2Q 2015 3Q 2015 4Q 2015 1Q 2016 2Q 2016 3Q 2016 4Q 2016 1Q 2017
Metal price lag impact on gross
profit ($16) ($24) $0 $11 $6 $8 $8 $22
(+) Realized (losses) / gains on
metal derivatives (6) 20 1 (7) (9) (9) (5) (19)
Favorable / (unfavorable) metal
price lag net of realized
derivative gains / losses
($22) ($4) $1 $4 ($3) ($1) $4 $2