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Alcoa Posts Losses amid Declining Aluminium Prices

Alcoa Posts Losses amid Declining Aluminium Prices
Jan 12, 2016 By Simon Herrmann Tags: AAI

The lightweight metals company Alcoa Inc. (ASX:AAI) reported $500 million loss in 4Q15. The earnings were impacted by the rout in commodity prices.

Alcoa also stated that revenue decreased 6% during FY15 as compared to the previous year. The full year net loss was reported $121 million, as compared to net income of $268 million in 2014. 

The company achieved $1.2 billion in productivity savings, which exceeded a $900 million annual target.  Alcoa controlled sustaining capital expenditures of $605 million against a $725 million target. The debt-adjusted EBITDA ratio of 2.80 was also slightly above the target range.

According to the announcement, Alcoa managed to achieve 7% revenue through organic growth in aerospace and acquisitions, conversely the gains were offset by a 25% revenue decline due to lower alumina and aluminium prices. The unfavourable currency movements also acted as deterrents to the company’s profitability.

Alcoa plans to separate itself into two publicly traded companies in the second half of 2016. After the separation, the innovation and technology driven Value-Add Company is expected to deliver $650 million in 2016, while the Upstream Company is expected to deliver $600 million by the end of the year.

The Value-Add Company will include Global Rolled Products, which comprises of the production and sale of aluminium plate, sheet and foil. Engineering products, solutions and transportation and construction solutions will also be a part of the company.

The Upstream business will comprise of five business unites that make up the Global Primary Products: bauxite, alumina, aluminium, cast products and energy.

Alcoa’s Chairman and Chief Executive Officer highlighted the impact of lower commodity prices: “2015 was a pivotal year for Alcoa, we substantially strengthened our aerospace offerings through innovations and acquisitions and our customers responded favourably, awarding us $9 billion in aerospace contracts; and we continued to ramp up our automotive business and shift the midstream to a higher-margin product mix. In the upstream, we faced harsh headwinds with prices for alumina down 43% and aluminium down 28%. As a result of our closures, curtailments, productivity actions and new business structure we improved competitiveness and strengthened the portfolio. We are fully on track to launch two strong, standalone companies in the second half of 2016.”

Alcoa expects its aerospace sales to increase 8 to 9 percent during 2016, due to a robust demand for commercial aircraft and jet engines. It also expects its global production to increase in the range of 1 to 4 percent in the automotive department. Alcoa projects the global aluminium demand to increase by 6% by the end of FY16.

AAI last traded at $12:10 as at 3:00 PM (AEDT) and has lost 40% in the past year.

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Simon Herrmann Author: Simon Herrmann Jan 12, 2016

Simon is a financial analyst at independent research firm Wise-owl specialised in small-mid cap growth opportunities and ethical investment opportunities. Simon's aim is to disrupt the cliché approach to investment decision making as he believes that socially and environmentally responsible behaviour is a necessity to long-term wealth creation. Simon has a deep fundamental understanding of the global financial landscape and has compiled 300+ research reports, valuations and corporate appraisals. Simon is commonly featured in major media outlets and his research is published weekly in The Australian.

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