Alcoa 2010 Annual Report Download - page 3

It has been said that success happens at the moment when preparation meets opportunity. For Alcoa, 2010 was a year of great opportunity and promise
for the future. We were able to seize that opportunity because we were well prepared.
Our preparations began in early 2008, when we developed Three Strategic Priorities to guide Alcoa for the future: Profi table Growth, the Alcoa
Advantage and Disciplined Execution. To achieve Profi table Growth, we restructured our cost base and reshaped our portfolio to focus on businesses
that were number one or two in their markets. The Alcoa Advantage highlighted fi ve corporate levers that provide distinctive competitive advantages
to our businesses: talent, technology, customers, procurement and operating system. Disciplined Execution focused on using those advantages to
create a high performance culture across Alcoa.
Little did we know that in a few months a sharp drop in the price of aluminum and widespread destruction of demand from our customers would test
our strategic priorities. The successes of 2010, which put Alcoa on the road to profi table growth, are due to the application of those three priorities.
Preparation met opportunity.
We used the circumstances of the global fi nancial crisis to strengthen our cost structure and cash position. Building on the concept that “necessity is
the mother of invention,” in early 2009 we put in place a Cash Sustainability Program to reverse the cash drain caused by the sharp drop in the London
Metal Exchange aluminum price and demand destruction in many of our end markets. Thanks to our disciplined execution of that program during the
crisis, Alcoa returned to cash-neutral by the end of 2009, and ended 2010 with strong cash fl ow.
The Cash Sustainability Program has proven to be far more than a one-time, “quick fi x” for a challenging time. Rather, it has instilled a Company-wide
discipline in cash and cost management that will ensure Alcoa’s long-term viability and success. It drew heavily on our Strategic Priorities.
• We tapped into the Procurement Advantage in a major way. We committed to $1.5 billion in savings in 2009, and to $2.0 billion in savings in
2010. Through the team effort of many Alcoans, we achieved the $2.0 billion target by the end of 2009. Not satisfi ed with simply continuing
this performance, we increased the 2010 target to
$2.5 billion, and we handily beat that number in
spite of signifi cant headwinds coming from material
cost increases and currency exchange rates.
• The story is similar with overhead. We had promised
that we would reach $200 million in overhead cost
reductions in 2009 and $400 million by 2010. Again,
we beat the two-year target in 2009, increased the
2010 target by $100 million, and exceeded that
goal as well.
• We committed to dramatically limit the use of
capital, reducing total capital expenditures to $1.8
billion in 2009, and to $1.25 billion in 2010. We
achieved both of these targets.
• We achieved a total reduction of 13 days
working capital over the last two years, which is
approximately a 30% reduction.
Alcoa 2010 Annual Report and Form 10-K 1
Klaus Kleinfeld
Chairman and Chief Executive Offi cer
1Procurement and other productivity
2010 Cash Sustainability Operational Targets and Actual Performanc
e
2Total Capex includes investments in Ma’aden project
Procurement1
2010
Actual
2010
Target
$ Millions
$2,643
$2,500
2 643
2010
Actual
2010
Target
$ Millions
Overhead
$509 $500
509
$
2010
Actual
2010
Target
$ Millions
Total Capex2
$1,212 $1,250
$1 250
2010
Actual
2010
Target
Days Working Capital
Working Capital
34 35
35
Exceeded All Cash Sustainability Targets