Alcoa 2013 Annual Report Download - page 4

It’s fitting that in Alcoa’s 125th anniversary year our Company marks
a major transformation from a commodity focus to a growing emphasis
on our value-add businesses. In making this shift, we are building
on the legacy of customer innovation and solid business principles
we inherited from our investor-founder, Charles Martin Hall, and his
business partner and sister, Julia Hall.
As the Halls developed customer applications for our aluminum
“miracle metal,” they partnered with other inventors and business
leaders, such as the Wright brothers and Henry Ford, to launch the
aviation and automotive industries. Since then, Alcoa has helped
a wide variety of industries grow and prosper. With Alcoa metals
building the rockets, satellites and exploration vehicles that opened up
outer space and the airplanes that changed the face of international
transportation and commerce, the Wright brothers’ aviation business
grew into a broad aerospace industry. A major shift to aluminum
in cars, trucks, buses and railcars contributes to the profitability of
the automotive, travel and leisure, mass transit and commercial
transportation industries. Alcoa is also breaking new ground in
commercial construction, packaging and consumer electronics, with
innovative contributions in areas ranging from “green buildings” to
stylish smart phones to shaped aluminum bottles.
Alcoa’s metallurgical innovations are driving the growth of our value-
add businesses, which in 2013 generated 57% of Alcoa’s revenues
and 80% of our segment profits, a 10-percentage point profit increase
over 2012. Thanks to the shift towards value-add businesses and our
expanded use of a variety of metals and materials, Alcoa was better
positioned than other aluminum producers to offset the 9% drop in
the average aluminum price on the London Metal Exchange (LME)
and the cost headwinds that negatively affected our industry in 2013.
Our Cash Sustainability Program for 2013 drove Alcoa’s profitable
growth with productivity gains of $1.1 billion. Since we started
this program as a response to the economic crisis in 2008, we’ve
had $6.7 billion in productivity gains and a reduction of 23 days of
working capital worth $1.4 billion. We could not have achieved that
level of productivity and cash flow generation without the continued
commitment and hard work of every Alcoan. Since 2006, we’ve seen
Alcoa’s employee engagement, as measured by a national survey
firm, rise 25 percentage points. Across the entire talent spectrum, we
are attracting, developing and advancing our employees. They are
laying the groundwork today that will drive Alcoa’s success for many
generations to come, as the generations before us have done for us.
Our investments in our people, their ingenuity and hard work, the
continued success of our Cash Sustainability Program and our
portfolio shift to value-add businesses are all reflected in Alcoa’s total
shareholder return, or TSR. In 2013, Alcoa’s TSR was more than 45
percentage points better than the TSR of its aluminum industry peers*.
A major factor in Alcoa’s success during the downturn was an
accelerated focus on innovation to help our customers withstand the
impact of the economic crisis. Our customers have thanked us by giving
us higher market shares, allowing us to buffer the impact of shrinking
markets. Now, as the markets improve, we are starting to benefit from
our strengthened position in virtually every one of our end markets.
Responding to Alcoa’s innovation leadership, Ford Motor Company
chose Alcoa as a major supplier for the 2015 Ford F-150, the new
version of the highest selling vehicle in the United States. The 2015
F-150 is tougher, safer and smarter than ever, with an all-new high-
strength, military-grade aluminum alloy throughout the body, which
improves dent and ding resistance while saving as much as 700
pounds. The lighter weight gives Ford’s truck customers improved
towing and payload and better fuel efficiency. As the automotive
industry follows Ford’s lead, we are accelerating our research and
development in lightweighting automotive technologies, investing in
plant expansions in Iowa and Tennessee and building a rolling mill
in Saudi Arabia. Alcoa will be providing the innovative solutions our
customers will want to become more competitive.
The experience of Alcoa’s wheels business shows how innovation
drives growth once aluminum gets a foothold in replacing other
materials. Initially, trucking fleets started replacing steel with
aluminum wheels to achieve a 35% weight reduction that resulted
in up to 5% lower fuel costs. Since then our wheels team, with the
help of the Alcoa Technical Center, has been launching a progression
of innovations that widen our lead over both steel and aluminum
competitors. Our current LvL ONE™ wheels are now 41% lighter
and carry up to 3% greater payload than a truck and trailer using
steel wheels. Six times brighter than our aluminum competitors’
wheels, they have strong aesthetic appeal and because they are
corrosion resistant and don’t require chemical cleaning, they lower
our customers’ maintenance and operating costs. This year we will
introduce a wheel built from our new MagnaForce™ alloy that is 17%
stronger and will increase our weight reduction versus steel to 47%,
// Advancing
each generation
Klaus Kleinfeld
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
2
* Aluminum peers include aluminum and alumina producing companies with a market
capitalization of at least $3 billion (as of 2010) and some publicly traded shares: Aluminum
Corporation of China Limited, United Company RUSAL, Norsk Hydro ASA, Alumina Limited,
National Aluminium Company Limited and Shandong Nanshan Aluminum Co., Ltd.